Gender and Climate Change Financing

1. Gender and Climate Change Financing Coming out of the Margins Mariama Williams mariamaw@hotmail.com

5. Gender and Climate Change Financing: Towards Engendering the Post 2012 financing Regime • Facts, background, controversy surrounding financing Climate change (UNFCCC objective) Equity issues in climate change financing • Gender: adaptation, mitigation and technology (addressed in module 4-6) • Legitimacy for en-gendering climate change financing: equity basis of UNFCCC • Key messages • Part I: Gender and Financial Markets: brief over view • Myths about women and finance( whole group exercise) • Stylized facts on gender and global finance & the state of play in Climate finance • Part II the architecture and governance framework of climate change financing • Public financing - Private sector financing (Carbon Financing) • Other forms of Private sector financing - Innovative Financing • Small Group exercise with article on Gender and climate change financing, Philippines case study • Part III. Details on specific Financing Mechanisms and Instruments • NAPA/NCs - CDM/REDD/LULUCF - MDG carbon facility/ Microfinance • Small Group exercise with Bangladesh’s and Burundi’s NAPA- financing exercise • Part IV. • Summary/Post 2012 regime/Principles for gender sensitive financing framework • Proposals for Gender-sensitizing Climate Change Financing • Coming soon: Gender and climate finance resources from GGCA

6. Engendering Climate Change Finance Firewood or forest? Aim: • 1. To develop understanding of the institutional architecture and governance of the climate change financing mechanisms, particularly as it relate to gender equality and women’s empowerment outcomes • 2. To utilize this understanding to advocate for gender equality in the distribution and mobilization of climate financing funds; and to ensure that mobilization of funds do not thwart women’s empowerment projects.

7. I. Background: The bare facts • 1.Financing need for climate change: • ♦ UNFCCC: US $262.15 billion - $615.68 billion per year by 2030 (UNFCCC 2008) • ♦ G77 and China (August 2008): Initial minimum: US $278.82 - $557.64 billion per year (approximately equal to 0.5 – 1% of Annex I countries’ total GDP 2007) • 2. Climate related funds under GEF, UNFCCC financing arm: • ♦ $10.03 billion - 10.25 billion plus a further $18.95 billion may be forthcoming from bilateral ($6.68 billion) and multilateral initiatives ($12.27 billion). • This is 1/10th of the minimum estimated requirement. • 3. GAP in financing: amount pledged is too low relative to the scale of financing needed • 4.There is a serious need to find alternative/innovative sources of funding for both adaptation and mitigation. • Adaptation deficit/development deficit/sustainable development

8. Background … • 5. Scaled up financing to fill the gap should come from • New and additional (to existing ODA flows) • No double counting of ODA and climate financing • Rationale: • 0.7% of GNP target for ODA • UNFCCC obligated to provide financing support for developing countries’ implementation of UNFCCC. Funding is supposed to be: adequate, additional, appropriate, equitable and predictable ( the Bali-5 principles). • ▫Adequate: (compensation, not loans or other forms of debt incurring instruments). • ▫Additional: New (not counted as part of ODA flows), • ▫Appropriate: (polluter pays). • ▫Equitable: (based on principle of ‘common but differentiated responsibility and respective capacity’). • ▫Predictable: (long term guaranteed flow of funds). • Financing should be consistent with the principle and obligations of the Convention • ▫The rich countries have accepted, in principle, their responsibility for their predominantly large carbon foot prints and their historical role in the creation of the factors most implicated with rising atmospheric green house gases. • ▫ Under Kyoto, the rich countries committed to decrease GHG by 6-8% below 1990s level, the developing countries were exempted from this. • ▫What is at stake: is just how much they are willing to put on the table? For how long? And, if and when, should more be required of the middle income and poorer nations?

9. II. Controversies in climate change financing • A. Tug of war over—The adaptation deficit/development deficit: • ▫Mitigation v. Adaptation: wither development. • ▫-Single-minded focused on stabilizing or decreasing GHG emissions and engendering the transformation to low carbon economy. • Would seem to have shunted development to the back burner. • ▫To what extent can funds be segmented (isolate) for climate change from development, when in fact, the context of the developing countries, the two are inextricably intertwined. This is an issue for both adaptation and mitigation. • ▫ Climate change is: • a) not fundamentally a technical issue (it is also behavioral and structural) and • b) cannot be simply a matter of funding purely techno-centric climate change initiatives isolated from the underlying concerns of economic development, poverty, gender and social inequality. • ▫The adaptation discussion, itself, is a disguise form of managing the tensions around development (and all that it encompasses) and the climate change policy & financing framework. • ▫ The nature of the development-climate change nexus:

10. Controversies in climate change financing… ▫ The nature of the development-climate change nexus: • ◊ (i). The key developmental problematic, in the face of climate change, is the transformation and growth of the productive sectors of the economy from one that is mainly oriented to fossil based energy sources towards a low carbon economy. • ◊ (ii). There are also critical questions about how rapidly should the de-carbonization occur and who should pay for it. • ▬Clearly, either rapid or slower paced de-carbonization poses significant constraints on economic growth and development in the south. • ▬It also has implications for all of the productive sectors of the economy from agriculture, fishery, and forestry to industrial and services which also impinge on trade, industrial and service development, gender equality and poverty reduction policies and programs. • ▬Social development issues are also impacted: choices must be made about the location, financing and climate proofing of housing and other human settlements, food self sufficiency and access to essential services (health care, sanitation, water). • ►This raises the issue of land-use, land use change and the distribution of economic and social resources between women and men and among different communities.

11. Controversies in climate change financing… B. What needs to be funded ? • Adaptation activities have been historically and systematically under funded • Infrastructure (for all activities need to be funded) • It is already the case that in the developing countries 70-80% of the damages caused by weather is to infrastructure, compared to 40% in developed countries, (Hart 2007). • Annual adaptation costs for developing countries is estimated to range anywhere from $4-37 billion, (Stern 2006), $28-$67 billion 2030 (UNFCCC 2007) and to $86 billion, 2015 (UNDP 2007). • The cost of mitigation is estimated to be about $ 176 billion to $200 billion.

12. Adaptation Adaptation: 1) increase resilience; decrease impact of disasters 3) coping and relief to experience when damage occurs. • UNDP 2007: annual adaptation investment need will be $86 billion by 2015 • World Bank: $10-40 billion by 2030 (WB 2009)

13. Controversies in climate change financing… • Equity issues in climate change financing • What is the most just and equitable distribution of the costs and burdens of the adjustments to climate change? • ♦Top 20% of the world’s population absorb 80% of its natural resources. • ♦Ecological foot print • ♦Impact of CC on poor, women and indigenous peoples • Expectations by developing countries: • ►Need for the re-allocation of global distribution of emission rights and obligations and compensation for losses and adjustment burdens. • ►The North pays for and subsidizes the South’s climate change engendered transformation to a low carbon economy. • ►The North should pay the extra cost of climate change mitigation. • Specifically, the south has consistently maintained that the North compensate it for its ‘overuse of environmental space.’ reference

14. Controversies in climate change financing… • D. HOW? Funding delivery mechanisms. • ♦ Developed countries prefer to use: • ▫ Own bilateral channels or multilateral financial institutions such as the World Bank • ▫-Market driven private sector financing • ♦ Developing countries find that use of non UNFCCC channels: • 1) Weakens UNFCCC; • 2) Distort the process and rationale for the financial flows as donor financing through non and • 3) Violates the compensation principle. • Note: Developing countries also have a problem with GEF*. But it is preferred to non UNFCC channels such as the Bank which exposes them to potential debt accumulation and policy conditionalities

15. II. Gender and Climate Change essential linkages • A. (Adaptation, mitigation and technology (addressed in module 4-6) • B. Legitimacy for en-gendering climate change financing • ◘CEDAW • ◘BPFA (strategic objectives F.1, para 167, F.4 (b) para 176; para 165k,) • ◘ECOSOC • ◘MEAs (Agenda 21 (chap 24), CBD, CDD) ◘CSW 52 • ◘MDG (#3) • ◘ the Equity basis of UNFCCC

16. Gender and Climate Change essential linkages • ♦The Equity principle of UNFCCC provides more than an adequate basis for integrating a gender equity approach into climate change financing. • ♦The UNFCCC as the normative framework for climate change financing has provisions for equity and enshrines the rights of developing countries to develop in a steady state path. • ♦ Subsequent COP decisions have consistently re-affirmed the idea of ‘targeting to the most vulnerable.’ • However, there is no refinement on what exactly these are: countries, regions, villages, individuals (Garnaud 2009). • ♦The well accepted notion of ‘differential potential across regions, communities’ (and individuals) to cope with climate induced changes along with differential vulnerabilities and adaptive capacities raises the question of ‘equity’ and ‘justice’ (TERI).

17. III. Key Messages • To successfully adapt and mitigate the potential climate change upheavals to their lives women and girl will require increasing stocks of resources well beyond the current levels. • They will also require continuous access to more dynamic flows of savings and credit to enable them to implement measure to climate proof and build climate resilience into their daily activities and livelihood domains. • There is a two-way intertwine between gender equality, women’s empowerment and successful achievement of the climate change objectives of UNFCCC. • Climate change financing by providing resources and open up the process for greater engagement and benefit flow to projects that are gender sensitive may reinforce the trend towards gender equality and women’ s empowerment. This will also improve the outcome of climate objectives. • Climate change financing, if it creates loss of access and control over land and forest resources or otherwise exacerbate women’s access to resources, will further marginalize women. This will lead to counterproductive outcomes of climate objectives. • Therefore, climate change financing instruments, mechanisms and processes must be made gender sensitive and conducive to the achievement of gender equality and women’s empowerment goals. • The increasing focus on market driven financial instruments to manage climate poses dilemma for gender equality and women’s empowerment. Financial markets are notorious for the rigidity of gender norms and gender biases which works to the disadvantage of women, especially poor women. • Thus great care and attention needs to be focused on market activities and in ensuring the gender sensitive government regulations of the climate change financing market.

18. Key Messages… • Mitigation funding streams will present more challenges for integrating a gender perspective. But through focused attention on CDM and REDD, there is scope for redirecting the focus to community-based and women’s empowerment programmes. • In the case of the carbon markets, more equitable burden sharing of the adjustment costs and benefits of transition to a low carbon economy could be enhanced by resort to governmental incentives such as tax breaks, grants and outright set aside programs for women and or indigenous groups. • Carbon financing such as micro-finance and MDG carbon funds along some of the initiatives of regional development banks are evolving potentially useful pathways to really flexible development and gender sensitive climate financing oriented mechanisms. • Governments play an important role in the market, and can redirect it towards gender- and development-friendly outcomes. • A key element in any program must include education, training and human resource development in the area of adaptation, mitigation and technology for girls and women. • Gender advocates should focus attention on threshold issues such as the financial, time and physical resource costs of adapting to climate change that is incurred by particular groups of women such as agricultural food producers and fisher folks. • A gender sensitive climate risk assessment framework can be used to make these costs more visible. This can help to provide the basis for securing funding for gender equality objectives and women’s economic empowerment in the context of the emerging climate change financing architecture. • Such approaches are critical to the design, implementation of NAPAs and National communications strategies as well as the RAF and similar climate change financing assessment instruments.

19. Key messages • Gender analyses, gender audits and gender impact assessments are important tools for promoting gender equity in access to, and gender equality outcomes of climate change funds in IFIs, regional, bilateral and national levels. • There is a need for greater coherence of national and donor gender policy with development and climate change financing. • Gender analysis and perspective must be integrated into the more progressive reform proposals for COP 15; in particular, those that seek to promote poverty eradication and sustainable development

20. Part I: Gender and Financial Markets: brief over view • Climate change financing occurs within the framework of the parameters, challenges and constraints of the global financial market. This is especially important given the emphasis on the role of private sector financing in the climate change financing process. Therefore it is important to understand the gender dynamics and dimension of this market. • ♦Stylized facts on gender differential outcomes in the global financial market • ♦Gender issues in climate change financing • Myths about women and finance whole (group exercise)

21. Gender Myths and Gender Realities Underlying Global Finance • Dominant Myths and Assumptions. • ▪Women are less capable of economic success than men”—service and credit to women is different from men • ▪Women are ‘risky borrowers’ • ▪Women borrow for consumption without capacity for repayment” • Realities • ▪Women, in developing countries, have higher repayment rates than men (97% higher). • ▪Women also borrow for short term liquidity purposes and have long run cash flow for repayment. • ▪Women’s so-called ‘consumption goods’ such as refrigerators and stoves are often transformed into capital goods that produces other goods (ice, cooked food and services such as storage) that are sold in the informal and household economies. • ▪Women’s ability to build capital and move into higher value activities are often blocked by asymmetry of information and high transactions costs.

22. Gender Segmentation in the Global financial markets • ▪Women tend to demand smaller loans than men • ▪Women tend to give credit to women • ▪Women borrow from special programs • ▪Women face higher interest rates: this is a function of gender based adverse selection in borrow. • ▪In addition, women’s lessened access and excess demand for credit (due to quantity rationing as opposed to price allocation) lead to higher interest rates

23. Stylized facts about gender and finance • Pervasive ‘inequalities between women and men in access to financial services--particularly credit. • “Although a growing number of policies and programs are arising to address the needs of the growing number of women business owners and their enterprises worldwide, access to finance is still the single biggest obstacle facing women entrepreneurs.” The International Financial Corporation • Collateral requirements, high transaction costs, limited mobility and education, and other social and cultural barriers contribute to women's inability to obtain credit (Holt and Ribe 1991, and World Bank).

24. Stylized facts about gender and finance • Under-representation of women in financial decision-making • (Men dominate decision-making in global finance,) • Increase gender gaps in the economic positions of women and men • (women have less access to credit, financial assets and information than men; • women may also higher interest and other cost than men for similar services) • Inefficient resource allocation in financial markets due to gender discrimination • (women face adverse selection insurance products and flow of investment funds • and the allocation of economic resources) • iv. Gender-based instability of financial markets • (Male ‘rent’ seeking behavior generate moral hazard and crises in the financial market • Which may more negatively impact women in terms of unemployment and adjustment • Other adjustment burdens) • Financial market interface with gender is characterized by:

25. Under-representation • Men dominate decision-making in global finance, but women experience the greatest negative effects of these decisions (Grown et al. 2000). • Women’s under-representation in the formal sector is due to legal, regulatory, and socio-cultural barriers (IFC). • The predominant decision makers in many climate change institutional processes are men (bureaucrats, technical analysts, NGO representatives, extension workers and influential leaders at the community level, Boyd 2002). • Men are biased towards providing technical solutions to the climate change problem and many men have little understanding of, or regard for, the concerns or interest of women (Boyd 2002).

26. Increase Gender Gaps • the segmentation of financial markets, high administrative and transaction costs on the supply side (credit institutions) as well as on the demand side (individual female borrowers as compared with male borrowers) work to the detriment of women. Women face a triple jeopardy: • 1) lenders may operate from a risk assessment framework that assigns high probability of default to small producers, many of whom are women; • 2) high administrative costs of extending and recovering small loans appropriate to the scale of economic activities and • 3) gender asymmetries in the flow of information about credit markets (carbon market, funding mechanisms).

27. Inefficient Resource Allocation in Global and Climate Finance • Inefficient Resource Allocation in Global and Climate Finance: The World Banks’ CIFs financing mechanisms (in operation in Azerbaijan and Georgie) injected inefficiency into the existing climate change architecture, which has negative impact on women (Zuckerman, Gender Action). • Perlata (2008, the Philippines): CDM mechanism ‘manifest an inordinate reliance on market based solutions that excluded the poor’. • [This resulted from CDM processes being cumbersome and costly rendering small scale project with strong poverty alleviation impacts unviable and making it difficult for the poor to participate (Perlata 2008).] • Carbon offset and carbon credit does not provide an adequate stream of accessible financing for the multitudinous and damaging impacts of climate change in the South. • A focus on sinks, renewable energy, energy efficiency, GHG capture and storage, bio sequestration, all of which are centered on large scale capital intensive projects, may in fact have negative impacts on the women and indigenous groups, in terms of its impact on their access to resources and ownership tenure over land and other natural assets.

28. Inefficient Resource Allocation in Global and Climate Finance • Carbon offset and carbon credit needs to be weighted in terms of their effectiveness and efficiencies regarding social development against carbon taxes and other non market based adaptation financing measures. • Carbon credits are not naturally issued for the things women do. Many women’s enterprises face significant structural impediments that impede their ability to function as sellers of carbon credit/offset. Apart from the aforementioned inefficient tendency of carbon offsetting, many women’s projects. • Inefficiencies as evidenced by the backlog of projects, the low level of funding proposal through funding pipelines and the fact that after quite a number of years many projects are still in a pilot phase.

29. II. The nature and scope of global Climate change financing • Reference point: Financial and investment flow • Goal of Climate change financing architecture: Manage the risk of: Adapting (to climate change induced weather events---loss and damages) Mitigate climate change (reduction of GHG emissions) and furthering the transition to low carbon economy. • Approaches to climate change financing (financial resource mobilization) • Public Financing, private financing and public private partnerships

30. Public Financing • The public dimension of the climate change financing architecture includes: 1) the United Nations (UNFCCC/GEF), 2) the World Bank, 3) Other multilateral financial and development financing institutions, 4) a host of bilateral donors and 5) National governments.

31. Public financing Mechanisms

32. Flexible Mechanisms • Under Kyoto, Annex I countries, which are supposed to meet targets primarily with national measures, can have recourse to three market based mechanisms. These are emissions trading (or carbon trading), the clean development mechanism, and joint implementation. • Market Based Mechanisms under Kyoto • Emissions trading: Emissions trading, as set out in Article 17 of the Kyoto Protocol, allows countries that have emission units to spare - emissions permitted them, but not "used" - to sell this excess capacity to countries that are over their targets. Thus, a new commodity was created in the form of emission reductions or removals. Since carbon dioxide is the principal greenhouse gas, people speak simply of trading in carbon. Carbon is now tracked and traded like any other commodity. This is known as the "carbon market." • The Clean Development Mechanism (CDM): defined in Article 12 of the Protocol, allows a country with an emission-reduction or emission-limitation commitment under the Kyoto Protocol (Annex B Party) to implement an emission-reduction project in developing countries. Such projects can earn saleable certified emission reduction (CER) credits, each equivalent to one tonne of CO2, which can be counted towards meeting Kyoto targets. A CDM project activity might involve, for example, a rural electrification project using solar panels or the installation of more energy-efficient boilers. • Joint Implementation (JI): The mechanism known as “joint implementation,” defined in Article 6 of the Kyoto Protocol, allows a country with an emission reduction or limitation commitment under the Kyoto Protocol (Annex B Party) to earn emission reduction units (ERUs) from an emission-reduction or emission removal project in another Annex B Party, each equivalent to one tonne of CO2, which can be counted towards meeting its Kyoto target. Joint implementation offers Parties a flexible and cost-efficient means of fulfilling a part of their Kyoto commitments, while the host Party benefits from foreign investment and technology transfer. • Source: UNFCCO data base

33. Bilateral and multilateral financing mechanisms for mitigation and adaptation in developing countries($ million, exchange rates of November 2008)

34. Bilateral and multilateral financing mechanisms for mitigation and adaptation in developing countries($ million, exchange rates of November 2008)

35. Multilateral contd…

36. Bilateral

37. Bilateral

38. Bilateral…

41. National Financial instruments (incentives) ~Direct payments ~ Tax reductions ~subsidies ~Price supports ~Feed in tariffs Rebates ~Grant programmes ~Loan programmes Bonds ~Production incentives ~Government purchasing programmes~Insurance programmes ~Equity investments, including venture capital • Source: Tirpak et al 2008

42. II. Private Financing (Market based mechanisms) • The private sector network includes foundations, venture capital funds, private carbon funds and a network of exchanges. The private sector network includes foundations, venture capital funds, private carbon funds and a network of exchanges • Currently the private sector finances over 80% of climate change related activities in the three broad areas of clean energy technology, renewable energy and carbon financing. • Private sector actors may invest in physical assets in agriculture, forestry, mining and industries. These are long term (direct/equity) investments. • Firms also invest in the carbon sector in carbon tracking, carbon trading, capture and storage technologies • Private sector actors (commercial banks, investment banks, utilities, industrial, and Insurance companies, investment houses, bond traders and hedgefunds) invest in short and long term financial assets include: • a) assets such as bonds, loans, stocks certificate, and venture capital that finance direct investments in plants, equipment and facilities; • b) a variety of climate risk (carbon and weather) products such as crop insurance and catastrophe bonds; • c) assets that hedge against the future such as weather derivatives; and • d) emission trading instruments (CERs) in the carbon market

43. Private Sector Financing… • There are also a growing network of international development agencies (UNDP- MDG carbon fund), non profit including civil society organizations (acting as Aggregators, consultants, trading agencies) and philanthropic organizations who are active players in the market for private sector financial and investment.

44. Private Sector Financing… • Micro finance is being seen as a a vehicle for mobilizing private resources for sustainable development, including climate change. Grameen Bank has already begun to extend loans for clean energy products, such as solar home systems, with spin-offs to micro-enterprises, while further opportunities exist in cleaner cooking products and biofuels (DESA, 2009 p.19)

45. Market Mechanism and the CDM • The CDM and its associated Kyoto mechanisms facilitate Annex B parties to meet the commitments of the Protocol via domestic emission reductions, sink enhancements, and the purchase of allowances and credits, for 2008-2012. • CDM enables a project to generate CERs in order to mitigate climate change in Non Annex I parties; it is the second largest carbon trading market. • It has managed to leverage and catalyze a number of projects and process in developing countries. These include the engagement of the MDG, in terms of the MDG Carbon Facility, micro finance as well as regional development banks into carbon trading activities. • Under the CDM, buyers from developed countries can acquire Certified Emission Reductions (CERs) for each tonne of greenhouse gas that is prevented from entering the atmosphere as a result of a CDM project in a developing country. • CDM can be used for any project-based activity which results in a reduction of greenhouse gas emissions compared to the baseline activity. • A baseline is the level of greenhouse gases that was emitted (or assumed to be emitted) before the start of the project, and serves as the basis for determining project emissions reductions. • As of end-2007, proceeds from the sale of emission credits from over 4, 000 CDM projects in the pipeline amounted to about $7.4 billion, a 50% increase in value over 2006, and triple in value from 2005. (This is relatively small compared to the overall carbon market, which has risen sharply over the past few years, reaching $60 billion in 2007 or six times its value in 2005.)

46. The Carbon Market

47. CDM sectoral Distribution

48. CDM geographic Distribution

49. Challenges with CDM CDM suffers from: • the lack of sustainable projects or those with the most co-benefits (like poverty reduction, UNDP) • CDM projects don’t meet the needs of less developed countries, nor of people who are at the end of the poverty chain – the majority of whom are women. • CDM projects involve high transaction cost and high risk for small scale projects, which are important for poverty reduction and women’s participation. • There is insufficient preparatory finance for project development, heavy initial up front costs and too long a time horizon for securing long term financing and turn around of project. Upfront financing Is needed to cover: the completion of feasibility studies, issuance of permits, securing of long-term finance, and actual construction and commissioning, These factors have led to CDM financing become a constraint on the flow of projects in the carbon market. • Ultimately, the high transaction costs associate with CDM’s process of elaborating a project development design, meeting the expenses of a Designate Operating Entities and other registration requirements for a CDM project is neither feasible nor cost effective for most small scale women operated projects. In effect, the current CDM’s cumbersome and time consuming process is not gender or development friendly and needs to be radically reform or eliminated. • This defeats one of the main purposes of the CDM, to stimulate investment in less carbon-intensive growth. • Only special CDM projects programmes in LDCs such as community • development climate fund, bio Bio Carbon Fund (BioCF) and Africa Assist may provide a chance for participation in the international CDM market .

50. Reform of CDM There is a concerted push for reform of CDM in at least the following directions: • Streamlining of applications • Focus on smaller projects • Replace its project focus with a programmatic and/or policy focus, • Shorter funding cycles • Lower transaction costs • It is hope that through such corrective measures the CDM can generate a greater impact in developing countries. • CDM reform could be good for gender equality and poverty reduction. Especially if it focus on household energy, food processing, environmental services and natural resource management. • Increase the voices of women and community • Allow for more bundling/aggegators which are gender inclusive. • Eg: Grameen Shaki.