Governance Challenges in Climate Change Finance Understanding the Political Economy

Transcription

1 Governance Challenges in Climate Change Finance Understanding the Political Economy Summary Report from Meeting December 1, 2013, Incheon, Korea I. Context It is becoming evident that the effective and coherent delivery of climate change finance is mostly influenced by existing governance structures, reforms and incentives of the various stakeholders. Recent discussions have focused on political economy analysis as a helpful tool to analyze these underlying factors. UNDP and GIZ took the opportunity to organize a one-day meeting during the Climate Finance Week (December 1-5, 2013), on Governance Challenges in Climate Change Finance Understanding the Political Economy which was held back-to-back to the Global Forum on The Use of Country Systems to Manage Climate Change Finance. The meeting was a first attempt to discuss the emerging governance challenges in climate change finance, and brought participants from 12 countries, representing government agencies, civil society, academia and donors together to share experiences on political economy factors 1, and use those as a starting point to achieve a better understanding of why climate finance architecture exists in different forms, depending on the country context. It was expected that these deliberations would contribute to a better understanding of how climate finance can be more aligned and coherent with country systems. 1 Please refer to List of Participants in Annex 1

2 Political Economy Analyses (PEA) within this context can provide an examination of the rationale for the set- up of these architectures. They can also point to diverging interests and existing incentives of different stakeholders that must be acknowledged and understood for increased coherence of climate change finance with country systems. Furthermore they can offer an explanation why extra-budgetary funds currently exist and thus be helpful to reflect their role with regard to the use of country systems. Climate Change Finance Climate change is a cross-cutting issue, and the resources that accompany efforts to address the challenges posed by it come from many different sources, both international and domestic. This climate change finance is being handled through different channels, with the national budget being one such channel. The national budget process provides a framework through which some level of policy coherence with development objectives is ensured, although other mechanisms, such as extrabudgetary funds for example, are also used. Identifying and understanding the reasons behind these decisions can be helpful to see how coherence with country systems can be enhanced for a wholegovernment approach to climate change. As development partners, a better appreciation of these factors can also pin-point where interventions can be most effective and sustainable, and where they are unlikely to make a difference. Unpacking the underlying political and institutional factors, in addition to understanding the technical issues of mainstreaming climate change finance into country systems, is therefore important and will contribute to a more effective and coherent delivery of climate change finance in the long run. II. Using country systems and understanding the rationale for existing climate finance architectures: how can political economy analysis (PEA) help? 2 To clarify the core concepts being discussed, presentations were made on what country systems are, and how they relate to climate change finance. Using country systems within the context of climate change finance implies integrating climate finance into annual plans and strategies, into the budgeting process (including procurement) and the monitoring and auditing of the effective use of climate change finance. The systems may operate at national, sub-national or local level. By doing this a broader range of climate-related expenditure is reflected, and not only limited to sectoral plans and budgets 3, and it is also assumed that using country systems can promote the mainstreaming of climate issues into the broader development context. It can help to create more ownership from the partner country and promote economic change in the transition to a climate resilient, low emission economy by linking climate finance into core planning and budgeting processes. It also helps to reduce duplication, and lowers transaction costs in the process. 2 All the presentations can be found online at: 3 The full definition can be found in the Global Forum report, available online at: 2

3 Figure 1: Country Systems and Different Actors 4 4 Steele, P., December 2013 please refer to for full presentation 3

4 Why is PEA relevant in the context of climate change finance and country systems? The assumptions that climate change is a purely technical issue were challenged in a presentation entitled What is a Political Economy Analysis, and what is its value for Climate Change Finance? 5 As articulated in the three quotes (see Box 1), climate change finance is increasingly being seen as a political rather than technical issue, requiring governance structures and negotiations between institutions, varying interests, and different ideologies. Climate change is not an extension of Official Development Assistance (ODA), but a process that involves complex issues related to equity and shared responsibility. Because climate change is a cross-sectoral issue, and therefore involves many different actors, political economy analysis can help understand the interests and incentives of different stakeholders that exist to make the delivery of climate change finance more effective. A PEA can also help establish a baseline of actors, formal institutions, understand what change is feasible, and what is not, and finally, help to match different possible finance options to national conditions. On this last point, the analysis may point towards using country systems, or may also infer that using other mechanisms, such as extra budgetary funds may be more useful. In this sense, PEAs can be compared to business plans in the private sector, which serve as basis to make Box 1: Challenging Assumptions: decisions to reach set goals and objectives. While the underlying value of undertaking a PEA in the context of climate change finance was appreciated, there were nonetheless critical questions that were raised with regard to their feasibility, and what the most effective way would be. For instance, questions remain about how open and inclusive the analytical process should be. Though there was a preference to be more, rather than less inclusive, there was an acknowledgement that it may not always be possible to do so, given the sometimes sensitive elements that need to be considered. Climate change is a largely technical political challenge Climate change governance requires capacity building, negotiating institutional interests and ideologies. Climate Change finance is an extension of ODA implies transfers based on equity and responsibility. (From Thomas Tanner, December 2013) III. Country Experiences and Lessons Learned on Political Economy Dimensions from different stakeholders Experiences from different actors national, regional and development partners were shared to illustrate different modalities, how they are being used to channel climate change finance, and some of the underlying reasons behind them. These cases were helpful to showcase political economy factors driving decision-makers to select the most politically viable mechanisms for climate change finance delivery. 5 Tanner, T., December 2013 please refer to for full presentation 4

5 Case Study - Bangladesh 6 : The experiences in Bangladesh were interesting in illustrating the set-up of the existing national climate finance architecture. The two national climate funds - one, which is government funded (Bangladesh Climate Change Trust Fund), the other, donor funded (Bangladesh Climate Change Resilience Fund) illustrated the challenges of blending domestic and international funds and demonstrated the often pragmatic rationale for having two very similar funds in existence. In this case, the two funds complement each other in that the government fund was designed as a rapid response fund to fast track the financing of small scale (up to $2 million) climate change activities, while the donor fund targets much larger programmes (from $15-25 million) and requires higher fiduciary assurances and management capacity. At the same time, the presentation did highlight that a high degree of political interference has provided the justification for bypassing the country planning and finance processes. Likewise, leadership, good-will among partners, and discriminatory decision-making power and social influence were major incentives for the special funding modalities. Case Study - DFID approach 7 The DFID experience illustrated what political economy determinants shape its support to climate change activities in partner countries. The presentation responded to what the ideal support envisioned is, compared to what is possible in reality. For instance, in the case of DFID, the ideal picture of what climate change support looks like includes large scale efforts, aligned with strategies and plans that are costed, prioritised and owned by the partner government. However, the political reality within the UK government also stipulates the need to stress value for money, quick disbursement of funds, and transparency. The reality on the ground is that often, this results in numerous small projects, many of which do not go through partner government systems. PEA is meant to be one tool that can help to identify these differences, and to devise a realistic way forward, given the limitations identified and acknowledged. For this, the PEA analysis is structured along key questions which determine with whom DFID as a donor should engage, and what is feasible and most effective way to meet development objectives. It is an action-learning approach which is a helpful tool, inter alia, to identify common ground between different actors, recognizes change underway, looks for opportunities to build up leadership and recognizes that there is a need for a framework in a complex setting. In the context of use of country systems, understanding the robustness of the public financial management systems, as well as having clear strategies were important as these respond to, in part, to the transparency concerns of the UK government. However, discussions pointed to the fact that the reality of conducting PEA in a transparent manner, and one that is inclusive of all key stakeholders is not without its challenges, especially as they related to the identification of potentially sensitive issues. This could include for example issues related to implicit power struggles among different ministries, or a development partner making value-judgments about how a partner government conducts its business. 6 Gayen, K., December 2013 please refer to for full presentation 7 Smart, M., December 2013 please refer to for full presentation 5

6 Case Study - African Task Force on Climate Change 8 The regional African experience highlighted the importance of strengthening the role of legislative bodies in the climate change policy-making process as parliaments can have a key role to play in tackling climate change through the work in their constituencies. The presentation highlighted that so far, climate change is seen as a sectoral issue rather than a cross-cutting one. In order to reflect it more comprehensively in development plans and strategies, the capacity of Members of Parliaments will need to be strengthened, as well as to ensure that they can fulfill their oversight role vis-a-vis the use of public funds and to reduce fiduciary risks related to addressing climate change. PEA can be helpful to understand the role of parliaments vis-a-vis other stakeholders (who may be seen as more relevant on climate change issues), and identify where they could have most influence. For instance, the budget committee and their close cooperation with sectoral committees should be strengthened as it is helpful to advise government for a more coherent and effective response to climate change. Dialogue with media and civil society should also be encouraged to ensure that the needs of the constituents are met. Case Study - Climate Investment Funds in Bangladesh 9 In the context of Climate Investment Funds, partners such as International Institute for Environment and Development (IIED), commissioned by DFID have been conducting PEAs to assess the political economy dynamics that shape decisions regarding the use of international climate finance (Climate Investment Funds, in this instance) at the national level. In doing so, they look at the actors, ideologies and knowledge, as well as underlying incentives. Current analyses are ongoing in Ethiopia, Nepal, and Bangladesh. Some of the lessons learned from Bangladesh, where the analysis is at a more advanced stage, include findings that relate to stakeholder s changing involvement and level of influence, depending on their ability to have consensus on specific issues, for instance, the role of the private sector. The analysis also infers that understanding of different incentives is a first step there may be a need to reshape incentives if progress with specific stakeholders is to be made. Case Study - Local Systems: A Framework for Supporting Sustained Development 10 USAID presented its definition of country systems which includes mechanisms for transparency and advocacy and a broader stakeholder engagement including private sector. USAID stressed the need to focus on local systems, and how the actors therein can work together more effectively towards common development objectives. Local systems refer to local actors such as governments, civil society organisations, universities, and the private sector, and how they can work together more effectively to achieve development results 11. Efforts to understand local systems better - by analysing the five key aspects of Resources, Roles, Relationships, Rules, and Results - support the design of projects that can 8 Ebong, D., December 2013 Please refer to for full presentation 9 Rai, N., December 2013 Please refer to for full presentation 10 Pierce, S., December 2013 Please refer for full presentation 11 USAID, Local Systems: A Framework for Supporting Sustained Development. Consultation Draft, October

7 address and overcome weaknesses within those systems more holistically. Projects can also be designed in a multi-faceted manner, and local knowledge can be tapped into for more locally owned and locally relevant responses. Understanding local systems better can contribute to having more clarity and a sharper vision for the operational direction of the donor. IV. Key messages for further consideration Each of the framing presentations triggered discussions among the participants. There were a number of questions and issues which emerged on the role of political economy for climate change finance in the deliberations. These were further discussed during group discussions, which focused on three topics: i) incentives for setting up different types of climate finance architecture; ii) understanding power relations in channeling climate change financing; and iii) how the effectiveness of institutions can be understood from a PEA perspective. These specific discussions, along with the overall conversation based on the various presentations led to a number of key messages and issues for further consideration. Key Messages a. Undertaking a PEA can be risky business One of the key discussions revolved around the processes of undertaking PEAs. While a certain degree of openness about the purpose of such an exercise being undertaken needs to be retained, this may sometimes create difficulties in accessing the most relevant information for those initiating an analysis. Likewise, some findings may also be quite sensitive, especially if they relate to specific institutions, or individuals in partner countries, which can hamper relations between those entities who are meant to be working together. b. PEA is not only to understand partner countries; they are equally important to understand development partners There is often an assumption that PEA is undertaken to overcome challenges in reform processes present in partner countries. Presentations, discussions, and illustrative examples highlighted that this is a narrow perspective, which does not reflect the whole picture in usually complex settings. Decisions taken by development partners are as much driven by their own political economy considerations, as are those taken by partner countries. Understanding the incentives driving the decisions of development partners in their interaction with partners is equally significant. c. Power relations are important to define incentives Relations between different stakeholders can be key determinants in affecting change, or blocking it. While formal mandates and responsibilities are assigned to every institution, it is often the informal dynamics that drive actions. The level of de facto influence and power wielded by one stakeholder over another can be more significant than the de jure relationship. d. Use PEA to identify who are the most influential decision-makers, particularly likely champions for change Engagement with a variety of different stakeholders, especially for a cross-cutting issue such as climate change, is normal, and important. However, nurturing and stressing those partnerships that are likely to wield more influence over processes, and have more decision-making leverage is an important step in 7

8 consolidating partnerships for change. Such champions for change can bring in the required political will and commitment required for reform and progress. e. Understand who benefits and who loses from specific interventions, and monetize the effects Change will lead to stakeholders who will gain (access to resources, visibility, recognition etc.), and those who will either not gain as much, or worse, are likely to lose out. This is fundamental to understand and address, as those who are likely to gain less (or lose) may be important actors who hinder progress. Their legitimate fears and concerns about forthcoming change need to be understood, and options to alleviate the consequences should be identified. f. Understand the importance of information and its influence on power relations Communication and information of the various stakeholders are crucial to avoid power imbalances. Only well-informed decision-makers can make their contribution to better and effective climate change delivery. This entails clear communication mechanisms between stakeholder groups to foster dialogue and enhances the ability to strengthen accountability structures within climate change finance governance structures V. Concluding remarks There is no one way to channel climate change finance at the country level. As the various examples have shown, many factors determine the shape of finance architecture in a particular country. As more efforts are made towards greater coherence with existing country systems, PEA can be helpful in assessing the risks and opportunities that exist to facilitate more effective delivery of climate change finance. PEAs can help to identify the most relevant stakeholders, to understand incentives, systems, and other determinants of success or failure of reform processes. At the same time, there is consensus that the process cannot always be straightforward, and requires flexibility from all actors involved. Integrated and systemic approaches combining the technical as well as the political economy dimension are required to promote complex and challenging reform processes that involve multiple actors. As noted by the Effective Institutions Platform, reform requires change management, and building coalitions, among other pertinent actions which stand in between the technical and political side of reforms 12. The deliberations at the meeting were a first step in unpacking the factors that have a role in understanding the set-up of climate change finance architectures that go beyond the technical issues, i.e., underlying governance, institutional, and political challenges. 12 Effective Institutions Platform, Making Reform Happen,, 8

9 VI. Annex 1: Concept Note and Agenda Overview: The joint UNDP-GIZ meeting in Incheon, Korea will bring together participants, representing government, civil society, academic institutions,, and development partners to discuss governance challenges in the context of climate change finance. It will focus on the set-up of existing climate finance architectures (including extra-budgetary funds), its links to existing institutional frameworks and the emerging governance challenges to increase more coherence with country systems, examining particularly the political economy angle. Political Economy Analyses within this context can provide an examination of the rationale for the setup of these architectures. They can also point to diverging interests and existing incentives of different stakeholders that must be acknowledged and understood for increased coherence of climate change finance with country systems. Furthermore they can offer an explanation why extra-budgetary funds currently exist and thus be helpful to reflect their role with regard to the use of country system. While technical issues and innovations to integrate climate finance into country systems are at the center stage of the discussions of the Global Forum on The Use of Country Systems to Manage Climate Change Finance, this meeting serves to get a better understanding of the underlying governance challenges. The objectives of the discussion are as follows: Understand the rationale for existing climate finance architectures Identify the various elements that need to be taken into account to make existing climate finance architecture more coherent with country systems. Develop key messages to share with the Global Forum, as well as the Effective Institutions Platform. Expected outputs from the meeting: 1. Key messages that can be brought forward in key global platforms to strengthen the link between climate change finance and development effectiveness 2. Sharing of experiences and lessons learned This meeting will be held back to back with the following meetings: 1. Global Forum on Using Country Systems to Manage Climate Change Finance, hosted by the Government of Korea and UNDP, December 2-3, Effective Institutions Platform meeting of Champions, hosted by the Government of Korea, December 4-5,

10 VII. Annex 2 - Agenda December 1, 2013 Topic Registration Welcome session: Rationale of the meeting UNDP Background and context of the meeting, Mr. Thomas Beloe, Development Effectiveness Advisor, UNDP APRC GIZ Good Financial Governance in climate change finance, Mr. David Nguyen-Thanh, Head of Section: Public Finance and Administrative Reform, GIZ Session 1: Framing the issue unpacking key concepts The objective of this session is to understand the core concepts that are being discussed, including climate change finance, climate finance architecture, and country systems. In unpacking these concepts, the rationale for understanding the political economy in the context of climate change finance will also be addressed. Chair: David Nguyen-Thanh, Head of Section: Public Finance and Administrative Reform, GIZ Introduction to key concepts (Climate Finance, Climate Finance Architecture, Country Systems), Paul Steele, Environment Advisor UNDP APRC What is a Political Economy Analysis, and what is the value added in the context of Climate Change Finance, Thomas Tanner, Institute of Development Studies, UK Break Discussion in plenary Sessions 2: Country experiences and Lessons learned on political economy dimensions The objective of this session is to look at the existing climate change finance architecture in specific countries. The presentations will address the reason why a particular model was selected, its compatibility with country systems and the rationale behind those decisions. Chair: Noumea Simi, Assistant Chief Executive Office, Ministry of Finance, Samoa Bangladesh: Understanding the evolution of climate change finance in Bangladesh, Dr. Krishna Gayen, Joint-Secretary, Finance Division, Ministry of 10

11 Finance, Bangladesh Development partner perspective: Climate Change Finance, and the political economy determinants of development partner support, Shailaja Annamraju, Lead Economist, Asia Region Climate Change, DFID Lunch Regional Perspective Africa: Climate Change Finance landscape in Africa regional perspective on the role of the legislative bodies in the decision making process David Ebong, Coordinator, CPA African Parliamentarians Taskforce on Climate Change Discussion in plenary Session 3: Group work How can PEA help to identify core issues in climate change finance to promote more coherence? The objective of this session is to understand how a PEA can be useful in understanding certain key determinants of success in the delivery of climate change finance, and to ensure greater coherence with country systems. The participants will be split into groups and be asked to discuss the different options that exist to understand key determinants such as: Incentives, Power Relations, and Effective Institutions. Chair: Sumaiya Kher, Deputy Executive Director, Transparency International Bangladesh Case Study: Climate Investment Funds in Bangladesh, Neha Rai, International Institute of Environment and Development Group 1: Understanding and Addressing Incentives What factors influence incentives for change, and how can they be explored. Facilitated by Joanne Manda, UNDP APRC, with David Nguyen-Thanh, GIZ Group 2: Exploring Power relations in the delivery of climate finance What factors influence power relations? How can conflicting interests be brought towards consensus? Facilitated by Sujala Pant, UNDP APRC, with Rutha Abraha, GIZ Group 3: Enabling Effective institutions How can political economy help to make institutions more effective? Facilitated by Sara Fyson, OECD, with Anke Scholz, GIZ Sharing of key messages from each group in plenary 11

12 Break Way forward Core messages to international platforms The objective of this final session is to agree on a set of key messages to share with a larger audience at the global meetings. Chair: Lidia Fromm Cea, Vice Minister, Ministry of Social Development, Honduras How can PEA help to make climate change finance more coherent with country systems? The perspective from Making Reform Happen, Steve Pierce, Special Coordinator, USAID Suggested key messages presented by country representative Validation of key messages in plenary Closing remarks Mr. David Nguyen-Thanh, Head of Section: Public Finance and Administrative Reform, GIZ Mr. Thomas Beloe, Development Effectiveness Advisor, UNDP-APRC 12

13 VIII. Annex 3: Participants List Region Country Name Position/Organisation Africa Cameroon Mr. Stratford Edith Pedie Head of Monitoring and Evaluation of the Ministry of Economy, Planning and Regional Development Africa Kenya Mr. Obadiah Mungai Africa Uganda Mr. David Ebong Economist, Carbon Finance Unit, The National Treasury Coordinator, CPA African Parliamentarians Taskforce on Climate Change Arab States Jordan Mr. Awwad Salameh Ministry of Planning and International Cooperation, Jordan Arab States Arab States Arab States Asia- Pacific Asia- Pacific Asia- Pacific Lebanon Ms. Leila El Sayed Economist-UNDP, Ministry of Environment and Ministry of Finance Lebanon Ms. Lea Hakim Senior Economic Adviser Lebanon Ms. Sawsan Nasserdine Senior Accountant Bangladesh Bangladesh India Ms. Krishna Gayen Mr. Rafique Ahmed Siddique Dr. Manish Gupta Joint Secretary, Finance Division, Ministry of Finance Deputy Chief, Aid Effectiveness Unit, Economic Relations Division, Ministry of Finance, Bangladesh Assistant Professor, National Institute of Public Finance and Policy Asia- Pacific Nepal Mr. Gopi Nath Mainali Joint Secretary, National Planning Commission Secretariat 13

14 Asia- Pacific Asia- Pacific Asia- Pacific Asia- Pacific Nepal Pakistan Fiji Samoa Mr. Vijaya Singh Mr. Sajjad Haider Yaldram Mr. Scott Hook Ms. Noumea Simi LAC Honduras Ms. Lidia Fromm Cea CSO Climate Policy Initiative (CPI) Assistant Country Director, UNDP Nepal Deputy Secretary, Climate Change Division, Government of Pakistan Economic Infrastructure Adviser Pacific Islands Forum Secretariat Assistant Chief Executive Officer, Aid Coordination Division. Ministry of Finance Vice Minister, Ministry of Social Development Ms. Skye Glenday Senior Associate CSO CSO CSO CSO CSO Freedom Forum, Nepal Institute of Development Studies International Institute for Environment and Development Transparency International Transparency International Bangladesh Mr. Krishna Sapkota Executive Director Mr. Thomas Tanner Ms. Neha Rai Ms. Lisa Ann Elges Dr. Sumaiya Khair Research fellow, Knowledge Technology and Society, UK Climate change research, International Institute of Environment and Development Programme leader, Climate Finance Integrity Programme Deputy Director, Transparency International, Bangladesh CSO Transparency International Bangladesh Mr. Zakir Hossein Khan Coordinate, Climate Finance Governance Project 14

15 CSO WRI Mr. Pieter Terpstra Senior Associate DP DFID Ms. Shailaja Annamraju Energy and Climate Change Unit, DFID India DP DFID Mr. Malcolm Smart Senior Economic Adviser DP GIZ Ms. Rutha Abraha DP GIZ Mr. Lars Andersen DP GIZ Ms. Firdaus Ara DP GIZ Mr. David Nguyen-Thanh Sector Program Good Financial Governance, Department Governance and Human Rights Energy Policy Advisor/GCF Readiness Programme Senior Advisor, International Climate Finance, Climate Finance Project Head of Section, Public Finance and Administrative Reform, Department of Good Governance and Human Rights DP GIZ Ms. Anke Scholz Deputy Programme Manager DP OECD Mr. Juan Casado Asensio Junior Policy Analyst Green Growth, Climate Change and Development Development Co-operation Directorate DP OECD Ms. Sara Fyson Governance Team Leader DP OECD Dr. Jan Corfee Morlot Senior Policy Analyst/Team Leader Environment and CC DP OECD Ms. Stephanie Ockenden Economist/ Policy Analyst DP SIDA Ms. Ulrika Åkesson First Secretary/Senior Programme Manager Environment and Climate Change, Climate Change, SIDA/Embassy of Sweden Bangkok DP USAID Mr. Steven Pierce Special Coordinator, USAID 15

16 DP UNDP APRC Mr. Kevork Baboyan DP UNDP APRC Mr. Thomas Beloe DP UNDP APRC Ms. Siriluck Chiengwong Governance and Public Finance Specialist Governance, Climate Change Finance and Development Effectiveness Advisor Regional Communications and Programme Analyst DP UNDP APRC Ms. Joanne Manda Climate Change Finance Specialist DP UNDP APRC Ms. Sujala Pant Local Governance Specialist DP UNDP APRC Mr. Paul Steele Environment Advisor 16