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EBRD, Green Climate Fund set up €830 mil program to curb GHGs in developing countries

08 June 2021 Kevin Adler

The European Bank for Reconstruction and Development (EBRD) and the Green Climate Fund (GCF) announced on 1 June the launch of a $1.01-billion (€830 million) program to curb GHG emissions from energy-intensive industrial production, mining, and agriculture in developing countries.

Initial funding for projects will be aimed at companies operating in seven countries: Armenia, Jordan, Kazakhstan, Morocco, Serbia, Tunisia, and Uzbekistan.

The program combines $252.5 million of concessional debt from the GCF with $757.5 million from the EBRD and other co-financiers. Additional grant money of $5.5 million from the GCF and $1.4 million from the EBRD will be available for technical assistance.

In an email to IHS Markit, Simon Pollock, communications specialist for GCF, explained that in this program "concessional debt" comes in the form of reduced interest rates. "The GCF loan will initially be priced at market rate, and a discount on the interest rate on the GCF loan will be provided if certain milestones (climate outcome) are met, thus making the GCF loan concessional, compared to the market," he wrote.

According to the World Resources Institute, agriculture generated 12%, industrial processes 5.6%, and mining about 2% of global annual GHG emissions in 2019. Combined, they exceed transportation's share of 15.9%.

Overall, the EBRD and GCF said the program is expected to reduce industrial emissions by 17.2 million mt CO2 over a 20-year asset lifetime, which is equivalent to avoiding one year's worth of energy-related CO2 emissions by a country like Croatia.

The investment, known as the "High Impact Programme for the Corporate Sector," is the GCF's first at-scale engagement in industrial production, mining, and agriculture, GCF Executive Director Yannick Glemarec said in a statement.

"This initiative demonstrates how GCF's partnership with EBRD is driving innovation and investment in climate action at scale in developing countries. This program covers seven countries and serves as a model in paring back emissions in hard-to-abate industries. It will facilitate technology transfer and place climate change at the center of corporate strategy," Glemarec said.

A date to award the first tranche of loans has not yet been set, Pollack said. The program could be expanded to other countries, he added.

Use of renewable energy and development of low-carbon techniques for the industries is expected to eventually deliver about 70% of the GHG emissions cuts needed from those sectors to meet the 1.5 degrees Celsius climate warming goal, wrote Pollock.

"GCF financing is critical to address several barriers that adversely affect the uptake of climate technologies by the corporate sector," Pollock added, such as:

  • Limited access to commercial funding at early stages of development;
  • Higher costs and other disadvantages for early movers;
  • Lack of commercial funding that links prices to sustainability and climate corporate governance issues;
  • Corporate governance that does not adequately recognize or address the risks of climate change or the benefits associated with disclosure and solutions;
  • Technology and policy barriers; and
  • The disruptive nature of the investments to traditional processes.

"The funds are designed to support companies in formulating low-carbon pathways, along with a concrete action plan of realistic investment and a strategic review of their business model," GCF and EBRD added in their announcement.

The GCF was established in 2010 under the UN Framework Convention on Climate Change for developing countries seeking to mitigate and adapt to the challenges posed by climate change, and it has supported more than 100 projects to date. "GCF can structure its financial support through a flexible combination of grant, concessional debt, guarantees or equity instruments to leverage blended finance and crowd-in private investment for climate action in developing countries. This flexibility enables the fund to pilot new financial structures to support green market creation," it said.

Posted 08 June 2021 by Kevin Adler, Editor, Climate & Sustainability Group, IHS Markit

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