REDD+ Advances in Indonesia, Mozambique and DRC as Renewable Energy Finance expands in Africa and Asia
Photo by Luis Del Río Camacho
story highlights

Indonesia to receive first carbon payments from Norway for reductions in deforestation.

The World Bank signed Emission Reductions Payment Agreements with Mozambique and the Democratic Republic of Congo and approved credit to increase renewable energy generation capacity in Bangladesh.

EU, EIB and World Bank support renewable energy programme in the Gambia.

EIB provides credit lines for SME, renewable energy and energy efficiency projects, with emphasis on female entrepreneurs.

ADB and NDB finance transit project in Mumbai.

6 March 2019: The path towards global mitigation goals requires international support to meet capacity needs, such as in the area of clean energy infrastructure, and building capacities to improve carbon stocks. This mitigation finance update informs of developments seen over the last month including: results-based finance partnerships for emission reductions in the forest sector; financing initiatives for increasing clean energy capacities and access in developing countries; and mitigation finance activities in the transportation sector.

Carbon Payments for Reduced Deforestation in Indonesia, Mozambique and Democratic Republic of the Congo

Reducing and preventing deforestation globally are among mitigation options with the largest and most immediate carbon stock impact in the short term, according to the Intergovernmental Panel on Climate Change (IPCC). The UNFCCC therefore requested early actions in ‘Reducing emissions from deforestation and forest degradation and the role of conservation, sustainable management of forests and enhancement of forest carbon stocks in developing countries’ (REDD+). This has led to multilateral activities, such as UN-REDD, and bilateral activities, including the Indonesia-Norway REDD+ Partnership. REDD+ under the UNFCCC follows a results-based approach, in which payments are provided ex post for mitigation outcomes already achieved, as opposed to project-based mitigation activities, where financing is provided ex ante in relation to expected outcomes.

The 2010 Indonesia-Norway REDD+ Partnership, requires Indonesia to take systematic action to reduce its forest and peat-related GHG emissions, whereas Norway agreed to support those efforts by making available up to US$1 billion exclusively on a payment-for-results basis. So far, about 13% of this pledge has been spent to support Indonesia’s efforts to address deforestation. In February, the two governments agreed on the rules for results-based payments: When Indonesia’s annual emission reduction figures are independently verified, Norway will guarantee payments to Indonesia for a portion of the expected 4.8 millions tons of CO2 reductions. Norway will not use emission reductions from Indonesia to offset its climate commitments under the UNFCCC.

The World Bank signed Emission Reductions Payment Agreements (ERPAs) with Mozambique and Democratic Republic of Congo (DRC) to reward community efforts in these countries to tackle deforestation and forest degradation. In Mozambique, the ‘Zambézia Integrated Landscape Management Program’ aims at reducing 10 million tons of carbon emissions by 2024, with performance-based payments of up to US$50 million. DRC signed its ERPA late last year to begin efforts towards future payments of up to US$55 million for verified emission reductions. DRC’s ‘Mai-Ndombe Emission Reductions Program’ aims, among others, at reducing slash-and-burn agricultural practices that cause deforestation and carbon emissions. The payments will come from the Carbon Fund of the Forest Carbon Partnership Facility (FCPF). More of the 19 countries in the FCPF’s Carbon Fund pipeline are expected to sign similar such payment arrangements, which will run through 2024. [Norwegian Ministry of Foreign Affairs Press Release] [IPCC Fifth Assessment Report (AR5)][World Bank Press Release on ERPAs]

Expanding Clean Energy Capacities and Access in Developing Countries

In the Gambia, an extensive renewable energy programme receives financing support of €142 million from the European Investment Bank(EIB), World Bank and the EU. The programme aims at reaching sustainable provision of renewable energy for all its public school and health facilities. The project is designed to: increase access to electricity, currently reaching less than half of Gambia’s population; shift reliance from imported diesel to electricity powered by solar energy for at least 20 years; and lay the groundwork for a national solar energy industry to provide additional services in the future.

The EU will provide €106 million for the clean energy programme to be implemented by national electricity utility NAWEC. This includes €65 million under a 25-year long-term concessional loan from the EIB and a €41 million grant from the EU budget. The project will also be supported by €35.7 million financing from the World Bank.

Also in March, the World Bank announced a new US$5 million program to help emerging markets assess their offshore wind potential and provide technical assistance to develop a growing pipeline of projects that are ready for investment by renewable energy developers. Led by the World Bank’s Energy Sector Management Assistance Program (ESMAP), in partnership with the International Finance Corporation (IFC), the program will convene developing country governments, commercial developers, development partners, and wind energy experts to assess new project opportunities that could be supported by World Bank or IFC financing. [EIB Press Release on renewable energy in the Gambia] [World Bank Press release on Offshore Wind Power Program in Developing Countries]

World Bank, Asian Development Bank Promote Renewable Energy Expansion in Asia

Bangladesh is increasing its renewable energy generation capacity, with support of a US$185 million International Development Association (IDA) credit approved in March by the World Bank. The Scaling-up Renewable Energy Project, totaled at US$413 million, aims at mobilizing US$212 million from the private sector, commercial banks and others and will establish a dedicated Renewable Energy Financing Facility to provide credit to developers. It will increase installed capacity of renewables, currently at only 1.5%, to up to 310 Megawatt (MW) through piloting and expanding investments. The first 50 MW phase of a large scale solar panel energy park will be implemented by the Electricity Generation Company of Bangladesh (EGCB).

The US$185 million credit includes a US$26.38 million loan and a US$2.87 million grant from the Strategic Climate Fund (SCF) of the World Bank’s Climate Investment Funds (CIFs). The IDA credit provides concessional financing, has a 30-year term, including a five-year grace period, and an interest rate of 1.25 percent with a service charge of 0.75 percent. The SCF loan is based on the same terms as the Scaling-up Renewable Energy Program (SREP) and has a maturity of 40 years, including a grace period of 10 years.

The Asian Development Bank (ADB) invested US$20 million in the climate bond issuance of AC Energy, a wholly-owned subsidiary of Ayala Corporation in the Philippines, with an energy’s target of 5 GW of attributable renewable energy capacity by 2025 across the region. ADB is an anchor investor in the 10-year tranche, contributing to a total issue volume of US$410 million. Proceeds of the bonds will finance renewable energy projects in the Asia and Pacific region, including Viet Nam, the Philippines, and Indonesia.

ADB’s investment aligns with:

  • the Bank’s Strategy 2030, which mandates that at least 75% of the number of ADB’s committed operations support climate change mitigation and adaptation by 2030, with climate finance from its own resources reaching US$80 billion over 2019–2030; and
  • the goal, under Paris Agreement on climate change, to make finance flows consistent with a pathway towards low greenhouse gas emissions (GHG) and climate-resilient development.

[ADP Press Release on AC Energy Climate Bond][World Bank Press Release on Expanding Renewable Energy in Bangladesh]

EIB provides credit lines for SME, Renewable Energy and Energy Efficiency Projects

The EIB and UniCredit renewed their commitment of €250 million each to finance Italian small and medium enterprises (SMEs), with particular emphasis on female entrepreneurship, innovation and climate action projects. Up to 25% of a €400 million credit line is intended for businesses managed or controlled by women. A credit line of €100 million aims at projects implemented by SMEs and local authorities that have an environmental purpose and aim to combat climate change. Projects in the renewable energy and energy efficiency sectors are eligible for financing with a maximum term of 20 years on the basis of the economic life of the investments to be financed.

The EIB also announced financing support of a Spanish financial system project, by which the EIB and Banco Santander España are providing businesses and the self-employed with a credit line, including €50 million of EIB funds, for modernization projects improving energy efficiency up to €10 million in total.[EIB Press Release on female entrepreneurship and climate action projects in Italy][EIB Press Release on energy efficiency project finance]

ADB and NDB Finance Transit Project in Mumbai with US$926 million

India agreed to a US$926 million ADB loan for a metro systems project in Mumbai, co-financed with US$260 million by the New Development Bank. Implemented by the Mumbai Metropolitan Region Development Authority (MMRDA), the operationalizing of two new rail lines by the end of 2022 is expected to transport an estimated 2 million passengers a day. The project will: fund over 60 six-car trains, signaling and safety systems; help establish a new metro operations organization; reduce emissions from vehicles, with CO2 emissions expected to fall by about 166,000 tons a year; and have women security features to enable their opportunities for employment along the new lines. [ADB Press Release on Mumbai Metro System Finance]

EU sets CO2 emission standards for trucks

To tackle emissions from road transport, the European Parliament and the Council reached provisional agreement on strict CO2 emission standards for trucks, following agreement reached in December on post-2020 CO2 emission standards for cars and light vans in the EU. Emissions from new trucks will have to be 30% lower in 2030 compared to the 2019 emissions. [EU Press Release on emission standard for trucks]

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The SDG Knowledge Hub publishes monthly climate finance updates, which largely focus on multilateral financing and cover, inter alia, mitigation and adaptation project financing news and lessons, institutional events and news, and latest developments in carbon markets and pricing. Past climate finance updates can be found under the tags: Finance Update: Climate Change; and Finance Update: Sustainable Energy.

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