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Financing the Development Dividend: Strategies and Solutions for Sustainable Projects

This chapter outlines the challenges and opportunities in financing development projects that aim to yield significant socio-economic benefits. It explores the existing support mechanisms, identifies gaps in financing, and proposes possible solutions. Key factors affecting project viability, such as risk and stakeholder engagement, are analyzed. The chapter also discusses the balance between supply and demand in financing sources, emphasizing the importance of aligning financial incentives with sustainable development goals. Recommendations include piloting innovative financing approaches and enhancing stakeholder capacity.

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Financing the Development Dividend: Strategies and Solutions for Sustainable Projects

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  1. Outline of Chapter 3 - Financing the Development Dividend • Introduction • Understanding the Challenge • Case Studies • Existing Support Mechanisms • Identifying the Gaps • Possible Solutions • Recommendations

  2. Introduction • Ways in which more financing can be made available; and • Ways financing could encourage project stakeholders to include and/or enhance the development dividend.

  3. Financing Challenge • Wide Range of Financing Sources What do they all have in common • “WIIFM” Factor (What’s In It For Me?) • Risk - Reward

  4. Country Risk • Economic • Political • Legal • Regulatory Framework • Commitment to Environment

  5. Project Risk • Project Technology • Project Size (Cost) • Project Proponents, developers and stakeholders • Project Infrastructure Needs • Project Construction • Project Operation • Project Viability, Creditworthiness of key counterparties • Sustainable Development Benefits • Community commitment and support, political complexity

  6. Financing Challenge • Carbon Credit Risk • Delivery Risks, including payment for carbon credits up front or on delivery • Market Risk, including volume and value to buyer and seller • Ownership

  7. Summary of Cases • Offshore Financing Vs Local Sources • Traditional Vs Non Traditional Sources • Project Size Vs Complexity • Project Size Vs Transaction Costs • Carbon Credits Vs Sustainable Development Benefits

  8. Current Sources • Not Driven by Sustainable Development • MDBs and PS Carbon Funds – Compliant CERs • ECAs “export” benefit • etc • Risk – Reward not in balance • Equity ROI • Debt Term, Interest Rate and Security • Capacity • CDM and Carbon Credit Knowledge • Staff • Volume (“One Offs”)

  9. Identifying the Gaps BetweenSupply Side and Demand Side Needs Supply Side Sources of Financing Need: • Good “Bankable” Projects • Credible, Timely, Cost Effective Approval Processes • Risk Sharing Demand Side Requirements for Financing Need: • More Flexible, Risk Tolerant Debt, Equity Sources • Up Front Purchases of Carbon Credits • CERs and Offsets (Voluntary) • ODA/Grants • Budgets • Sustainable Development Funds

  10. Possible Solutions Are Previously Identified Solutions Still Valid? Are Voluntary Market Credits More Appropriate Than CERs for Small Scale Projects with a low CC:SD Ratio? Can SD Be Standardized? Can SD Projects Be Fast Tracked? Can SD Projects Be Pooled? Can SD Projects Receive Premium CER or Voluntary Credit Price?

  11. A Solution to Bridge Supply Demand Gap Process to Select SD Projects • Projects Bankable: “Yes-No-Maybe” Decision • Transparent, Independent, Expert Committee • DNA, MDB, DFI, UNEP, Plus Private Sector • Feedback and Capacity Building • Appropriate Funding Sources for Project • “Modified China Clean Development Fund” • External and Domestic Sources • ODA, MDB, ECA, Insurance, • SD:CC Measure • Debt, Equity, Budgetary, Other Funding Sources Identified • Appropriate Carbon Credit Market (CER vs Voluntary)

  12. Recommendations • Pilot Project • Country or Region “Clearing House” • Tool to screen cost of developing project as CDM or VER from policy and financing perspective • Role of Offset Markets as Source of Financing • Capacity Building of Project Developers/Proponents/Stakeholders • Pressure on Developed Country Gov’ts to prioritize SD • Project Finance Sources • Clarify Role of ODA • Research “Supercredit”

  13. Discussion Thank you Tom and Emily for The Cases and Your Patience

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