Initiative for Climate Action Transparency
The Initiative for Climate Action Transparency (ICAT) helps countries better assess the impacts of their climate policies and actions, and fulfil their transparency commitments under the Paris Agreement. It does this by increasing the overall transparency capacities of countries, including the capacity to assess the contribution of climate policies and actions on countries’ development objectives, and providing appropriate methodological information and tools to support evidence-based policy-making. ICAT’s innovative approach is to integrate these two aspects.
ICAT works with over 40 developing countries worldwide to support their work on NDCs, including tracking of implementation, further policy development and related MRV. Work covers sectoral policies (renewables, energy efficiency, transport, agriculture, etc.) and cross-cutting aspects such as the link to sustainable development benefits, transformational change, and integration of actions at subnational level and by non-state actors.
ICAT is funded by the Children’s Investment Fund Foundation (CIFF), the German Federal Ministry for the Environment, Nature Conservation, Building and Nuclear Safety (BMUB), the Italian Ministry of the Environment (IMELS) and the ClimateWorks Foundation.
Position Background
As countries move from NDC updating to NDC implementation, financing the actions required to meet NDC targets becomes of central importance. The links between evidence-based policy developments and investment planning are critical in driving this agenda. The integration of transparency or MRV frameworks with steps needed to mobilize finance have, however, not been made systematically. Filling this gap is the focus of this consultancy.
ICAT has received requests from several of its partner countries to support them in linking their MRV/transparency work to climate finance. In one country project (Peru) an assessment of private climate finance was the focus of work and included methodological work and a first application. Other countries have highlighted the challenge in mobilizing finance for NDC implementation and asked how they can set up their NDC tracking framework to facilitate finance mobilization.
Climate finance is one component under the Enhanced Transparency Framework (ETF) under the Paris Agreement. The ETF foresees reporting by developing countries on support, including finance, needed and received. Another relevant element of the Paris Agreement is its Article 2 (c) which foresees making “finance flows consistent with a pathway towards low greenhouse gas emissions and climate-resilient development”.
ICAT’s focus is to support the use of data for evidence-based policymaking. ICAT has published 10 guides to support policy assessment in various sectors (energy, agriculture, forestry, etc.) and for a range of topics. Policies can be assessed for their effectiveness in terms of meeting GHG emission reduction objectives, their potential to lead to transformational change (or a paradigm shift) and their impacts on socio-economic parameters (or sustainable development impacts). Assessing socio-economic impacts of climate action is essential to engage national planning and finance ministries.
These assessments conducted using the ICAT methodologies will help countries to better plan their climate policies and measures and to report under the Paris Agreement. They can also assist countries in mobilizing finance. They can demonstrate the programmatic basis for financing, which is important in accessing public finance (e.g. the GCF) and in mobilizing private finance. Private investors highlight the need for a credible policy framework as a key aspect when assessing the risk of an investment.
Countries that have a climate transparency framework in place, can compile the data needed to track implementation actions. This can feed the M&E framework that financial institutions require to track the effectiveness of investments. Common practice is, however, that finance is project-based and M&E frameworks are set up for each project in isolation and not linked to the national MRV/transparency framework. This misses the opportunity to link project-based climate finance to the programmatic level and to national climate targets, such as those set in NDCs.
Planning and finance ministries need to be engaged in order to integrate climate action in national budget processes and become part of investment mobilization efforts. These ministries and other economic actors do not understand objectives expressed in climate change terms, such as GHG levels. They need to know the impacts of climate actions on key development parameters, which is what ICAT’s Sustainable Development Methodology enables countries to assess.
This is particularly important in times of an economic crisis due to the COVID-19 pandemic. The same economic/finance actors will also take decisions on spending recovery funding, and judge based on data regarding impact of actions on parameters like: job creation (short term, in line with local skills); short-term economic multiplier effects; short-term balance of trade impacts, etc. Data like this will help to integrate climate action into recovery packages, which provides an opportunity to enhance NDC actions in the recovery phase.
As countries are creating tracking frameworks for their NDCs they have an opportunity to support these NDCs through a data framework that allows to:
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Anchor them in national development planning;
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Track and report on progress, including those of implementation projects;
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Integrate them into economic recovery packages.
ICAT will collaborate with the NAMA-Facility in the context of the recently launched call for projects under the ‘Ambition Initiative’. This collaboration could provide an opportunity for some pilot activities to bridge the gap (explained above) between national, programmatic MRV/transparency frameworks and the M&E approach used for project finance.