While climate change affects all parts of the world, developing countries are particularly vulnerable.
Technology transfer is therefore believed to be key in supporting countries to improve their resilience.
The recent historic agreement achieved at COP 21 in Paris resulted in unprecedented momentum for tackling climate change – including scaling up action on climate change adaptation. Climate resilience on a wide scale can only be achieved with the engagement of the private sector. While climate change affects all parts of the world, developing countries are particularly vulnerable. Technology transfer is therefore believed to be key in supporting countries to improve their resilience.
This article presents an example of how climate resilience can be improved through innovative mechanisms that facilitate technology transfer and promote private sector engagement. The example comes from Tajikistan, the most vulnerable country to climate change in the European Bank for Reconstruction and Development (EBRD) region. Tajikistan’s climate is changing: average temperatures are rising, precipitation patterns are shifting and glaciers are retreating. This has fundamental impacts on the country’s economy, which depends on highly climate sensitive resources – land, water and energy.
For instance, farmers are experiencing low agricultural productivity and consequently reduced income due to land degradation and unreliable water supply – risks that are being amplified by the effects of climate change. Tajikistan’s agricultural sector accounts for a quarter of the country’s GDP and two-thirds of the working population; most of the agricultural land is vulnerable to soil erosion. In part, this is due to poor land management practices and over-grazing. However, it is further worsened by climate-related factors such as extreme weather. In recent decades, deforestation has also played a significant role: rural communities, which typically rely on electricity for heating, have had to turn to fire wood due to frequent power cuts. The fragile electricity sector dominated by hydro power is increasingly coming under pressure due to obsolete equipment and changing water inflow patterns as a result of climate change. Businesses and households are also experiencing the impacts of climate change, through water shortages and power cuts.
To address these challenges the EBRD joined forces with Tajik financial institutions and the Climate Investment Funds (CIF) and launched CLIMADAPT, a US$10 million financing facility. CLIMADAPT builds on the EBRD’s experience with its Sustainable Energy Financing Facilities through which it provides credit lines to local financial institutions that on-lend the funds to small- and medium-sized businesses, corporations and households for sustainable energy investments. Sustainable Energy Financing Facilities exist in almost every country in which the EBRD invests and the financing volume since 2006 has reached more than €3 billion.
CLIMADAPT is new; it is the first financing facility with a focus on climate change adaptation. So far, the EBRD has been working with three partner financial institutions: Tajikistan’s Bank Eskhata; Humo, the third-largest non-bank microfinance institution in the country; and IMON International, the largest microfinance institution in Tajikistan.
These partners will on-lend funds to households and businesses, including farmers. Loans for businesses will fund climate resilience investments that rationalize water and energy use and that promote sustainable land management. For instance, in farming this can include drip irrigation or the introduction of zero tillage, a practice of growing crops from year to year without disturbing the soil through tillage. Zero tillage increases the amount of water that infiltrates into the soil. This can reduce or even eliminate soil erosion. To overcome affordability constraints of local businesses and households, the CIF are providing US$5 million of concessional finance, which is blended with EBRD’s US$5 million of commercial finance.
For climate resilience investments below US$300,000, CLIMADAPT has a list of eligible equipment and material. This provides clear guidelines as to what classifies as a climate resilience project. Equally, it makes small- and medium-sized transactions very efficient. For investments above US$300,000, CLIMADAPT offers clients a dedicated climate resilience assessment that identifies climate risks and offers technical solutions.
Since dedicated climate resilience investments are new to the Tajik market, there is significant scope for knowledge improvement, in particular in the areas of water efficiency and sustainable land management. The UK’s Department for International Development (DFID) and the EBRD’s Early Transition Fund are providing funding for technical assistance. Some of the funds are used for financing climate resilience assessments; the remainder will support partner financial institutions as they introduce adaptation finance into their operations.
The launch event for CLIMADAPT took place on 3 February 2016, in Dushanbe, Tajikistan. CLIMADAPT will contribute to improving Tajikistan’s resilience to climate change, and will deliver important lessons learnt for scaling up private sector adaptation action through technology transfer.