Institutional Finance Update: Leveraging Digital Technologies, Using Blockchain for Climate Action and Sustainable Development
5 September 2018: Discussions in recent months have explored how emerging technologies such as blockchain and digitalization processes could serve the implementation of the SDGs and the Paris Agreement on climate change. In August, the World Bank launched a blockchain-operated US$110 million bond, with potential impacts on carbon market trading. Other multilateral institutions have stressed the potential of digitalization technologies for sustainable development. The UNFCCC issued a report that assesses financing climate technology entrepreneurship and actions needed to support overcoming specific challenges in developing countries.
UNFCCC Urges Support for Climate Action through Climate Technology Incubators and Accelerators
Innovation can speed up and scale up national efforts to address climate change. But how can innovation be supported to the point that positive social and environmental impacts can be realized, especially in developing countries? This question is addressed in a report by the UNFCCC Technology Executive Committee (TEC), the Climate Technology Centre and Network (CTCN) and the Green Climate Fund (GCF) titled, ‘Climate Technology Incubators and Accelerators.’ The report identifies the need for finance for entrepreneurial activities, and strengthened support systems, along with enhanced linkages to climate technology markets.
With government support, incubators offer entrepreneurs a physical location and a range of services, including business, marketing, technical and networking, for a few years. They also link entrepreneurs to sources of finance and investment. Accelerators, traditionally more focused on high technology, offer entrepreneurs mentoring, peer review and skills transfer for a shorter period of a few months, in exchange for taking a small percentage shareholding in the resulting venture.
The report notes that, of an estimated 2,000 technology incubators and 150 accelerators worldwide, only a limited number, fewer than 70, are climate technology incubators and accelerators, of which only 25 are in developing countries. The report outlines existing challenges for innovation in climate technologies, which are largely capital intensive and of a risky nature. In addition, developing countries lack access to non-dilutive low-cost capital. To overcome these challenges, the report presents a list of key actions in the areas of: supporting developing countries in building and strengthening entrepreneurial ecosystems to unlock financing; crowding in private finance and developing financial instruments that reduce risks and opportunity costs for local public and private financial institutions; and exploring new incubation models aiming for financial sustainability. [Climate Technology Incubators and Accelerators] [SDG Knowledge Hub Update on Executive Summary of the Report]
Using Blockchain Technology for Climate Action and Sustainable Development
Earlier this year, expert discussions on the use of blockchain technology to improve carbon emission and clean energy trading, climate finance flows, and monitoring and reporting of greenhouse gas (GHG) emission reductions took place during the Bonn climate talks in May. In July, UNFCCC Collaboration Centres for the Latin America and the Caribbean Region and the Regional Platform for Low Emission Resilient Development Strategies (LEDS LAC) continued discussions by holding a webinar, in Spanish, on how blockchain technology is driving global climate action in Latin America. [UNFCCC Press Release] [LEDS LAC Webinar (in Spanish)]
GCF provides financial support to Bhutan’s Gross National Happiness Commission, the country’s National Designated Authority.
The World Bank issued bond-i, a two-year US$110 million bond fully managed using the blockchain technology. The launch followed from an Innovation Lab assessment on the impact of blockchain and other disruptive technologies for development, specifically in areas such as land administration, supply chain management, health, education, cross-border payments and carbon market trading. The Commonwealth Bank of Australia is the lead manager of the bond. [World Bank Press Release]
IDB Supports Digitalization of Ecuador’s Electric System
The Inter-American Development Bank (IDB) approved a US$100 million loan to help Ecuador improve the reliability of its electric system. The loan is for a 25-year term, with a 5-year disbursement period, a 7.5-year grace period and a LIBOR-based interest rate. Ecuador will use the loan to implement projects that aim at strengthening national transmission and distribution systems, including through equipment renewal and digitalization.
The funds will also support projects to boost environmental waste management capabilities and institutional strengthening to improve energy prospecting and analysis. In addition, some of the finance will help implement a Gender Action Plan for the electricity sector, including actions to reinforce gender equality in the areas of policy formulation and project planning, generation and management. [IDB Press Release]
Advancing Clean Energy in India through Capital Investment and Partnerships
The most important challenge in the rooftop solar photovoltaics (PV) sector is investment support through concessional funding sources, according to a joint study by PricewaterhouseCoopers Pvt Ltd, India, and Climate Investment Funds (CIF). The report titled, ‘Rooftop Solar PV in India: Looking Back, Looking Ahead,’ presents experiences in the rooftop solar PV sector from China, Germany and the US, and assesses India’s growth potential in the sector. Specific attention is given to market evolution in these countries, their respective target markets, business models and financing instruments, as well as key challenges. The report concludes by outlining projected scenarios for India’s rooftop solar PV sector and capital investment required to support its growth. [Rooftop Solar PV in India: Looking Back, Looking Ahead] [CIF Press Release]
The US-India Clean Energy Finance (USICEF) initiative signed on Tata Cleantech Capital Limited (TCCL), a joint venture between Tata Capital and the International Finance Corporation (IFC), as a new partner to finance and deploy high impact development projects that support clean energy access in underserved regions in India.
USICEF is a partnership between the Indian Ministry of New and Renewable Energy, the Overseas Private Investment Corporation (OPIC) and a consortium of foundations. It provides project preparation support to catalyze long-term debt financing for distributed solar power from a range of financial institutions. Climate Policy Initiative (CPI), which serves as the Program Manager of USICEF, leverages public and philanthropic funds to catalyze private investment in distributed clean energy in India. [CPI Press Release]
Leveraging Digital Technologies for Development in Asia-Pacific
During the Digital Development Forum 2018, held at the Asian Development Bank (ADB) headquarters in Manila, Philippines, the Bank announced that it will deliver integrated solutions in the areas of smart cities, e-government and e-commerce, while implementing digital reforms within the institution itself. ADB reported on projects already underway with a focus on reliable information and communication technology (ICT) infrastructure, skilled human resources, and enabling policies and regulatory environments. [ADB Press Release]
GCF Supports Climate Action in Pacific, Bhutan
During its Second Structured Dialogue with the Pacific, held in August in Pohnpei, Micronesia, GCF strengthened partnerships with key stakeholders in the region.
Pacific island countries have successfully engaged with GCF, with nine projects approved to date, as well as 19 readiness projects supporting the capacity of countries to respond to the climate change challenge. Countries in the region have also submitted an additional 18 projects for consideration in future GCF Board meetings. At the Dialogue, countries presented the goal of submitting 64 additional project proposals. [GCF Press Release]
The Government of Bhutan and the GCF scoping mission convened a number of meetings, including a national structured dialogue, aimed at identifying ways for climate finance to help bolster national climate action.
Bhutan is developing its 12th five-year plan to strengthen, among others, its progress on low-emission and climate-resilient development. For this task, Bhutan is using the GCF country programme, which summarizes a climate action agenda and planned activities with the Fund. GCF provides financial support directly to the country’s National Designated Authority (NDA), the Gross National Happiness Commission. Bhutan is receiving US$400,000 in GCF readiness support to assist its engagement with the Fund. GCF is also in the final stages of approving a US$3 million National Adaptation Plan (NAP) for Bhutan, with a focus on the water sector.
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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