Climate finance MRV: a practicable way forward for developing countries - the case of Laos
“Fixing” climate finance: from Bonn to Dubai and in the trenches of measuring financial flows at the national level
Whilst climate finance was not directly on the “negotiation menu” during the UNFCCC SB 58 meetings in June in Bonn, the matter continues to affect the negotiations, leading to the exclusion of the Mitigation Work Programme from the agenda, which was only adopted just before the SB 58 meetings came to an end. This already indicates a continuation and “sufficient” finance for climate action, in particular in developing countries, being one of the hot topics during COP28 this December.
A new collective quantified goal on climate finance to reach net-zero by 2050 is under debate – bearing in mind the difficulties in reaching the past goal of USD 100 billion per year – with developing countries requesting both more donor funding and more private finance. In the end, this also boils down to the question of measuring, reporting and verifying (MRV) climate finance at the national levels. Two factors make it hard for many (developing) countries to establish and implement climate finance MRV systems: The indecisiveness or interests hindering making required decisions about properly defining climate finance and its measurement at the international level as well as governance, capacity and resource constraints at the national levels. In the following, we focus on the latter, taking a brief, pragmatic look, whilst not further discussing the international perspective.
Basic system design considerations & processes for actual data collection, compilation and analysis and reporting for starters
Taking Laos as an example - there are key gaps with regard to the overall national climate change and climate finance governance structure, institutional architecture and related systems and processes. These have prevented the country from moving forward with the organized, efficient and effective implementation of a climate policy agenda, so far - including the access to and MRV of climate finance. Realistically and not overburdening weak governance structures, the only way forward is a phased approach in several phases – laying the foundation in a first phase and focus only on selected finance sources and instruments as well as selected key sectors. Then slowly and step-wise the scope of the evolving MRV system can be broadened.
Such an initial phase will focus on international public climate finance from multilateral and bilateral organizations, i.e., “upstream” finance to the country in the form of grants and loans, whereby the relevant information can be provided by a single government source such as the Ministry of Planning and Investment (MPI). The agriculture, forestry and energy sectors are tracked in this first phase due to their importance in the context of implementing and achieving the targets of the National Determined Contribution (NDC) of Laos. MoUs with the initial data providers are required. These are the MPI and the Ministry of Finance (MOF), which also tracks international public finance flows (in particular loans), with respect to the climate finance inflows to the country, on the one hand. The Ministry of Agriculture and Forestry (MAF) and the Ministry of Energy and Mines (MEM) with respect to the outflows or expenditures in the respective sectors, on the other hand.
The datasets provided will be reviewed by MONRE as well as cross-checked with other sources: again, international public loans are tracked by both MOF and MPI and climate-related ODA can be cross-checked with the respective OECD database – bearing in mind the delay in OECD reporting, not being able to provide figures for the previous year but two years back. Reviewing and double-checking may require contacting recipient entities and/or the implementing entities that receive the funding from donor or financial institutions or the donors directly to receive the latest climate finance inflow figures. Cross-checking will also help to reduce the risk of or avoid double-counting and will increase overall data quality and accuracy.
Properly preparing and reviewing such climate finance datasets and allocations of mitigation and adaptation finance, for instance, requires a fundamental understanding of related methodologies such as the Rio Markers and the MDB methodology as well as of climate actions and projects in the relevant sectors though.
Initially, the system will aim to focus on producing figures that are commonly used and presented in the international context (e.g., UNFCCC and OECD) as well as to prepare for the first biennial transparency report (BTR) under the enhanced transparency framework (ETF) of the Paris Agreement at the end of 2024 for starters. The following basic figures should be available for reporting purposes: budget and funding received in total per funding source and project over the years/per year/accumulated over the years; mitigation/adaptation/cross-cutting (share) per year/accumulated over the years across the entire project portfolio; financial instruments (share: grants vs. loans) per year/accumulated over the years across the entire project portfolio; and share of different sectors per year/accumulated over the years across the entire project portfolio. More figures or reporting functions can be added at later stages, such as related to sub-national data or indicators to measure progress against national plans, programmes and strategies such as the NDC or the SDGs. For example, GHG emission reductions achieved or related to adaptation and resilience targets.
Putting the basic governance framework, institutional architecture and processes in place
A proper legal foundation is absolutely necessary, an amended climate change decree, potentially followed by a more thorough climate change law at a later stage. Therein high level guidance needs to define, at least, roles and responsibilities, flow of information and data collection, frequency of reporting and reporting modalities among different stakeholders. A functional National Climate Change Committee (NCCC) needs to be established allocating certain tasks to a Climate FInance Sub-Committee. This committee may provide overarching and general guidance with regard to the system needed to track, monitor, verify and report on climate finance, integrated into the overall climate finance institutional framework. Such a committee can also offer advisory services to the NCCC and other government institutions in climate finance matters and the means to generate and mobilise climate finance.
According to Robert Tippmann, Managing Director at Climatekos, on the occasion of a climate finance MRV system user training workshop in Vientiane in July, “fixing climate finance” as COP28 President Designate Ahmed Al Jaber frames it, also means: “Getting a basic system up and running now will be crucial for countries like Laos to not miss out on the ever increasing climate finance flows for the implementation of its climate policy and development agendas – being able to leverage more public and particularly private climate finance going forward and once the MRV system has further evolved.”
Climatekos gGmbH is an independent social enterprise in the field of environment and development focusing on international climate protection.