Meeting notes

26-02-08

Representatives of Development and Environment Group (DEG) of BOND with

DFID Low Carbon Development Team

1. Participants

For DEG:

· Nick Sireau SolarAid

· Richard Ewbank Christian Aid

· Teodoro Sanchez Practical Action

· Toby Quantrill WWF-UK

For DFID LCD Team:

· Ashufta Alam

· Oliver Knight

· Siobhan Stainger

Background and update

This meeting was one of an ongoing series of updates and discussions between DFID staff and DEG, relating to the development of thinking on the International Window of the UK government Environmental Transformation Fund (ETF).

The meeting opened with a brief update (for those that have not been closely involved previously) on the ETF, its links with the development of global financing mechanisms on climate change and the consultation process with DEG to date.

Noted that the treasury requirement for ETF funding to be scored as ‘Capital’ funds and as ODA’ has been a ‘difficult hurdle’ for DFID internally. Also noted that the decision that ETF will be most effective as part of a multilateral fund, leveraging other funds, has also constrained the internal decision making process.

It was noted that, generally the energy component of the ETF has received the most donor and recipient interest and therefore there has been the most thinking on this compared to other elements of the ETF (forests and adaptation). That said, it was emphasised that discussions are still ‘ongoing’ regarding the structure and objectives for the energy component. There is still thinking going on about which countries, and how many countries.

There has been considerable internal DFID ‘push’ to ensure that this fund does support those areas of greatest ‘co-benefits’ between climate change mitigation and poverty reduction, and that it takes approaches that are genuinely transformational.

Although there is strong political pressure to pursue mitigation ‘big wins’ with this finance, there is a feeling that some progress has been made to persuading high level decision makers that a co-benefits approach, pushing energy access and reducing economic vulnerability (and potentially increasing competitiveness) in a future low carbon future, is the way to go with this fund.

Process on the multilateral fund

There is a meeting in the week of March 3rd in Paris for all ‘interested parties’ e.g. potential donors to the proposed WB multilateral climate funds. This is the first time this full group has been convened, along with World Bank representatives. Up until now discussions have been bilateral, trilateral etc. Countries mentioned as being represented, as well as World Bank, include: UK, US, Japan, Germany, Norway, Denmark, Netherlands and possibly Canada and Spain.

Not all these countries are necessarily interested in becoming donors. Some may simply have an interest in how the fund is set up and operated. So far US and UK are only definite contributors. US ‘ambition’ is stated at $2 billion. Japan has expressed interest at $10 billion, but this would be over a 10 year period.

It is expected/hoped that the World Bank will present in Paris a fully comprehensive process for consultation (with donors, recipients and civil society) and development of the fund details between now and proposed launch at the G8.

Energy fund detail

DFID perspective:

· There is a general understanding that existing frameworks for technology transfer/investment are not working. In particular CDM was discussed in terms of its limited ability to deliver anything but ‘close to commercial’ technology. As the ‘easy wins’ have been picked off we are starting to see CDM moving into more promising areas of renewables, but CDM cannot really push the ‘pre-commercial’ technology to the point where we see commercial pick up and widespread utilization.

· Funding is perceived to be available in early Research and Development. CDM can pick up the technology once it is close to being profitable and in middle income countries where the supporting structures are in place.

· The big gap is in pushing ‘pre-commercial’ technology through the early stages of deployment (up to point of being near commercial viability, e.g. where it has proven profitability) and especially taking such technology in to ‘hard to reach’ countries and regions.

· Could this fund be utilised as an opportunity to extend the effectiveness of the CDM mechanism (in the same way it was suggested that the adaptation funding could be used to extend the UNFCCC adaptation fund to increase effectiveness)?

· For the big mitigation wins in middle income countries it seems likely that it is other factors (domestic regulations, trade barriers and incentives etc) and large scale investment flows rather than these relatively minor funds that will make the difference.

· On CCS, while it does definitely have a potentially significant role to play, e.g. in China, there may be some current over expectation about timescales to a viable technology and then how quickly the technology can be deployed in developing countries. While the ‘big fix’ potential of CCS is seductive, the scale of funding required does not match the availability from the ETF

· A big question, and one that DFID is keen for civil society input on, is the balance for the ETF energy component between Middle income and low income countries. There will certainly be a middle income focus, but the balance between MIC and LIC is ‘up for grabs’

· To help push for the LIC and co benefits options, DFID is keen to hear about practical examples from NGOs

NGO perspective:

· Strongly agree with the necessity for co-benefits if this is to be counted as ODA.

· What is often missing from the technology and energy debate (if in context of poverty reduction) is discussion about planning process and institutions. How could we ensure that this funding can be used for community planning processes regarding energy production and access and also how to ensure the money is invested into schemes with strong local governance mechanisms.

· Given rapid urbanization, is there any mileage in considering the use of funds for reducing energy demand in large urban centres, e.g. through investment in clean public transport and housing? Of course, to justify use of ETF (under current situation) such an approach needs to be considered carefully in light of whether there would be poverty reduction benefits.

· SolarAid are able to give examples of using ‘energy entrepeneurs’ to help develop local support mechanisms for new technology and experience of setting up local, community based grids. They also have experience of supporting access to CDM and confirmed that simpler and quicker mechanism is required.

· SolarAid also noted that what is often missing, to make a CDM application viable in ‘hard to reach’ areas is market research.

· Practical Action gave examples of revolving funds for micro hydro and successful community level energy access programmes in Nepal, Panama and Chile.