29 January 2013: The International Energy Agency (IEA) has published a report on “Plugging the Energy Efficiency Gap with Climate Finance,” which evaluates climate finance in funding energy efficiency projects in developing countries and explores the potential to channel finance for energy efficiency under the new Green Climate Fund (GCF).

The report focuses on financial flows from developed to developing countries through multilateral development banks, bilateral financial institutions, and carbon markets. It finds that only a very small share of the estimated US$343-385 billion in annual climate finance goes towards energy efficiency projects. It further finds that such finance is found much more in emerging economies than other developing economies. The report indicates that various barriers impede higher levels of finance for energy efficiency, such as weak capital markets, low energy prices, high transaction costs, inadequate governance capacity, sovereign risk, and institutional fragility.

However, the report suggests innovative options for increasing finance for energy efficiency through the GCF. Specific proposals include: dedication of a specific share of funding for energy efficiency projects, funding for policy and programme development, national and regional project clustering for reduced transaction costs, and the development of a new market mechanism under the UN Framework Convention on Climate Change (UNFCCC) that goes beyond the Clean Development Mechanism (CDM) to increase financing of energy efficiency.

The full title of the IEA report is “Plugging the Energy Efficiency Gap with Climate Finance: The Role of International Financial Institutions and the Green Climate Fund to Realise the Potential of Energy Efficiency in Developing Countries.” [IEA Publication: Plugging the Energy Efficiency Gap with Climate Finance]