Financing NDC implementation

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contains also a number of instruments to implement the overall policy: i) information, science, and technology; ii) education and awareness; iii) planning; and iv) financial instruments. The policy not only integrates the institutional arrangement established in CONPES 3700 at the na-tional level, but also includes territorial entities (departments and municipalities) and environ-mental regional authorities for coordinating adaptation and mitigation actions in the regional and local levels. The policy expands the scope of the sectorial mitigation action plans (PAS) to include sectorial adaptation actions. Therefore, currently all relevant ministries and depart-ments are formulating integrated climate change sectoral plans and integrated climate change territorial plans, respectively.

A draft for a Climate Change Law is being developed in order to establish the necessary regula-tions to prevent and mitigate emissions, adapt to the impacts of climate change and promote economic, industrial, and technical progress as well as sustainable development of the country (Universidad de los Andes, 2015).

The INDC is closely aligned with the 2014-2018 National Development Plan. According to the PNCC, every new development plan should include an explicit contribution of each of the central sectors to achieve the proposed target for the respective four-year period. These contributions will provide the basis for the elaboration and actualisation of the eight existing sectoral action plans or, more specifically, the sectoral mitigation plans (MinAmbiente, 2018b).

2.2.6 National Registry of GHG Emission Reductions

In order to keep track of climate action, Article 175 of Law 1753/2015 established a National Registry of GHG emission reductions (RENARE) (Republic of Colombia, 2015). The Ministry of Environment and Sustainable Development is responsible for developing and administering the registry, which also serves to monitor progress towards the Colombian NDC.

The registry aims to serve as a platform to account for emission reductions and removals, as well as support the MRV processes at the national level including tracking NDC implementation. Arti-cle 175 further states that emission reduction accredited by the Ministry of Environment under the national or subnational mitigation programmes cannot be offered in the domestic or interna-tional carbon market.⁶ Though as of June 2018, the registry has not yet been launched.

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investments; 2) needs for new investment; 3) needs for sectoral regulation; 4) potential new economic instruments (Cancillería, 2016).

The National Planning Department elaborated a study on the broader economic impacts of the fulfilment of Colombia’s commitment under the Paris Agreement. The study shows that GDP growth in the country would – after some adjustment costs in the short term – increase by an additional 0.15% annually between 2020 and 2040 in a scenario that considers mitigation measures, compared to BAU. Calculations are based on a portfolio of 71 mitigation measures (out of the 101 identified by the University of the Andes) that have a cost of less than USD 20 per tCO2e (in 2010). The unemployment rate is expected to decrease as a direct result of mitigation action in labour-intensive sectors, such as transport and agriculture. The study furthermore shows that large investments will need to be directed at the transport sector (around 72% of the total), as well as at the agricultural (16%) and residential (8%) sectors. The study further finds that transport, agriculture, and industry should be priority sectors in the implementation of the unconditional NDC, with construction (including residential), trade and services being directly affected through their interrelations with these sectors.

There are three main sources of finance that the Colombian government is mobilising for NDC implementation: public, private and international.

2.3.1 Public Finance

Germany funded the development of a Climate Public Expenditures and Institutional Review (CPEIR) for Colombia which led to an MRV system and an online portal on climate finance in Co-lombia⁸. According the portal, over $6 billion USD of public funds, both domestic and interna-tional, flowed to 15,000 different climate change measures in Colombia between 2011 and 2015.

The Colombian government has already mobilised sizeable resources towards NDC implementa-tion. Between 2005-2017, the Colombian government estimates that it has spent 11,432.4 billion Colombian Pesos (3.39 billion Euros⁹) on climate change measures. In the short to medium term, future public spending on climate and NDC implementation will be determined by the govern-ment of the new conservative President Iván Duque who was elected in June 2018.

For mitigation measures with a positive future revenue stream (e.g. energy efficiency measures), green bonds can be a particularly important tool to mobilise private finance for climate mitiga-tion. The financial management SICLIMA under the DNP has been working on further green debt market development. Moreover, E3 - Ecología, Economía y Ética, Metrix Finanzas in association with PwC-UK and the Climate Bonds Initiative, published a roadmap for a local green bonds mar-ket¹⁰ (Climate Bonds Initiative, 2017b).

Álvarez-Espinosa et al., (2017) highlight that public investment is needed to steer private fi-nance in the right direction, through the creation of de-risking instruments, incentive schemes, co-investment opportunities, and other measures. Importantly, green bonds issued by public ac-tors have started to become an important vehicle in the mobilisation of private finance for cli-mate mitigation and have the potential to play a growing role in the implementation of NDC.

An important potential measure that the public sector can take to mobilize private capital is through public development banks. Public development banks have potential portfolios, credit

8 The portal can be accessed at: The following link leads to the internet http://mrv.dnp.gov.co/Paginas/inicio.aspx

9 At 3336.49 Colombian Pesos to the Euro, exchange rate from July 2018.

10 The roadmap can be found at: The following link leads to the internet https://cdkn.org/resource/guide-road-map-actions-setting-green-bond-market-colombia/?loclang=en_gb

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ratings, and capacity to issue green bonds. These banks include Findeter, Bancoldex, Financiera del Desarrollo Nacional and FINAGRO.

Findeter in particular is considered to have potential to aggregate projects and assets of munici-palities that may be too small or lack capacity to float their own green bonds. Findeter has assets that could be considered eligible for a green bond of $138 million US Dollars (118.69 million Eu-ros¹¹) and green projects account for $1,259 million US Dollars (Martinez Zuleta et al., 2017).

Furthermore, in August 2017, Bancóldex, Colombia’s public “entrepreneurial development bank”

under the Ministry of Industry and Tourism, floated a green bond of 200 billion Colombian pesos for climate mitigation. The auction was significantly oversubscribed, with a demand of 510 bil-lion pesos. The IDB, with resources from the Secretariat of State for Economic Affairs of Switzer-land (SECO), supported bond structuring (IDB, 2017).

A number of sub-national governments also have sufficient capacity and balance sheets to be able to float green bonds. These include: Barranquilla and Bucaramanga, the Provinces of At-lántico, Antioquia, Cundinamarca, Santander, and Bogotá D.C. (Martinez Zuleta et al., 2017). A number of these cities have further made investments in assets that would be eligible as a basis for green bond issuance (ibid). Municipal bonds are also something that Colombian subnational governments have some experience with: Bogota for instance floated a $100 million USD munic-ipal bond in 2001 (IDB, 2016). Moody’s revised the credit outlook of both Bogota and Medellin from negative to stable in February 2018 (Moody’s, 2018). Colombia has further already tapped fixed income markets for such things as a social impact bond to finance employment and poverty alleviation measures (Gustafsson-Wright & Boggild-Jones, 2017)

2.3.2 Private Finance

In addition to the efforts of public entities to mobilise finance for the NDC, the Colombian private sector has also already started to realise its potential and the business opportunity to raise capi-tal and invest in climate friendly businesses. Colombia’s finance sector is considered mature with a credit rating of BBB from Fitch, a stable outlook, and a national long term rating of AAA(col) (Fitch, 2017). Colombia also has a developed private equity fund sector, private pen-sion funds, and a stock market: the Bolsa de Valores de Colombia. Colombia is successful in at-tracting foreign investment with 13.5 billion USD in FDI in 2016 (Santander, 2018). However, compared to other countries in the region, the Colombian private bond market remains some-what underdeveloped – the national government is the leading issuer with 82.9% of the coun-try’s debt market (Martinez Zuleta et al., 2017).

Domestic pension funds are an important potential investor in Colombian Green bonds (Martinez Zuleta et al., 2017) and private Colombian pension fund assets represented roughly

$79.8 billion in March 2017 (Sitori-Cortina, 2017).

There have already been two private sector green bond issuances. In December 2016, Banco-lombia issued the first green bond from CoBanco-lombia (115 million USD)(Patzdorf, 2016); Da-vivienda bank followed in April 2017 an issuance of COP433bn (149 million USD)¹² Colombia further has a number of private domestic philanthropic foundations that fund measures related to climate change and sustainable development, most notably the Fundación

11 At 1.16 Dollars to the Euro exchange rate from July 2018

12 The capital raised from the green bonds, goes in part to finance promotional rates for construction companies building energy efficient buildings and for mortgages of buyers who buy energy efficient housing. Further details are in the next section under “Financial incentives for mitigation in the Colombian building sector”.

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Mario Santo Domingo Por el Desarrollo Sostenible de Colombia and the Fundación Grupo Fa-milia.

2.3.3 International Development Finance

According to the Climate Funds Update, Colombia had received approximately 209 million USD for mitigation measures alone from major international climate finance funding institutions as of 1 March 2018 (ODI, 2018). This amount is in line with or exceeding the amount of funding com-parable countries in Latin America received.

International funding has been disbursed through:

► Five supported Colombian NAMAs;

► Three projects of the Clean Technology Fund;

► Fast Start Funds from Japan for adaptation;

► Six German International Climate Initiative projects;

► Two Adaptation Fund projects;

► Funding from the World Bank’s Forest Carbon Partnership Facility;

► Eleven projects funded by the Global Environment Facility;

► Support from the World Bank’s Partnership for Market Readiness;

► Grants from the German Climate Finance Readiness Programme.

There are many foreign organisations and programmes currently active in Colombia in the field of climate change.