Climate Change and National Budgets A relationship that matters

1. Climate Change and NationalBudgets A relationshipthatmatters Kevork Baboyan Governance and PFM Specialist

2. Why do we care about the Budget? • Public expenditures represent on average 30 percent of GDP in Emerging Asia (source: IMF). Ensuring that these public investments and services contribute of national climate change mitigation and adaptation objectives and international commitment under the Paris Agreement is crucial. • International Climate Change Public Finance while important will not be sufficient. (“Fight for It but Do not Depend on It”!) • The fiscal and subsidy policies embedded in the budget are crucial to incentivize private behavior and leverage private sector investments.

3. Main Diagnostic:A Deep Disconnect Between CC Policy Framework and Budgets Medium Term& Annual Budgeting Processes CC Planning Landscape in last 15 Years • CC Strategic Plans (CCSPs) • CC Strategic Action Plans (CCSAPs) • National CC Action Plans (NCCAPs) • National Adaptation Plan for Actions (NAPAs) • National Adaptation Plans (NAPs) • Nationally Determined Contributionss • Medium Fiscal Framework (MFF) • Medium Term Budget Framework (MTBF) • Medium Term Expenditure Framework (MTEF) • Annual Budget

4. Reconnecting the Plan and the Budget: Start to Identify and the Climate Spend in the Budget versus the National CC Action Plan

5. Monitoring the progress in the implementation of the NCCAP through the national budget: Ex. Of Bangladesh Integration in FMIS. Measurement as part of the Budget Process Climate Budget Report Present to Parliament

6. Assessing Climate Spending Allocation Pattern Alignment with the NCCAP. Ex: Cambodia Need vs Allocation Patterns. Integrating Budget and ODA date Third Edition of the Climate Budget Report • In Cambodia, in 2016, 92 percent of what should have been allocated for climate change was allocated at aggregate level. However, there were disparities between the needs as identified in the CCSPs and the actual allocations. Source: Ministry of Economy and Finance, CPER 2018

7. Assess the Credibility of Budgeted Climate Change Programs Integration in FMIS. Measurement as part of the Budget Process Both allocation and expenditure tagged. • Help them assess “the rate of absorption” of climate change spending. Example from Indonesia: • Absorption Rate in Indonesia in 2016 (in trillion IDR) Source: Analysis Report on Climate Mitigation Budget, MoF

8. Reconnecting the Plan and the Budget: Connecting the Sectoral Planning and the Budget in line with the NCCAP Dynamic System Consistency Information flows Feedback Loops

9. Central Agencies: Planning Finance Plan-Budget Connection Processes and Instruments in need of Reform to achieve the NCCAP Budget Formulation and Negotiation Process Sector Ministries: Infrastructure Social

10. Central Agencies: Planning Finance With support of Technical Agencies: Ministry of CC Met Office NSO Implementing the CC Mainstreaming Actions Budget Formulation and Negotiation Process Design projects that are CC responsive using central guidance Submit planning templates and budgets that illustrate contribution to CC Make the case for CC benefits accrued Sector Ministries: Infrastructure Social

11. Incorporating Climate Change Risks into Planning and Budget Formulation Step 3:Adjust the design of PIP and budget submission as per findings of CC analysis and in particular costs and benefits arising from CC impact. Highlight any need for climate proofing. On Central and Technical Agencies Side: Step 1: Develop a common framework to appraise PIPs for climate change systematically across sectors. Step 2: Adopt the framework formally and integrate it to the planning and or/budgeting circulars.

12. CC Risk informed Public Investments

13. Climate Change Financing Framework: A Whole of Government Approach to heal the Plan-Budget Disconnect on CC

14. What is the CC Financing/Fiscal Framework medication doing? • A framework to reconcile the planning and financing aspects of climate change. How? • Involves All the Big Players: National Planner, CC Policy Maker, the Treasurer and the sector policy implementers around the same CC objectives. • Identifies the strategic entry points for each player as per their responsibilities as well as the interconnections. • Identifies the CC mainstreaming actions that should be undertaken taken throughout the policy, planning and budgeting cycles and how these are interlinked and should come together. • Quantifies the CC financing needs, the financing supply, the gap and proposed measures to fill it.

15. Climate Change Financing Frameworks

16. Assessing the financing gap for NDCs.

17. Filling the Gap… • Helps them assess the financing gap for NDCs and initiate a Climate Policy Road Map on how to fill it. Mobilize International Climate Finance: India Indonesia China Vietnam Bangladesh Issue Green Bonds/Sukuks for USD1.25billion Indonesia (2018) Ecological Taxation Fiji (2015), Colombia (2018)

18. Towards a Steer for a Comprehensive National Climate Finance Policy What role could private sector play in adaptation? Insurance? Including Micro-finance? Fiscal incentives? • Helps them assess the financing gap for NDCs and initiate a Climate Policy Road Map on how to fill it. Green Banking with Central Bank: lower fees, discount rates, guarantees. Review and Remove Fossil Fuel Subsidies? Negative Agric Subsidies?

19. Thank You!

20. Main Diagnostic.A Deep Disconnect Between CC Policies, Sector Plans and Budgets Medium Term& Annual Budgeting Processes CC Planning Landscape Medium Term National Development & Sectoral Panning • CCSP • CCSAP • NCCAP • NAPAs • NDCs • NDS • Agric/Water • Energy • Forestry • PW/Transport • Rural Dvpt • Macroeconomic Framework • Fiscal Framework • Budget Framework • Annual Budget