ACS11581 ENVIRONMENT AND NATURAL RESOURCES GLOBAL PRACTICE POLICY NOTE Financing Climate-Resilient Growth in Tanzania SEPTEMBER 2015 WORLD BANK GROUP REPORT NUMBER ACS11581 ENVIRONMENT AND NATURAL RESOURCES GLOBAL PRACTICE POLICY NOTE FINANCING CLIMATE-RESILIENT GROWTH IN TANZANIA i © 2015 World Bank Group 1818 H Street NW Washington, DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org E-mail: feedback@worldbank.org All rights reserved This volume is a product of the staff of the World Bank Group. The findings, interpretations, and conclusions expressed in this volume do not necessarily reflect the views of the Executive Directors of World Bank Group or the governments they represent. The World Bank Group does not guarantee the accuracy of the data included in this work. 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CONTENTS Acknowledgments v Abbreviations and Acronyms vii Background ix Executive Summary xi Tanzania in 2050: Changing Economy, Changing Climate xi The Case for Investing in Climate Action Now xii Take Action Today to Achieve a Resilient Future xiii Chapter One: Introduction 1 Chapter Two: The Challenge: Climate Risks to Key Growth Areas 3 Chapter Three: The Current State of Climate Planning and Finance 11 Strategic Planning 11 Climate Change Plans 13 Current Climate Change Financing 14 Chapter Four: Reducing Tomorrow’s Risks Through Today’s Decisions 19 Leadership 19 Strategic Planning 21 Funding 22 Implementation 25 Chapter Five: Working with Tanzania to Support Resilient Growth 27 Financial Services to Support Investment and Policy Reform 28 Technical Assistance and Knowledge Services 30 Convening and Coordination 32 Chapter Six: Key Messages for Financing Resilient Growth 33 References 35 Appendix A: Lessons Learned from Global Case Studies 39 Appendix B: Guidance on Choosing Funding Modalities 47 Appendix C: Consultation 57 BOXES Box ES.1: What Are the Potential Impacts? xii Box ES.2: How Will Climate Change Affect Growth? xiv Box 1.1: Climate Funds, Mechanisms, and Frameworks 2 Box 3.1: The Case for Climate Finance: Tanzania’s Five Year Development Plan 12 Box 3.2: Sector and Thematic Priorities of the NCCS 13 Financing Climate-Resilient Growth in Tanzania iii Box 3.3: United Nations—Framework Convention on Climate Change 15 Box 4.1: Options: Who Should be Considered in a Financing Framework? 23 Box 5.1: Potential Areas for Climate Change Technical Assistance 31 Box B.1: Options: On- and Off-Budget Finance 48 Box B.2: Options: How Ambitious Could a Fund Be? 50 Box B.3: Options: What Could Thematic Windows Support? 52 FIGURES Figure 2.1: Comparison of Climate Models and Change in Temperature by the 2050s 4 Figure 2.2: Tanzania Rainfall Zones 5 Figure 2.3: Comparison of Climate Models for Percent Change in Annual Precipitation by the 2050s under the A2 Scenario 6 Figure 2.4: Extreme Event Frequency and Impact (1900–2000) 7 Figure 3.1: Climate Finance in Eastern Africa (2003–13) 16 Figure 4.1: Key Considerations for Implementing and Financing Climate Action 20 Figure 5.1: Tools for Building Resilience 28 TABLES Table 3.1: Climate Change in the FYDP 12 Table 3.2: International Climate Finance in Tanzania by Source (2003–13) 17 Table 3.3: Climate-Related Expenditure in Recent Years 18 Table 3.4: Relevance of Climate-Relevant Expenditures 18 Table 5.1: Stages of World Bank Climate Change Engagement in Mexico 30 Table A.1: Dedicated Climate Funds Case Studies 40 Table B.1: Opportunities and Constraints of Potential Finance Instruments 49 iv Financing Climate-Resilient Growth in Tanzania ACKNOWLEDGMENTS The preparation of this policy note was part of a larger effort by the World Bank, in col- laboration with development partners, to assist the government of Tanzania (GoT) in assessing the implications of climate change for the country’s economic development. The policy note was developed by a Tanzania-based team led by Ann Jeannette Glau- ber (Senior Environmental Specialist, World Bank) and Magdalena Banasiak (U.K. Department for International Development [DFID]) under the guidance of Magda Lovei (Practice Manager for Environment and Natural Resources, World Bank), and Philippe Dongier (Country Director, World Bank). The primary author is Amy Faust (Consultant), with inputs from the Global Climate Adaptation Partnership (GCAP) on climate finance mechanisms. The following per- sons contributed valuable comments: Pablo Cesar Benitez (Senior Economist, Global Climate Change Knowledge Network [GCCKN]); Shailaja Annamraju (Lead Econo- mist, DFID); Malcolm Smart (Senior Economic Adviser, DFID); Lars Mikkel Johan- nessen (Consultant); Paul Watkiss (Consultant); Gerard Hendriksen (Consultant); and Kahana Lukumbuzya (Consultant). The team benefited from close engagement with the Tanzania Ministry of Finance (MoF); Vice President’s Office—Division of Environment; the First Vice President’s Office—Division of Environment and President’s Office of Finance; Economic and Development Planning in Zanzibar; the Ministry of Natural Resources and Tourism; and the University of Dar es Salaam (UDSM). Local development partners in Tanza- nia have also provided substantial inputs, including the United Nations Development Programme (UNDP) and the Royal Embassy of Norway. The World Bank team is grateful for the financial support of the Bank-Netherlands Partnership Program and the U.K. International Climate Fund. Financing Climate-Resilient Growth in Tanzania v ABBREVIATIONS AND ACRONYMS ACRP Agriculture Climate Resilience Plan IFC International Finance Corporation AF Adaptation Fund IPCC Intergovernmental Panel on Climate Change BCCSAP Bangladesh Climate Change Strategy and ITCZ Inter-Tropical Convergence Zone Action Plan IMF International Monetary Fund BCCRF Bangladesh Climate Change Resilience Fund LDC Least developed country BCCTF Bangladesh Climate Change Trust Fund LDCF Least Developed Countries Fund CIF Climate Investment Fund LGA Local Government Authority CDM Clean Development Mechanism M&E Monitoring and evaluation COP Conference of the parties MAFC Ministry of Agriculture, Food Security, and CMIP5 Coupled Model Intercomparison Project Cooperatives phase 5 MDA Ministries, Departments, and Agencies CRGE Ethiopia Climate Resilient Green Economy MEDEC México: Estudio sobre la Disminución CRGE-F Ethiopia Climate Resilient Green Economy de Emisiones de Carbono (low carbon Facility study) CSO Civil society organization MINECOFIN Ministry of Finance and Economic Planning DFID U.K. Department for International MINIRENA Ministry of Environment and Natural Development Resources DPG-E Development Partners Group on MKUKUTA National Strategy for Poverty Reduction and Environment Economic Growth DPL Development Policy Lending MoF Ministry of Finance DPO Development Policy Operation MoFED Ministry of Finance and Economic EIT Economies in transition Development EMA Environmental Management Act NAMA National Appropriate Mitigations Actions EnDev Energising Development NAPA National Adaptation Programme EPA Environmental Protection Authority of Action ETF Environmental Trust Fund NCCS National Climate Change Strategy EU European Union NCF National Climate Fund FONERWA Rwanda Environment and Climate Change NCFM National Climate Change Financing Fund Mechanism FYDP Five Year Development Plan NGO Nongovernmental organization GCAP Global Climate Adaptation Partnership NIE National Implementing Entity GCCA Global Climate Change Alliance NSA Non-state actor GCF Green Climate Fund ODA Official Development Assistance GCM Global circulation model ODI Overseas Development Institute GDP Gross domestic product OECD Organisation for Economic Co-operation and Development GEF Global Environment Facility PMO-RALG Prime Minister’s Office-Regional and Local GHG Greenhouse Gas Government GoB Government of Bangladesh POPC President’s Office Planning Commission GoR Government of Rwanda PSF Philippines People’s Survival Fund GoT Government of Tanzania RBF Results-based finance ICCTF Indonesia Climate Change Trust Fund Financing Climate-Resilient Growth in Tanzania vii RCP Representative Concentration Pathway UNDP United Nations Development Programme REDD Reduced Emissions from Deforestation and UNFCCC United Nations Framework Convention on Degradation Climate Change REMA Rwanda Environment and Management URT United Republic of Tanzania Authority USAID United States Agency for International SAGCOT Southern Agricultural Growth Corridor Development SCCF Special Climate Change Fund VPO-DoE Vice President’s Office—Division of SREP Scaling Up Renewable Energy Program Environment UDSM University of Dar es Salaam WSDP Water Sector Development Programme UNDAP United Nations Development Assistance ZCCS Zanzibar Climate Change Strategy Programme viii Financing Climate-Resilient Growth in Tanzania BACKGROUND Climate change is a core development challenge in Tanzania, and the potential costs of inaction are significant. Current climate variability (includ- ing extreme events such as droughts and floods) already leads to major economic costs in mainland Tanzania and in Zanzibar. Individual annual events have economic costs in excess of 1 percent of gross domestic product (GDP) and occur regularly, reduc- ing long-term growth and affecting millions of people and livelihoods. Future climate change could lead to large economic costs, equivalent to a further 1 to 2 percent of GDP per year by 2030 (GCAP 2011). Given this context, there is a clear need for strong and sustained effort by the government to help establish a growth path for the country that is resilient to climate variability and able to adapt to future change, as well as help Tanzania take advantage of external and domestic finance opportunities for sustained action on climate risks. Tanzania has responded to growing climate risks by adopting the National Climate Change Strategy (NCCS), which is the guiding frame- work for taking action on climate change. Zanzibar has also adopted its own climate change strategy, the Zanzibar Climate Change Strategy (ZCCS). Together, these documents set forth the strategic priorities for climate action and are a step toward integrating climate change into development planning. These plans are rela- tively new, and while some implementation is planned, there is still significant need for further clarifying priority investments to improve Tanzania’s resilience to climate change and to assist in leveraging and channeling climate finance more strategically, to deliver results on the ground. In response to a request by the United Republic of Tanzania (URT) for technical assistance in improving the impact of the national climate change strategies, the Bank has developed a series of policy notes com- plemented by targeted capacity building focused on key areas of vulner- ability and financing. These policy notes include the following: (a) Financing Climate Resilient Growth. Outlines Tanzania’s experience and challenges to date in accessing and channeling climate finance and provides recommendations to the URT to help guide design decisions around their planned climate finance mechanism. (b) Toward Climate-Resilient Agriculture in Tanzania. Recommends key policy and investment areas to target to address the most urgent impacts posed by weather variability and climate change to the crop subsector and main- stream climate change decision making within agricultural policies, strategic initiatives, and plans. The policy note process supported the Government of Tanzania (GoT) in its preparation of the Agriculture Climate Resilience Plan (ACRP), the first climate action plan to have been endorsed. Financing Climate-Resilient Growth in Tanzania ix (c) Toward Climate-Resilient Cities in Tanzania. Looks at the climate risks faced by the country’s larger cities based on an evaluation of recent historical flood- ing events and outlines key vulnerabilities and recommended responses. (d) Tanzania’s Coastal Zone: Vulnerability to Climate Change and Priorities for Action. As- sesses the anthropogenic and climate-related threats to the entire coastline, including both mainland and Zanzibar, and outlines the process to identify and prioritize responses to build resilience. (e) Lights Out? Vulnerability of Tanzania’s Hydropower to Climate Change. Evaluates the sustainability of existing and planned hydropower schemes in Tanza- nia, including assessing the impacts of climate change versus upstream and downstream anthropogenic activities on future hydropower production, and proposes adaptation measures to improve hydropower sustainability. These policy notes were financed through resources from the Bank-Neth- erlands Partnership Program, the Nordic Development Fund, the U.K. International Climate Fund, the Water Partnership Program, and Bank funds. The Bank gratefully acknowledges the importance of the financial and techni- cal resources provided by each donor. x Financing Climate-Resilient Growth in Tanzania EXECUTIVE SUMMARY TANZANIA IN 2050: CHANGING ECONOMY, CHANGING CLIMATE Tanzania will look dramatically different by mid-century. Tanzania envisions reaching middle-income status by 2025, with a modernized agriculture sector lifting smallholder farmers out of poverty, increased energy connectivity, and GDP boosted through power generation fueled largely by exploiting domestic natural gas and coal resources. The population will nearly triple from 45 million in 2010 to 130 million in 2050—and for the first time, more Tanzanians will live in cities than rural areas. By 2050, Tanzania’s climate will also change. Temperatures are already rising and rains are less predictable. Temperatures will likely increase by at least 1°C, pos- sibly 3°C in some areas (see box ES.1). Projected rainfall reductions inland could make water scarcer, and Tanzania will need to feed more people with less rainfall in some key agricultural areas. On the coast, key to industry, the population is already swelling into largely informal settlements in urban areas that cannot keep up with new migrants— heavier rains are likely, affecting settlements, infrastructure, and mobility. Key eco- nomic sectors are already vulnerable to the climate; by 2050, the costs just to adapt to climate change impacts could be in the order of US$1 billion per year (GCAP 2011). Building resilience to climate variability and long-term climate change is an urgent development issue for Tanzania, and the coming decades are critical for the country’s planned economic transition. Tanzania’s diverse landscapes and natural resources are already experiencing the impacts of climatic shifts combined with current development challenges stemming from rapid population growth, unsustainable resource use, and environmental degradation. The economic costs of weather-related risks can ripple through the entire economy: for example, the 2005/06 drought affected millions of people and imposed costs of at least 1 percent of GDP. By 2030 climate change could account for net economic costs of 2–3 percent of GDP per year (GCAP 2011), threatening the goal of reaching middle income status. These poten- tial costs represent a challenge that spans Tanzania’s core growth and poverty reduction priorities, from agriculture to energy and from rural to urban development. Financing Climate-Resilient Growth in Tanzania xi BOX ES.1. WHAT ARE THE POTENTIAL development partners and the private sector, literature and IMPACTS? consultative meetings toward two main objectives: 1. To assess current climate change planning and fi- Historic climate trends, as well as projections, point to shifts nance in Tanzania in temperature and precipitation that will fundamentally 2. To recommend measures Tanzania can take to alter Tanzania’s weather patterns: » Tanzania is getting hotter. The evidence is clear from cli- operationalize existing climate change plans and mate trends that monthly temperatures across Tanza- more strategically leverage technical and financial nia have steadily increased over the past thirty years support toward those climate goals (URT 2007), with the average temperature rising by 1°C between 1960 and 2006 (McSweeney et al. 2010). Future average annual temperatures are pro- THE CASE FOR INVESTING jected to further increase by 1°C to 3°C by the 2050s (Wambura et al. 2014).1 IN CLIMATE ACTION NOW » Rainfall patterns are less predictable and expected to become The cost of adapting to climate change is ris- increasingly variable. Tanzania has a diverse range of ing, and early action is critical to reduce future climatic zones ranging from arid lands to wetter high- costs. Addressing current climate risks is estimated at land areas to coastal and lake zones. The impacts approximately US$500 million per year, with an additional of climate change will vary across these areas: this US$100–150 million annually needed to build resilience includes shifts in the onset of the rainy season (espe- to future changes. As the climate changes, the resources cially in the south) and increasing seasonal varia- tions (Ndaki 2014). Some areas will likely experience needed for adaptation will rapidly rise, potentially reaching heavier, more concentrated rainfall, most likely in US$1 billion per year by 2030 to adapt to climate impacts areas including the Lake Victoria basin, coastal areas, if no action is taken (GCAP 2011). Recognizing the need and northeast highlands, with increases from 5 to 45 to prepare now in light of future costs of inaction, in 2013, percent (Matari et al. 2008) Other places will likely Tanzania adopted the National Climate Change Strategy experience rainfall decreases, including many arid (NCCS) and Zanzibar Climate Change Strategy (ZCCS) and semiarid areas. » Extreme weather events including droughts and floods are to guide the response to climate vulnerability and mobi- becoming more frequent and can cause significant shocks at the lize additional resources needed to take action. National local level. Adverse impacts of climate variability have economic growth strategies recognize climate risks as well already been witnessed through extreme weather (United Republic of Tanzania [URT] President’s Office events such as the major droughts of 2005/06 (with Planning Commission 2011). These initial steps at the stra- costs estimated at 1 percent of GDP) and floods tegic level are consistent with recent findings that economic in 2014 near the central coast and inland, which growth is compatible with addressing climate risks, regard- destroyed critical transportation infrastructure in several regions and assets in Dar es Salaam. less of a country’s income level, and that today’s decisions are particularly critical to transition to an economy that can 1 Projections based on Coupled Model Intercomparison Project phase 5 deliver both better growth and climate resilience (Global (CMIP5) model using Mid-Century Representative Concentration Path- Commission on Climate and the Economy 2014). way (RCP) 8.5. A total of 20 global circulation models (GCMs) were down- scaled based on the 11 Tanzania climatological zones using 13 synoptic Tanzania has mobilized climate finance, but weather stations. results have been limited. Between 2003 and 2014, Tanzania secured over US$200 million in international Given clear risks, neglecting climate change in climate finance commitments, with an additional US$400 today’s development decisions will have significant million in the pipeline. Although financing is substantial, future costs. This note recommends measures for Tanza- there is a significant shortfall given the resources needed to nia to more effectively integrate climate change into devel- adapt to climate change. More than 80 percent of existing opment planning and finance. It draws from international resources are from local development partners, with modest case studies of countries that have embarked on similar access to United Nations Framework Convention on Cli- processes, interviews with key stakeholders from government, mate Change (UNFCCC) funds. Despite adoption of the xii Financing Climate-Resilient Growth in Tanzania NCCS and ZCCS, finance has not yet been committed Building upon the NCCS and ZCCS, which set from domestic or international sources to specifically sup- forth general priority themes for climate action, port their implementation. The approach to climate change Tanzania must put in place processes and adaptation has been largely project-based, fragmented, and financing structures that meet the considerable donor-driven and results have gone largely unmeasured. challenges of financing and implementation. Strategic decisions must be taken to leverage and use Current climate finance is (a) insufficient for what scarce resources to convert plans into transformational is needed to adapt, (b) not targeted to vulnerabil- action, learning from past challenges to deliver large-scale ity, and (c) supporting small-scale projects rather resilience results that will safeguard livelihoods, the econ- than large-scale transformation. Despite the urgent omy, and the environment. This note recommends the fol- need to build resilience, securing finance for climate resil- lowing as Tanzania moves forward: ience has been a challenge, and current funding levels 1. Approach a national climate fund (NCF) with realistic ex- are insufficient as conservative estimates suggest that at pectations. Although Mainland Tanzania and Zan- least US$600 million is annually required for adaptation zibar are in the process of establishing dedicated alone. Interestingly, although adapting to climate change climate change funds, expectations should be real- is the stated priority of the NCCS and ZCCS, more than istic, taking into account the costs of establishing 65 percent of climate finance is directed toward mitiga- and managing such funds as well as the scope of tion activities. Given the reality that international fund- expected funding sources. Experience shows that ing for adaptation is scarce and public funds dedicated to the time and resources needed to create new funds adaptation are unlikely to ever approach the levels that are are high, and operational management costs can needed, it is important to ensure climate funds are used as be substantial. If Tanzania does choose to set up strategically as possible. Yet, existing strategic plans give lit- a dedicated climate fund (or funds), the objectives tle indication of sector or geographic priorities to address and expectations should be carefully and clearly in terms of vulnerability, which makes effective targeting a defined. Attracting climate financing more broad- challenge. In parallel, support for climate adaptation and ly, however, will depend on the quality of pro- mitigation has been predominantly directed to standalone grams developed to support climate action. project-level interventions, and mainstreaming at strategic 2. Build resilience into sector programs for transformational and programmatic levels is not yet systematic. impacts. Rather than relying upon a single fund- ing mechanism, mainstreaming climate change into existing sector programs is considered to be TAKE ACTION TODAY more likely to achieve large-scale, sustainable re- sults. Most key vulnerable sectors and landscapes TO ACHIEVE A RESILIENT (see box ES.2) are already targeted for significant FUTURE investment. Taking advantage of such opportu- For Tanzania to scale up access to climate finance, nities—through mainstreaming climate change this policy note proposes four key pillars for cre- in, for example, basket funds for water and ating the necessary enabling environment: agriculture as well as select urban infrastructure » Strong leadership to advance climate goals, cham- operations—could improve the climate resilience pion key reforms to policies and the institutional outcomes of US$2 billion in investments through framework, and clarify roles and responsibilities the Bank’s portfolio alone. Climate finance could » Planning that is long-term, results-oriented, and be used strategically to incorporate resilience el- aligned to clear priorities ements into planned infrastructure investments » A strategic framework for accessing a range of cli- (for example, to promote green infrastructure that mate finance sources builds urban resilience) or to design new programs » Implementation that includes transparent tracking of targeting specific gaps for vulnerable sectors or investment performance and finance geographical areas. Financing Climate-Resilient Growth in Tanzania xiii BOX ES.2. HOW WILL CLIMATE CHANGE AFFECT GROWTH? Current changes in weather patterns as well as pro- economic growth in Tanzania; most domestic revenues jected long-term shifts in temperature and rainfall are collected in urban areas, and productivity of labor is trends affect several of Tanzania’s key engines of 2.3 times higher than in rural areas (World Bank 2008). economic growth: However urbanization in Tanzania is largely informal » Agricultural productivity already suffers at least US$200 and unplanned, with expanding informal settlements million in annual losses as a result of weather-related in marginal lands and infrastructure that is not keep- risks (largely drought) (World Bank 2013), and despite ing pace with rising populations. Flooding is frequent investments in modernization and enhanced productiv- even during average rain events and can become severe. ity most agriculture will continue to depend on rain- Flooding in Dar es Salaam in December 2011–January fall in the foreseeable future. Looking ahead, rainfall 2012 displaced at least 10,000 people and caused 40 decreases of 10 percent have been correlated with a 2 deaths, with the most serious impacts on settlements in percent decrease in national GDP (Seitz and Nyangena natural drainage basins.1 2009). A temperature rise of 2°C could reduce maize » Water is a critical and increasingly scarce resource yields by 13 percent and rice by over 7 percent (Manneh that underpins agricultural productivity, hydropower et al. 2007). generation, tourism, human health, and industrial » Energy generation is vulnerable, especially hydropower, development—but growing scarce in some key devel- which currently provides 35 percent of Tanzania’s elec- opment areas given the high competition for resources. tricity and is expected to provide even more when the Higher temperatures will increase evaporation, and Power System Master Plan is fully implemented. The increasing variability will likely make dry seasons drier, Rufiji River, for example, feeds most of Tanzania’s wet seasons wetter, and rains more unpredictable, which hydropower supply; yet, the catchment area is expected is likely to exacerbate existing water stress. to experience both greater droughts and floods (GCAP 2011) as well as increased pressure from irrigation. » Urbanization rates in Tanzania are unprecedented, with 1 International Federation of Red Cross and Red Crescent Societies. 2012. the urban population expected to grow from 9.4 mil- DREF Final Report: Tanzanian Floods. http://reliefweb.int/report/united- lion in 2005 to 29 million by 2030 (United Nations republic-tanzania/tanzania-floods-dref-operation-n%C2%B0-mdrtz013- 2011). Cities are one of the most important drivers of final-report. 3. Empower action at the local level. Tanzania can bet- to fully adapt to climate change and will need to ter ensure technical assistance and finance reaches be complemented by additional sources, including local governments. Local governments lack dis- from nongovernmental organizations (NGOs) and cretionary spending for weather-related risks and the private sector. Corporate social responsibility need better capacity to plan and respond. Innova- funding, for example, could support climate objec- tive instruments, such as district-level adaptation tives, including perhaps leveraging significant ongo- funds, show promising results from giving local ing natural gas investments to contribute to national, governments the flexibility to quickly respond to sector, or local climate priorities. Clearly, Tanzania’s climatic variability but also to finance resilience ability to attract climate finance at scale will be con- priorities that may differ from central government tingent upon demonstration of results. Toward that plans. Although this work has been limited to date aim, a robust tracking system would be important to rural districts, there may be similar opportuni- to verify that climate finance and mainstreaming ties for urban areas. achieves results. Such a tracking system would en- 4. Diversify funding sources and verify results. Although cli- able measurement of the outcomes of strategic mate resilience financers are likely to continue to plans and finance levels and (if successful) could un- support their own priorities, Tanzania can and lock additional finance, given the higher confidence should recognize that funds will not be sufficient that Tanzania can deliver on its priorities. xiv Financing Climate-Resilient Growth in Tanzania CHAPTER ONE INTRODUCTION Climate change is a core development challenge in Tanzania, and the potential costs of inaction are significant. Current climate variability (includ- ing extreme events such as droughts and floods), already leads to major economic costs in mainland Tanzania and in Zanzibar. Individual annual events have economic costs in excess of 1 percent of GDP and occur regularly, reducing long-term growth and affecting millions of people and livelihoods. Future climate change could lead to large economic costs, equivalent to a further 1 to 2 percent of GDP per year by 2030 (GCAP 2011). Given this context, there is a clear need for strong and sustained effort by the government to help establish a growth path for the country that is resilient to climate variability and able to adapt to future change, as well as help Tanzania take advantage of external and domestic finance opportunities for sustained action on climate risks. Tanzania has responded to growing climate risks by adopting the NCCS, which is the guiding framework for taking action on climate change. Zan- zibar has also adopted its own climate change strategy, the ZCCS. Together, these documents set forth the strategic priorities for climate action and are a step toward integrating climate change into development planning. However, there has been little implementation of these plans to date and it is unclear how they will guide investments toward climate-resilient economic development. Both mainland Tanzania and Zanzibar are exploring options for effec- tively implementation of strategic plans. Mainland Tanzania has begun to scope the possibility of a dedicated climate change fund, as well as options to improve management of climate finance. The Revolutionary Government of Zanzibar has also signaled interest in designing a climate change fund. This policy note responds to a request by the United Republic of Tanza- nia for technical assistance on next steps for implementing the NCCS and ZCCS. With strategies in hand, both mainland Tanzania and Zanzibar are at a cross- roads where strategic actions have been identified but not yet supported with resources or adequate frameworks for implementation (see box 1.1). Development partners are active in financing and supporting climate change activities in general, but more than Financing Climate-Resilient Growth in Tanzania 1 BOX 1.1. CLIMATE FUNDS, MECHANISMS, This note is one component of a larger joint AND FRAMEWORKS technical assistance program on climate change planning provided by the Bank and the U.K. Several terms are used throughout this note to refer to dif- Department for International Development ferent aspects of climate finance: (DFID), which also includes components focused on two » Climate finance refers to funds invested in activities that promote climate change adaptation and mitigation. climate-sensitive sectors: agriculture and urban develop- International climate finance refers to specific climate ment. Section 2 outlines the baseline situation with cli- funds under the United Nations Framework Conven- mate change planning and finance in Tanzania, to assess tion on Climate Change (UNFCCC), bilateral funds what is being done to prepare for climate challenges. such as the U.K. International Climate Fund, and Section 3 explores what it will take for Tanzania to imple- multilateral funds such as the Climate Investment ment action on climate change. Last, section 4 outlines a Funds (CIFs). typology of support mechanisms that Tanzania can make » Financing frameworks are overarching strategic plans for programmatic climate finance, including identifying use of for implementation of strategies and action plans. sources of finance to fit investment objectives, mobi- The note draws on inputs from a range of stakeholders lizing funds, and establishing finance mechanisms and literature review, including those listed here: and financial management systems. » Semi-structured interviews with key informants across » Climate finance mechanisms include a range of modali- government and other actors, including development ties for providing climate finance in support of cli- partners, Nongovernmental organizations (NGOs), pri- mate plans, including budget support, basket fund vate sector, and research or technical bodies; arrangements, and project-based support. Several » Collaborative workshops, including a South-South learn- mechanisms might make up part of a finance frame- ing event held in Namibia with high-level Tanzanian work. officials and climate change authorities from several » Climate funds are one type of climate finance mecha- developing countries (Comprehensive Climate Change nism, which direct finance toward climate change- Planning: Learning Week on Global Practices); related projects and programs. Their role is typically » Stakeholder consultations under the “Mainstreaming to channel, collect, blend, and coordinate differ- Environment and Climate Change Adaptation in the ent sources of climate finance, and they can take a Implementation of National Policies and Development variety of forms, including endowments, revolving Plans” program implemented by the Vice President’s funds, and sinking funds, and can be on-budget or Office—Division of Environment (VPO-DoE) with off-budget. support from the United Nations Development Pro- gramme (UNDP); » Desk research of strategy documents, programs and policies, and scientific literature; and » Case study review and analysis of climate financing one year after its adoption, a unified approach in sup- mechanisms and related institutional frameworks for port of the NCCS has yet to materialize. Tanzania has climate change in five country case studies—including requested guidance for mobilizing additional funds, using Bangladesh, Philippines, Indonesia, and Rwanda—to funding sources more strategically, and delivering results analyze strengths and weaknesses of various institutional on the ground. frameworks as well as relevance for Tanzania. 2 Financing Climate-Resilient Growth in Tanzania CHAPTER TWO THE CHALLENGE: CLIMATE RISKS TO KEY GROWTH AREAS Historic climate trends as well as projections point to shifts in temperature and precipitation that will fundamentally alter Tanzania’s weather pat- terns. Tanzania’s climate is driven by tropical processes, the Inter-Tropical Conver- gence Zone (ITCZ), which influences rainy and dry season patterns. El Niño and La Niña years are associated with extreme flood and drought events. Although annual seasonal temperature variation for locations is fairly small (approximately 3–4°C), variability for rainfall is much higher both geographically and seasonally, with extreme dry and wet conditions over the course of the year. Alternating dry conditions with heavy rainfall combine with inadequate land management in many areas, which exac- erbates land degradation and increases vulnerability to weather-related shocks (Enfors and Gordon 2007). Tanzania is growing hotter. The evidence is clear from climate trends that monthly temperatures across Tanzania have steadily increased over the past thirty years (URT 2007), with the average temperature rising by 1°C between 1960 and 2006 (McSweeney et al. 2010). Mean maximum and minimum temperatures, for January and July, have increased in almost all zones between 1961 and 2005 (Munishi 2009). This is consistent with the latest Intergovernmental Panel on Climate Change (IPCC) report for Africa, which provides strong evidence of a warming trend across Africa and predicts likely mean annual temperature rise of over 2°C by 2100 (IPCC 2014).1 Climate models for Tanzania indicate future increases in average annual temperatures between 1°C to 3°C above the baseline period (1961–1999) from a range of models and emission scenarios by the 2050s (see figure 2.1), with the latest projections indicat- ing a high certainty of a 1°C rise across the country (Wambura et al. 2014).2 1 Chapter 22: Africa. 2 Projections based on Coupled Model Intercomparison Project phase 5 (CMIP5) model using Mid-Century Representative Concentration Pathway (RCP) 8.5. A total of 20 GCMs were downscaled based on the 11 Tanzania climatological zones using 13 synoptic weather stations. Financing Climate-Resilient Growth in Tanzania 3 FIGURE 2.1. COMPARISON OF CLIMATE MODELS AND CHANGE IN TEMPERATURE BY THE 2050s3 Source: World Bank Africa Spatial Services Helpdesk, using data from http://www.climatewizard.com (accessed 2013). By 2100 temperatures could increase by 1.5°C Tanzanians, still dependent on agriculture,4 makes plant- to 5°C. Studies agree that the rise in temperature will ing decisions based on these seasonal cycles. The changing be greater during cooler months ( June to August) than climate is particularly challenging for smallholder farmers, warmer ones (December to February) and will result in many of whom lack the tools and knowledge needed to consistent patterns of seasonal temperature increase make adequate farming decisions. Consequences include (Wambura et al. 2014). changes in cropping production (which could increase or decrease depending on the crop variety and geographic Rainfall is already highly variable across Tanza- area) and food security. nia. Annual rainfall varies from below 500 mm to 2,500 mm, depending mostly on altitude and climatic zone, and Projected changes in precipitation are uncer- amounts vary significantly throughout the year. Seasonal- tain. Historical records have shown decreasing trends ity of rains also varies, with the northern areas tending to for mean annual rainfall as well as increasing dry spells have one short and one long rainy season, and the rest of in some areas5 and also show high variability between the country including central, southern coast, southwest- annual rainfall cycles (URT 2007). However, determining ern highlands, southern, and western areas experiencing the impact of climate change on rainfall patterns is highly a single rainfall pattern (see figure 2.2). The majority of 4 The economy of Tanzania depends largely on agriculture, which accounts for about one quarter of GDP, provides 85 percent of exports, and employs about 3 Study used the A2 climate scenario, which assumes high rates of population 80 percent of the workforce. growth, energy use, and land use changes. 5 See, for example, Matari et al. 2008; Enfors and Gordon 2007. 4 Financing Climate-Resilient Growth in Tanzania FIGURE 2.2. TANZANIA RAINFALL ZONES Source: Wambura et al. 2014. uncertain: climate models show that rainfall regimes will to reductions in rainfall, with some projections indi- change by the 2050s, but the degree and even the direc- cating up to 10 percent (Paavola 2003). This is most tion of change differ across the models (see figure 2.3). likely in the central, western, southern, southwest- Projections also vary widely between seasons, regions, and ern, and eastern zones. Although the projection is rainfall regimes. uncertain, it does align with studies of current and historic trends. For example, there is evidence of Changes in rainfall patterns will vary depend- changing rainfall patterns in the Same District (a ing on current climate and geography. Although semiarid area), showing negative changes in rain- overall rainfall is expected to increase on average by as fall since the early 1980s, including a decline in much as 10 percent by 2100 (Sokoine University of Agri- the long rainy season and total annual rainfall and culture, Soil Water Management Research Group 2010), overall greater unpredictability of rains (Liwenga not all climatic zones will experience the same changes. et al. 2012). When climate impacts on precipitation are examined at a » Some areas will likely experience heavier, more concentrated subnational level, three different patterns emerge in sepa- rainfall. Some areas will likely experience rain- rate areas: fall increases overall, but the trend is toward more » Some areas will likely experience rainfall decreases. This extreme rainfall events. This is mostly likely in is most likely in areas that already have unimodal bimodal areas including the Lake Victoria basin, rainfall seasons, which could experience annual coastal areas, and northeast highlands, with increases rainfall decreases of 5–15 percent (URT 2007 and from 5 to 45 percent (URT 2007 and Matari 2008). Matari 2008). However, recent projections also More recent projections also indicate that rainfall in indicate decreases of up to 26 percent by 2050 in central Tanzania could increase by 9 percent whereas northern regions in the bimodal zone though these the south would have an even greater increase of areas showed a relatively higher degree of uncer- 13 percent. These increases would largely be in the tainty to unimodal areas (Wambura et al. 2014). month of April, indicating more rain but in a short Southern regions might be particularly vulnerable time span (Wambura et al. 2014). Financing Climate-Resilient Growth in Tanzania 5 FIGURE 2.3. COMPARISON OF CLIMATE MODELS FOR PERCENT CHANGE IN ANNUAL PRECIPITATION BY THE 2050s UNDER THE A2 SCENARIO Source: World Bank Africa Spatial Services Helpdesk, using data from http:\\www.climatewizard.com (accessed 2013). » In other areas, rainfall will both decrease during dry periods Extreme weather events, including droughts and and increase during rainy seasons. Some models indi- floods, are frequent and can cause significant cate a potential 6 percent decline in rainfall from shocks to the economy and food security. Although June through August (a typically dry season) and most of the above changes are projected over the long term over 16 percent increase in the short rains between (30–60 years), the adverse impacts of climate variability December and February (Agrawala et al. 2003). have already been witnessed through extreme weather » In many areas, rainfall will become more variable and less events such as the major droughts of 2005/06 and flood- predictable. This includes shifts in the onset of the rainy ing in 1997/98, both of which had significant economic season (especially in the south) as well as increas- costs for Tanzania. Costs from the 2005/06 drought have ing seasonal variations (for example, changes in been estimated at 1 percent of Tanzania’s GDP. Most the distribution of rainfall within seasons) (Ndaki extreme wet conditions can be linked to El Niño episodes 2014). Certain areas may already be shifting from (1961, 1968, and 1997). Figure 2.4 shows the frequency bimodal to unimodal, which could continue and and geographic scale of drought and flood conditions from cause more dramatic shifts in agroecological 1900 to 2000, demonstrating that the country is severely zones and thus major impacts on agriculture. The affected by extreme events, sometimes with both droughts onset of the rainy season, which is particularly and floods within the same calendar year. important for planting decisions in rain-fed sys- tems, is already observed by farmers and viewed The impacts of current climate variability as a major risk to crop productivity, thus having and projected climate change affect various impacts on food security and the economy (World sectors essential for Tanzania’s economy and Bank 2013). livelihoods, including water resources, energy 6 Financing Climate-Resilient Growth in Tanzania FIGURE 2.4. EXTREME EVENT FREQUENCY AND IMPACT (1900–2000) Moderate flood Intermediate flood Severe flood Moderate drought Intermediate drought Severe drought % Country area impacted by extremes (+ve for flood, –ve for drought) 80 70 60 50 40 30 20 10 0 1902 1905 1908 1911 1914 1917 1920 1923 1926 1929 1932 1935 1938 1941 1944 1947 1950 1953 1956 1959 1962 1965 1968 1971 1974 1977 1980 1983 1986 1989 1992 1995 1998 –10 –20 –30 –40 –50 –60 –70 –80 Source: World Bank Africa Spatial Services Helpdesk, using data from the International Research Institute (IRI) (accessed 2011). generation, food security, ecosystems and biodi- of 2°C could reduce maize yields by 13 percent versity, and human health. Although many sectors and rice by over 7 percent (Manneh et al. 2007). are affected by climate variability, several key engines » Energy generation is vulnerable, especially hydro- of Tanzania’s economic growth, poverty reduction, and power, which currently provides 35 percent of productivity are also highly sensitive to the climate, for Tanzania’s electricity and is expected to represent example, agriculture; power generation and functional, an even greater share of the generation capacity productive cities; and water resources that are essential for when the Power System Master Plan is fully imple- all sectors to function. Climate vulnerability is complex in mented. The Rufiji River, for example, feeds much that it affects sectors in different ways that responses must of Tanzania’s hydropower supply; yet the catch- consider: ment area is expected to experience both greater » Agriculture, a dominant sector of the Tanzanian droughts and floods (GCAP 2011) as well as economy, generates 25 percent of GDP and 24 increased pressure from irrigation. The economic percent of exports and is the mainstay of 75–80 impacts of disruption to power generation can be percent of livelihoods in the country. Agricultural considerable: for example, the load shedding and productivity already suffers at least US$200 million black-outs experienced during 2011 as a result of in annual losses as a result of weather-related risks reduced hydropower generation led the Interna- (largely drought) (World Bank 2013), and despite tional Monetary Fund (IMF) to adjust Tanzania’s investments in modernization and enhanced pro- economic growth forecasts from 7.2 percent down ductivity, most agriculture will continue to depend to 6.0 percent. on rainfall in the foreseeable future. Looking ahead, » Urbanization rates in Tanzania are unprecedented, rainfall decreases of 10 percent have been corre- with the urban population expected to grow lated with a 2 percent decrease in national GDP from 9.4 million in 2005 to 29 million by 2030 (Seitz and Nyangena 2009), and a temperature rise (United Nations 2011). Cities are one of the most Financing Climate-Resilient Growth in Tanzania 7 important drivers of economic growth in Tanza- temperature increases, are already affecting the nia; most domestic revenues are collected in urban natural resources such as fisheries and seaweed areas, and productivity of labor is 2.3 times higher farming on which sustain many coastal liveli- than in rural areas (World Bank 2008). However hoods. urbanization in Tanzania is largely informal and » Key river basins. Water resources in Tanzania’s river unplanned, with expanding informal settlements catchments (including the Rufiji, Wami/Ruvu, in marginal lands and infrastructure that is not and Pangani Basins) are under increasing pressure keeping pace with rising populations. Flooding largely from irrigation and land degradation. The is frequent even during average rain events and Rufiji, Tanzania’s largest river catchment, is slated can become severe. Flooding in Dar es Salaam in for a US$2.1 billion private investment to mod- December 2011–January 2012 displaced at least ernize agriculture and triple agricultural output, 10,000 people and caused 40 deaths, with the most largely through increased irrigation of water-inten- serious impacts on settlements in natural drainage sive crops. The river also feeds over 80 percent of basins (International Federation of Red Cross and Tanzania’s hydropower generation, and low flows Red Crescent Societies 2012). have resulted in power cuts in Dar es Salaam. The » Water is a critical and increasingly scarce resource Pangani basin in the northeast supports over 3 mil- that underpins agricultural productivity, hydro- lion livelihoods, including agriculture in its fertile power generation, tourism, human health, and soils and fisheries and 17 percent of Tanzania’s industrial development—but growing scarce in key hydropower, but river flows have already been development areas given the high competition for reduced from several hundred to less than 40 m3/s resources. Higher temperatures will increase evap- (IUCN 2011), with consequences for the ecology oration, and increasing variability will likely make and socioeconomic development of local com- dry seasons drier, wet seasons wetter, and rains munities and the national economy. Strong law more unpredictable, which will likely exacerbate enforcement is required to scrutinize future invest- existing water stress. ments and to ensure mitigation measures are in place, implemented, and conducted as scheduled. In addition to key sectors, several important » Dry lands. Predictable rains matter most where landscapes are also at risk. As mentioned earlier, water is scarce. Dry lands (arid and semiarid areas) Tanzania has a varied topography and a wide range of cover 50 percent of Tanzania’s land area and sup- climatic zones. Certain areas exhibit unique vulnerabili- port millions of livelihoods, largely agricultural ties, which have been identified through climate change and pastoralists who are entirely dependent on vulnerability assessments, research, and interviews with water for livelihoods and food security. Livestock practitioners on the ground: mortality in northern Tanzania as a result of the » Coastal zone. Tanzania’s coastal zone includes 2009 drought was estimated at over 80 percent, large population centers, high economic activity undermining local and national food security and (for example, ports, natural gas infrastructure, longer-term development (Melewas et al. 2010). and fisheries), and important ecosystem services. The impact of an increase in the frequency and Demands on coastal and marine resources are intensity of extreme weather events (droughts and rapidly increasing, and as coastal areas become floods) is likely to become more severe in the dry more developed and populated, as is the case lands of Tanzania. in Tanzania, the vulnerability of human settle- ments to natural hazards also increases. Dar es Institutional and fiscal structures can drive Salaam alone has infrastructure assets worth vulnerability at the sector, landscape, and local approximately US$5.3 billion at potential risk levels. Climate vulnerability is not solely a result of bio- from projected flood impacts (Kebede et al. physical factors—some institutional and financial structures 2010). Projected changes in climate, particularly for example, can indirectly contribute to environmental 8 Financing Climate-Resilient Growth in Tanzania degradation or inhibit spending on vital adaptation efforts functions but requires difficult decisions be made because of budgetary constraints. Some notable examples among water-using sectors. found during this review are described here: » Adaptation happens largely at the local level, but local gov- » Growing competition for water resources may lead to water ernments face obstacles to action. Local governments— insecurity. Demand for water is increasing faster districts and municipalities—are on the front than available supply, and water conflicts are line of preparing for and responding to climate becoming more common. In the past years, high impacts such as droughts in dry lands and urban priority has been placed on improving the produc- floods. However, local governments have less tivity of the agricultural sector through expanding own-source revenues, relying upon transfers with irrigation, as evidenced in current sector develop- spending earmarked according to sector priorities ment plans.6 Concurrently, unplanned, informal set by the central government (ODI 2013). Trans- irrigation systems have expanded at a greater fers are already inadequate for immediate needs, rate, and conflicts are growing, particularly in the and given earmarking, local authorities often lack dry season. This not only increases vulnerability resources to respond to extreme events and emer- for other users such as hydropower and tourism gencies (such as droughts and floods). Capacity at but degrades the value of ecosystem services and the local level to design and implement adapta- poses risks for the agriculture sector itself if insuf- tion actions is limited and good data upon which ficient water is available for irrigation schemes. to base decisions is lacking. Climate adaptation is The country’s Integrated Water Resources Man- thought of as an expensive luxury in the present agement approach is helpful to ensuring both rather than as a long-term investment to safeguard sustainable water resource uses and ecosystem future growth. 6 Including the Agricultural Sector Development Program (ASDP), Southern Agricultural Growth Corridor of Tanzania (SAGCOT), and Tanzania Agricul- tural and Food Security Investment Plan (TAFSIP). Financing Climate-Resilient Growth in Tanzania 9 CHAPTER THREE THE CURRENT STATE OF CLIMATE PLANNING AND FINANCE The impacts of climate change in Tanzania are already significant, but what are the risks and how is Tanzania currently responding to them? The following section out- lines the existing strategic planning framework for climate change in Tanzania as well as the current situation with climate finance.7 Because climate change is a broad issue with policy and planning implications across the government, this section only sum- marizes climate change at the highest level of strategic planning. This is not intended as a comprehensive policy or institutional review, which can be found in complemen- tary work,8 but instead it highlights key aspects to consider when mobilizing and man- aging climate finance and delivering results on strategic planning frameworks. STRATEGIC PLANNING Tanzania’s strategic development plans indicate a growing recognition that climate change is a threat to both growth and poverty reduction. Tanzania’s overall development policy is outlined in Vision 2025, which sets future development objectives for the country. This vision is operationalized through medium-term plans, including the National Strategy for Poverty Reduction and Economic Growth (MKUKUTA-I and II) and more recently, the Five Year Develop- ment Plan (FYDP) for 2011/12 to 2015/16. The FYDP, led by the President’s Office Planning Commission (POPC), aims to unleash Tanzania’s economic growth potential and transform Tanzania into a middle-income country, as envisioned by the Tanzania Development Vision 2025 (URT President’s Office Planning Commission 2011). Both programs recognize climate change as a threat to growth and poverty reduction. The FYDP emphasizes risks to key growth sectors such as agri- culture and water and includes two key outputs by 2015 for addressing climate change (see table 3.1): first, to develop a climate change strategy and second, to develop an 7 This section largely emphasizes Mainland Tanzania though it does consider Zanzibar as well. 8 See, for example, GCAP 2011; ODI 2013. Financing Climate-Resilient Growth in Tanzania 11 TABLE 3.1. CLIMATE CHANGE IN THE FYDP FYDP Goal Climate Change Interventions Climate Change Targets for 2015 • Formulation of a • Institutional framework to identify, mobilize, and monitor • Institutional framework to identify, coherent NCCS global climate finance created. mobilize, and monitor global climate • The VPO-DoE takes lead role in formulating the NCCS, finance created. covering adaptation and mitigation. • National Climate Change Policy • Training programs for selected number of individuals formulated. from all concerned ministries on climate change impacts • Targeted number of government policy and mitigation and adaptation measures. makers trained in climate change issues • Institutional framework to synchronize existing climate in all selected government ministries. change initiatives in Tanzania will be created. • Applied research on climate change impacts, costs, mitigation, and adaptation to be conducted. institutional framework to identify, mobilize, and monitor BOX 3.1. THE CASE FOR CLIMATE global climate finance. MKUKUTA-II explicitly focuses FINANCE: TANZANIA’S FIVE on the risks of climate change to reduce poverty and YEAR DEVELOPMENT PLAN inclusive economic growth, particularly in agriculture and disaster risk reduction. “There are considerable sources of environment and climate change finance available for developing countries Both MKUKUTA-II and the FYDP include climate on a global scale, which could be harnessed to finance most of Tanzania’s environmental initiatives and response strat- change as a cross-cutting issue that needs to be egies to climate change. This, however, has been ineffective considered in climate-sensitive sectors. In the in the absence of an effective national climate change insti- FYDP, successful climate change adaptation is framed as tutional framework. Such an institutional framework an “underlying prerequisite” for economic development to coordinate Tanzania’s efforts to seek global that must be achieved to ensure success of the core growth partnerships to environment and climate change priorities (including infrastructure, agriculture, industry, finance will be given priority in the FYDP. Such human capital development and social services, and tour- an institutional framework will help in building resilience to climatic and environmental variabil- ism, trade, and financial services). MKUKUTA-II also ity and ensure sustainable and inclusive growth.” includes climate change as a cross-cutting issue to address in terms of both reducing poverty and protecting invest- Source: Five Year Development Plan, 2011/2012–2015/2016 (emphasis added). ments, and climate activities have been mainstreamed in several sectors of the strategy, including agriculture, energy, disaster risk management, and health. vative modalities: an NCF to better access and manage climate finance, drawing from international examples,9 Development plans recognize the importance of carbon credits from industry and reduced emissions from building and funding climate resilience through deforestation, and a carbon tax on fossil fuels.10 Unlike different mechanisms. The FYDP recognizes that cli- the FYDP, MKUTUTA-II does not propose to mobilize mate finance could be a source of funding for achieving outside climate finance sources but instead mainstreams the overall FYDP goals and also that Tanzania does not climate objectives into corresponding sector activities and yet have systems in place to access and manage finance at budget allocations (DFID 2011). a larger scale (see box 3.1). More importantly, the FYDP proposes to fill this gap through formation of an institu- Although climate change is incorporated into tional framework to identify, mobilize, and monitor global all key planning documents, implementation is climate finance by 2015. The FYDP also recognizes the potential to mobilize significant amounts of climate 9 Brazil, China, and Indonesia are specifically mentioned. finance, including through several different potential inno- 10 These possible instruments are discussed later in section 4. 12 Financing Climate-Resilient Growth in Tanzania BOX 3.2. SECTOR AND THEMATIC PRIORITIES OF THE NCCS Adaptation Adaptation Mitigation and Mitigation Cross-Cutting Issues • Water resources • Transport • Forestry • Research and development • Coastal and marine • Mining • Agriculture and food security • Information, communication, environment • Wetlands • Energy education, and public awareness • Wildlife • Waste management • Industry • Technology transfer and development • Human health • Livestock • Capacity building and institutional • Tourism strengthening • Fisheries • Systematic observation • Infrastructure • Early warning systems • Human settlements • Disaster and risk management • Land use • Impacts of response measures • Gender and vulnerable groups • Planning and financing • International cooperation • Security relatively limited. For example, although the FYPD 12 cross-cutting areas (see box 3.2) and proposing over describes climate change as a key risk to growth, the actual 200 strategic interventions to mitigate risks. Sectors and investment plan does not include the proposed outputs on local governments are largely tasked with implementa- climate change, so climate change in effect has no budget tion of the strategy, including a requirement that relevant allocation. However, the FYDP goal of formulating the Ministries, Departments, and Agencies (MDAs) prepare NCCS has been reached and other targets are in pro- sector-specific climate change action plans. The NCCS gress, largely through the support of the UNDP via the emphasizes cooperation with the MoF to enhance existing VPO-DoE and MoF. Although the POPC is the FYDP’s resource mobilization and financial management systems driver and developing an institutional framework for cli- to cope with increasing demand in financial support for mate finance is a priority of the FYDP, to date the POPC addressing climate change (URT 2013). Zanzibar, which has had little involvement on climate issues, including the was not covered in the NCCS, adopted the ZCCS in development of the NCCS or the consultative process June 2014 (Revolutionary Government of Zanzibar 2013) on climate finance (Yanda 2013). MKUKUTA-II does include monitoring indicators related to climate change Implementation of the NCCS will be challenging. for awareness raising on climate issues at the household The strategy has a complex decentralized implementation level, though it is unclear if there has been progress on framework, which relies upon sectors and local govern- its implementation because related indicators provide ment to develop and implement climate change action limited information: an initial MKUKUTA status report plans in 19 priority sectors for adaptation and mitigation. describes results on climate change only in terms of stra- Environmental decision making in Tanzania has histori- tegic frameworks that have been developed rather than cally been centralized in the VPO-DoE, which combined measuring if plans are actually implemented (URT 2011). with insufficient human and budgetary resources has been a factor in slow decision making and coordination chal- lenges on cross-sectoral environmental issues (Universalia CLIMATE CHANGE PLANS 2009). The NCCS framework, which aligns with the insti- In March 2013, Tanzania, through the VPO- tutional framework for broader environmental manage- DoE, adopted the NCCS, representing an important ment set out in the 2004 Environmental Management achievement for the country. The NCCS is an ambitious Act (EMA), is a significant step in decentralizing decision plan, outlining climate change risks for 18 sectors and making and implementation of climate change-related Financing Climate-Resilient Growth in Tanzania 13 activities. As mentioned earlier, the NCCS intentionally the NCCS’s emphasis on adaptation as the strategic prior- deferred the development of detailed activities, priori- ity together with the continuing uncertainty about avail- ties, and cost estimates to sectors and local governments ability of adaptation finance, must be taken into account. through the development of standalone action plans, with A notable exception is REDD+, where significant effort implementation to be monitored by the VPO-DoE on an has been made to demonstrate “readiness.”11 annual basis (URT 2013). CURRENT CLIMATE CHANGE The NCCS builds upon other strategic cli- mate change plans in Tanzania. These include the FINANCING National Adaptation Programme of Action (NAPA 2007), On a global scale, developed countries have the NCCS (2013), the ZCCS (forthcoming), National pledged new and additional resources with the Reduced Emissions from Deforestation and Degrada- goal of mobilizing US$100 billion per year by tion (REDD) Strategy and corresponding Action Plan 2020 to support climate action in developing (2013), and the National Strategy on Gender and Climate countries. Around half of this is nominally allocated Change (2011). toward mitigation, with the rest to fund adaptation in developing countries (likely the least developed countries These plans and strategies are largely consist- [LDCs], including Tanzania). A significant proportion ent with one another in terms of the content and of the public component of this funding is anticipated to messages, but there is no overarching strategy flow through the UNFCCC’s (see box 3.3) Green Climate addressing institutional coordination among cli- Fund (GCF). As of the 2013 Conference of the Parties mate change plans nor between climate plans (COP) of the UNFCCC in Warsaw, capitalization, timing, and national development plans. Such coordination disbursement methods, and processes of the GCF were challenges are not new to Tanzania’s environment sec- highly uncertain. Progress was made on capitalization at tor, given the resources and capacity needed to effectively COP 20 in Lima, Peru, however, with pledges exceeding reach across sectors (Universalia 2009). Early experience US$10 billion from 27 countries. suggests similar coordination challenges will be relevant for climate change. Although there is no systematic way to track climate finance in Tanzania, several recent ini- Although strategic climate change plans are ori- tiatives have been undertaken to quantify climate ented toward demonstrating readiness for cli- finance on an ad hoc basis. This section summarizes mate finance, it is not yet clear how such action various estimates of the scale of current climate finance would be financed. Implementation of earlier climate in Tanzania, which includes aggregated estimates for on- plans, such as the NAPA, was hindered by difficulties in and off-budget finance, an analysis of on-budget expendi- securing timely funds despite including cost estimates and tures, and current access to international sources of climate detailed proposals. The NAPA did not, however, include finance. Tanzania has had some success in securing funds an implementation framework or funding strategy. Cur- from the UNFCCC and Global Environment Facility (GEF) rent plans and strategies risk the same challenge, in part mechanisms under the VPO-DoE’s leadership. Bilateral because of limited analysis of likely sources of funding, and multilateral development partners have made signifi- especially for adaptation. For example, the NCCS and cant contributions to funding climate adaptation and miti- ZCCS include lists of potential finance sources but do not gation, with current estimates indicating commitments in assess which funding sources might be appropriate for stra- excess of US$200 million to explicitly climate-related pro- tegic priorities; provide estimates of financing needs; nor jects ( Johannessen et al. 2014), with annual disbursement provide a plan for optimizing, accessing, and managing those resources. Likewise, current climate strategies and 11 “Readiness” here means the ability of a country to have sufficient forest plans lack a clear institutional or financing framework, governance to execute REDD+ activities and handle REDD+ financing which poses a risk to their implementation. Importantly, effectively and equitably. 14 Financing Climate-Resilient Growth in Tanzania BOX 3.3. UNITED NATIONS—FRAMEWORK CONVENTION ON CLIMATE CHANGE With 196 parties, the UNFCCC has near universal member- » Non-Annex I parties are mostly developing countries. ship and is the parent treaty of the 1997 Kyoto Protocol. The Certain groups of developing countries are recognized Kyoto Protocol has been ratified by 192 of the UNFCCC by the convention as being especially vulnerable to the parties. The ultimate objective of both treaties is to stabilize adverse impacts of climate change, including countries greenhouse gas (GHG) concentrations in the atmosphere at a with low-lying coastal areas and those prone to deserti- level that will prevent dangerous human interference with the fication and drought. Others (such as countries that climate system. rely heavily on income from fossil fuel production and commerce) feel more vulnerable to the potential eco- The convention divides countries into three main groups nomic impacts of climate change response measures. according to differing commitments: The convention emphasizes activities that promise to » Annex I parties include the industrialized countries answer the special needs and concerns of these vul- that were members of the Organisation for Economic nerable countries, such as investment, insurance, and Co-operation and Development (OECD) in 1992 plus technology transfer. The 49 parties classified as LDCs countries with economies in transition, including the by the United Nations are given special consideration Russian Federation, the Baltic States, and several Cen- under the convention because of their limited capacity tral and Eastern European States. to respond to climate change and adapt to its adverse » Annex II parties consist of the OECD members of effects. Parties are urged to take full consideration of Annex I but not the economies in transition (EIT) parties. the special situation of LDCs when considering funding They are required to provide financial resources to enable and technology-transfer activities. developing countries to undertake emissions reduction activities under the convention and to help them adapt to Tanzania is included in the group of Non-Annex I parties adverse effects of climate change. In addition, they must and is also classified as an LDC. This opens up additional “take all practicable steps” to promote the development opportunities for international climate finance through and transfer of environmentally friendly technologies to sources such as the Least Developed Countries Fund (LDCF), EIT parties and developing countries. Funding provided which Tanzania has accessed in the past. by Annex II parties is channeled mostly through the con- vention’s financial mechanism. Source: http://unfccc.int. in the region of US$15–20 million (GCAP 2013). Another is no up-to-date database of committed or disbursed US$400 million is in the pipeline ( Johannessen et al. 2014). climate finance in Tanzania: Some of this flows through government budget mecha- » A 2013 mapping exercise undertaken by the nisms, but a significant proportion flows directly to pro- Tanzania Development Partners Group on Envi- ject intermediaries, bypassing the MoF. As is the case with ronment (DPG-E) indicated that climate change com- various off-budget funds, currently there is no mechanism mitments from local development partners in Tanzania were whereby Tanzania can track these resources. As a conse- approximately US$135 million. Some of these funds quence, the government has little information on the scale are channeled through government projects and of climate finance and how both off-budget and on-budget programs, while others directly benefit non-state flows might be better coordinated within a finance mecha- actors (NSAs).12 nism to play a role in delivering the NCCS. » An updated mapping exercise in 2014 found that current external international climate change commit- ments to Tanzania total US$202 million, most of which AGGREGATED ESTIMATES OF EXISTING is supported by bilateral partners, with another US$400 OFF-BUDGET CLIMATE FINANCE million in the pipeline ( Johannessen et al. 2014). The Several efforts have been made to estimate on- and off-budget commitments for climate change activities as well as actual disbursement. It 12 This mapping was a collaborative effort by DPG-E members, who contrib- should be noted that there tends to be discrepancies uted inputs on current projects related to climate change, total budget, annual among sources of climate finance data and that there budget, and pipeline activities. Financing Climate-Resilient Growth in Tanzania 15 FIGURE 3.1. CLIMATE FINANCE IN EASTERN indicates that more than half of approved international AFRICA (2003–13) funds have come from Japan’s Fast Start Finance for energy Approved (mil $US) Disbursed (mil $US) transmission infrastructure in mainland Tanzania and Zan- $500 $450 zibar, which would expand the grid for all power sources. $400 Norway is the second-largest contributor, largely dedicated $350 to REDD+. Other funding sources are a mix of bilateral $300 $250 and international funds, including activities related to build- $200 ing coastal resilience, institutional strengthening, and natu- $150 $100 ral resource management. $50 $– The figures in the table demonstrate that the a ia da a ia ny nd an op an major sources of climate finance to date have Ke ga nz hi w U Et Ta R been from local bilateral development partners Source: www.climatefundsupdate.org, accessed February 4, 2014. while UNFCCC funds have been modest. These discrepancy between 2013 and 2014 was largely a funds—together with similar levels of finance from local result of the omission of Japan’s Fast Start Finance development partners over the next few years—could from the 2013 DPG-E mapping. form the basis for an initial climate finance structure to » Between 2003 and 2013, a publicly accessible data- be complemented in the future (post-2015) by emerging base of public climate finance shows 23 climate international finance for both adaptation and mitigation. change projects and programs have been approved It is highly likely that local development partners will in Tanzania or can be identified, with resources remain the dominant source of major funding in the short totaling US$191 million, of which US$53 million have to medium term (GCAP 2013). In fact, recent studies been disbursed to date.13 show that over 80 percent of current and pipeline funding are provided by local bilaterals alone ( Johannessen et al. These figures suggest Tanzania is doing relatively 2014). These trends should be noted when designing a well compared to other countries in the region framework for climate finance, as each donor has specific with respect to climate finance. As seen in Figure 3.1, requirements governing their own funds. Tanzania is second only to Kenya14 among other East African countries, both for approved climate finance and Although climate adaptation is Tanzania’s stated disbursements. Although these data may not be compre- climate change priority, most climate finance has hensive, they reflect trends among countries and also dem- been for mitigation activities. Over half of approved onstrate the utility of a systematic approach to tracking international finance in Tanzania is currently funding climate finance at a country level. energy transmission infrastructure, and REDD+ mitiga- tion activities contribute over 20 percent (mitigation but with strong adaptation co-benefits). Finance for adapta- CLIMATE FINANCE BY SOURCE tion activities is limited in scope and tends to be supported Tanzania receives support from several bilat- by small-scale grants that are not clearly aligned with eral and international climate finance sources, NCCS priorities—out of climate finance commitments primarily for energy infrastructure and forestry. as of 2014, only 35 percent of funds address adaptation Further examination of Tanzania’s access to international priorities. Moreover, the process of securing adaptation and bilateral resources shows some general trends regarding funds has proven challenging. For example the NAPA, the sources as well as the type of activities financed. Table 3.2 which had an LDCF grant for its preparation in 2003, did not receive any UNFCCC funding for implementation until 2012, with the approval of LDCF and AF grants. 13 See www.climatefundsupdate.org; data accessed February 4, 2014. 14 Kenya has received substantial resources through Japan’s Fast Start Finance On a global scale, international finance for adaptation commitments. has in general been sluggish, which could pose issues for 16 Financing Climate-Resilient Growth in Tanzania TABLE 3.2. INTERNATIONAL CLIMATE FINANCE IN TANZANIA BY SOURCE (2003–13) Approved Funding Source (US$, millions) Percent% Purpose Japan’s Fast Start Finance 100.0 41 Energy transmission infrastructure Scaling Up Renewable Energy 50.0 20 Renewable energy Program (SREP) Norway’s International Climate and 36.5 15 REDD+ Forest Initiative GEF Trust Fund 17.7 7 Energy development, hydropower mini-grids, waste-to-energy European Union’s (EU) Global 13.8 6 General climate adaptation Climate Change Alliance (GCCA) LDCF 7.3 3 Coastal zone vulnerability; NAPA Adaptation Fund (AF) 6.9 3 Reducing coastal vulnerability U.K. International Climate Fund 4.7 2 Institutional strengthening, civil society, renewables, private sector UN-REDD 4.3 2 REDD+ Germany’s International Climate 3.3 1 Conserving mountain forests Initiative Special Climate Change Fund (SCCF) 1.0 0.4 Water resource management Total 245.5 Source: http://www.climatefundsupdate.org, accessed 04 February 2014; Development Partners Group mapping (2013). implementation of the NCCS if Tanzania plans to rely a real growth of 57 percent in three years (ODI 2013). upon UNFCCC funds for substantial support. At the same time, climate change-related expenditure has increased steadily as a proportion of the total budget, from 4.2 percent in 2009/10 to 6.5 percent in 2012/13. ON-BUDGET CLIMATE CHANGE This growth in budget for climate-change-relevant EXPENDITURES activities can be explained primarily by an increase in Tanzania has increasingly programmed resources on-budget donor funding. The composition of climate toward climate-related activities. Recognizing that change-relevant expenditure appears to have shifted over activities to build climate resilience are not only supported the four-year period, from projects with a primary focus by dedicated climate funds, new methodologies have on either adaptation or mitigation to projects that appear attempted to identify existing domestic climate change to combine both objectives (ODI 2013). spending. The Overseas Development Institute (ODI) has recently developed a Climate Change Public Expenditure Although these amounts appear to be substantial, Review framework to assess climate-related expenditures in funds are largely concentrated in projects that national budgets and included mainland Tanzania15 as one are indirectly related to building climate resil- of the first countries to pilot the methodology (ODI 2013). ience or promoting low-carbon growth, meaning that climate change is not an explicit goal of the given pro- Tanzania’s own budgeted amount for climate ject or program. However, finance for projects with higher change-relevant activities grew from US$293 relevance for climate change is increasing (see table 3.3 million in 2009/10 to US$896 million in 2012/13 and table 3.4). (table 3.3).16 When adjusted for inflation, this represents Although Tanzania has benefited from climate 15 Zanzibar’s budget was not included in the review. change financing, the absence of effective tracking 16 Amounts are in real terms. Financing Climate-Resilient Growth in Tanzania 17 TABLE 3.3. CLIMATE-RELATED EXPENDITURE IN RECENT YEARS 2009/10 2010/11 2011/12 Total GDP (US$ million) 17.6 20.2 23.5 Total public expenditure as 29.0% 29.2% 28.7% a share of GDP Climate-change-related 1.3% 1.3% 1.7% expenditure as a share of GDP Climate-change-relevant 1.4% 1.6% 2.2% budget as a share of GDP Source: Adapted from the ODI, data from the MoF, and the URT 2012 Economic Survey. TABLE 3.4. RELEVANCE OF CLIMATE-RELEVANT EXPENDITURES1 2009/10 2011/12 Climate Change Number of Share of Total Number of Share of Total Relevance Projects Budget (%) Projects Budget (%) High relevance 3 5 9 13 Medium relevance 4 7 2 3 Low relevance 51 88 57 84 Total 58 100 68 100 Source: ODI (2013). 1 This study conducted by ODI developed categories of expenditures based on the degree of relevance to addressing climate change adaptation and mitigation. systems makes it difficult to gauge exactly how There are key gaps in understanding how much climate finance has been accessed, how climate finance can best link with strategic plans. much has been spent, and what the impacts have Although much analysis has been done to investigate cur- been for building resilience or promoting low- rent access to climate change finance and expenditures, carbon growth. A main challenge to this analysis is the there has been no analysis of, nor targets for, climate resil- quality of budget data: neither on-budget climate expen- ience or low-carbon growth; neither has there been an ditures nor finance from dedicated climate funds are analysis of how related outcomes could be measured to coded within the national budget, which makes tracking meet targets. This is already a challenge given the lack of financial flows difficult and discretionary. Off-budget cli- climate finance tracking and the ad hoc nature of projects mate finance may flow to multiple beneficiaries, and there and programs, which the NCCS and ZCCS hope to over- is no central responsibility for monitoring these funds come. Additionally, there has been no comprehensive or their implementation. Climate change is not explic- analysis linking the strategic priorities in the NCCS and itly addressed as a theme in the national budget process ZCCS to current finance for climate change activities, and there is no coding of climate expenditures within the to identify where activities are currently resourced and budget, so any analysis must be done manually. where financing gaps may exist. 18 Financing Climate-Resilient Growth in Tanzania CHAPTER FOUR REDUCING TOMORROW’S RISKS THROUGH TODAY’S DECISIONS A pathway to climate-resilient economic growth will take more than having plans in place. Past experience has shown that implementation and financ- ing of strategic plans is a long-term and resource-intensive process. Adopting plans is merely a first step, with many decisions to come. Tanzania has signaled what is needed to scale up and better manage climate finance and work toward transforming strategic plans into concrete actions. The following section outlines key considerations for implementing and financing climate action in Tanzania, taking into account the current context for Tanzania’s institutional and policy framework for climate change as well as the climate finance landscape.17 This section provides recommendations for decision making for four key areas that can help enhance what Tanzania has achieved on climate change and address the identified challenges, drawing from international case studies and Tanzania’s experience so far (figure 4.1). LEADERSHIP CHAMPIONS TO ADVANCE CLIMATE GOALS Countries with advanced institutional arrangements on climate change and which have made most progress on financing climate change activities are those with a high- level champion for climate change action. Local stakeholders indicate that there has not been such a senior political champion in Tanzania, promoting climate action at the highest levels. The statements made by President Kikwete at the 2013 COP are a promising indication of leadership, but strong follow-up will be key to sustainability. Case studies show that high-level support is also critical to overcoming potential barriers and delivering institutional and finance structures in an effective and timely manner. Successful regional examples include Rwanda, where presidential support was key, Lessons from international experience and stakeholder interviews undertaken as part of this study are described in 17 more detail in appendix A. Financing Climate-Resilient Growth in Tanzania 19 FIGURE 4.1. KEY CONSIDERATIONS FOR IMPLEMENTING AND FINANCING CLIMATE ACTION Lead Plan Fund Implement Champions to A long-term Develop a Target investment advance climate horizon is strategic to priorities goals necessary framework Institutional and Choose Set clear Build capacity of policy reforms appropriate objectives Key implementers may be necessary modalities Clear roles and Prioritize key Consider a range Show evidence of responsibilities resilience areas of finance sources results and Ethiopia, where the (former) prime minister was a Institutional arrangements for climate change therefore strong and effective champion. Both countries have devel- mirror those for other environmental issues, designating oped high-level vision statements to mainstream climate the VPO-DoE as the institutional lead for each. Both bud- change into economic growth and development policies, get and human resources, which have been inadequate for through efforts to develop a climate-resilient, low-carbon/ the VPO-DoE to fulfill its coordination role, are increas- green economy. ingly stretched by the scale of coordination needed for comprehensive, economy-wide climate change planning In the Philippines, the Climate Change Commission is and investment. attached to the Office of the President, and the Board of the dedicated fund (the Philippines People’s Survival Fund The EMA, a comprehensive piece of legislation that [PSF]) has high-level support that helps ensure implemen- does include climate change, does not address climate tation is a top national priority. Leadership is also critical change financing nor provide an adequate institutional to ensuring climate finance is used effectively: in the case framework. For finance, the EMA mandates the establish- of Bangladesh, climate finance is embedded in the legal ment of a national Environmental Trust Fund (ETF) and framework, and the Philippines case shows the impor- outlines the operation of such a fund. However, climate tance of ensuring buy-in and participation across gov- change is not included in the ETF objectives; given the ernment, including ministries of finance and economic scale of finance needed and specific objectives that go planning—endorsements which were key to the record beyond the ETF provisions in the EMA, this could be a timing of passing the Peoples Survival Fund Act along the complementary but insufficient funding source. Current actual uptake of the PSF into policy and planning. institutional arrangements for EMA implementation may also require revision to promote comprehensive, sustain- able action on climate change. REFORMS MAY BE NECESSARY With a strategy that is complex and devolves significant There is a need for broadening institutional responsibilites implementation responsibility to sectors and subnational for climate change. Institutions such as the MoF and the entities, it may be opportune to revisit the climate change Planning Commission have had a peripheral role when policy framework. Doing so will take initiative from cli- they should be key players for their convening power and mate champions. Although Tanzania has a climate influence over planning and budgeting, and the impor- change strategy which is in principle backed by legislation tance of sectoral agencies in mainstreaming climate (EMA) and development plans (FYDP), there is no stand- aspects is not highlighted. Given the increasing attention alone climate change policy nor regulatory structure. to climate change issues in national development plans 20 Financing Climate-Resilient Growth in Tanzania and the national budget, it may be opportune to consider the REDD+ task force, and the SREP (which includes clearly defined roles and responsibilties in the institutional the Ministry of Energy and Minerals renewable energy framework to strengthen not only mainstreaming climate task force and implementation partners such as the Rural issues across the economy (which is improving) but also Energy Agency and private sector actors). These entities, increase the likelihood that interventions are provided and how they function, have not yet been fully consid- with resources (which has been a challenge). ered in options discussed to date for a dedicated fund or broader financing framework. Other complexities will Drawing from the lessons of other countries that have need to be considered in the institutional structure, such been successful in securing major climate finance for as defining arrangements between Zanzibar and the implementation of strategic plans, there is a need to mainland and the role of other actors that are important develop a clear legal and institutional roadmap for climate for climate change adaptation and mitigation such as civil change in Tanzania, which should build on the existing society, private sector, and research institutions. government landscape and assign responsibilities across relevant agencies based on existing mandates, capacity, and strengths. STRATEGIC PLANNING A LONG-TERM HORIZON IS NECESSARY CLEAR ROLES AND RESPONSIBILITIES The NCCS takes a comparatively short five-year imple- There are several key actors involved in the institutional mentation time frame. However, effective climate action framework for climate change planning in Tanzania: the ideally needs to be cast with a long-term vision in mind— VPO-DoE sets overall climate change policy and under- for example, Tanzania’s Vision 2025 (which aims to takes strategic planning; the MoF is responsible for public achieve middle income status by 2025) is complemented financial management and budgeting; and the MDAs and by successive five-year development plans. The vision of local governments are responsible for developing, cost- the NCCS, to enhance climate resilience in Tanzania and ing, and implementing climate change action plans and reduce the vulnerability of natural and social systems to investment plans. At the national level, there is a steering climate change, is not time-bound nor related to achieving committee and a technical committee for climate change. a specific target. Although the NCCS complements the These entities meet infrequently on an ad hoc basis at the Vision 2025 and FYDP, the government may consider how request of the VPO-DoE but have not provided adequate it could better align with longer-term policy and planning leadership to implement climate action to date nor played frameworks. Given that line ministries and local govern- a substantive role in carrying forward the NCCS.18 Institu- ments prepare their own sector-specific climate change tional responsibilities for accessing and managing climate action plans, a longer-term vision (20–30 horizon) could finance are unclear, and the NCCS does not provide more help to set some boundaries to ensure that the potentially detailed institutional responsibilities for climate finance. large number of bottom-up plans add up to a “whole” These will need to be outlined and agreed between key that is consistent with the longer-term vision. There is a actors; high-level leadership is critical to drive this process timing disconnect between the NCCS and development and come to an agreement on institutional arrangements. of the sector action plans, many of which may not be pre- pared until after the first phase of the NCCS is completed. Several institutional structures for international climate finance already exist in Tanzania or are under prepara- SET CLEAR OBJECTIVES tion, including the Designated National Authority for the Especially in terms of strategically targeting climate Clean Development Mechanism (CDM) (which sits in finance, experience shows that an overriding principle in the VPO-DoE), the National Implementing Entity (NIE) implementing climate action is that clear objectives are for the AF (National Environmental Mangement Coun- necessary. Climate finance mechanisms should be designed cil is currently in the accreditation process for this role), carefully to be tailored to Tanzania’s climate priorities and accommodate likely funding sources. Importantly, a fund- 18 See, for example, ODI 2013. ing mechanism should recognize the opportunities and Financing Climate-Resilient Growth in Tanzania 21 constraints of capitalization sources and accommodate tion of the NCCS will be compromised if this vital step of these in the design. For example, a fund for managing the sector planning is not supported in the short term—though UNFCCC resources for projects would likely have a quite the success of the NCCS hinges on sector and local-level different design than a fund more focused on sector main- planning, as it stands, preparing those plans is an unfunded streaming using bilateral support. mandate and capacity is quite low (ODI 2013). PRIORITIZE KEY RESILIENCE AREAS FUNDING Although climate adaptation is listed as the “highest pri- DEVELOP A STRATEGIC FINANCING ority” for Tanzania, the interventions in the NCCS are FRAMEWORK not prioritized by climate risk, vulnerability, or urgency. As outlined in section 2, Tanzania already accesses con- This will presumably be left to sectors in their action plans siderable resources for climate change, but there are sev- and local governments, but in the current state, develop- eral issues that impede the efficiency and effectiveness of ing a pipeline of projects proposed for funding would be these funds. For example, existing finance is a challenge. This risks a business-as-usual scenario, where » insufficient for the estimated adaptation needs the large part of climate change funding continues to be (US$70 vs. US$600 million per year);19 channeled to donor priorities rather than areas that are » concentrated in mitigation, which is important the biggest wins for adaptation, which are currently small- for a low-carbon growth path but unaligned with scale and fragmented investments. Several past efforts have Tanzania’s priority on adaptation; and been made to prioritize key areas to invest: for example, » largely project-based and, as a result, often small- the NAPA points to agriculture as an adaptation priority, scale, short-term, and not systematically targeted given the climate sensitivity of the sector and importance to vulnerability. to the economy and food security. However the NCCS stops short of weighting key sectors for support or indicat- The NCCS and ZCCS only recognize that additional ing where the largest vulnerabilities lie to identify urgent resources are needed for their implementation and pro- priorities to address in the near and longer term. vide some indication of the sources, but an overall frame- work would help to set a foundation for how this would This prioritization could be done through sector action be done. The process to develop a financing framework plans: the Ministry of Agriculture, Food Security, and would ask key questions: Cooperatives (MAFC) has developed and adopted an » How would additional funds be mobilized? action plan for climate resilience in the crop subsector, and » What are the key sources (both public and private)? other sectors are anticipated to follow. The ACRP sets out » How should the needs of different actors be con- key resilience areas for investments (such as water security, sidered? (box 4.1) land management, and climate-smart agriculture) and » How can these sources be catalyzed and blended? was supported through technical assistance provided by » How can finance be best delivered in a way that the DFID, the World Bank, and the Sokoine University targets key vulnerabilities? of Agriculture. » How will required capacity to manage and moni- tor finance be built? Development of action plans, although positive, would benefit from a common methodology and funding to assess Box 4.1 includes considerations that should be taken into risks and priorities and cost estimates to develop a solid account in the overall financing framework. investment framework that can be aligned with financing mechanisms. A major constraint to prioritizing resilience actions is that there is not yet a system in place nor financial 19 US$70 million is 35 percent (adaptation activities) of the DPG-E US$202 million committed as of 2014. The US$600 million figure is from GCAP (2011) resources or technical assistance available for the MDAs and includes at least US$100 million per year to build adaptive capacity against and Local Government Authorities (LGAs) to develop future climate change in addition to US$500 million annually to address cur- action plans. There is a significant risk that implementa- rent climate risk. 22 Financing Climate-Resilient Growth in Tanzania BOX 4.1. OPTIONS: WHO SHOULD BE CONSIDERED IN A FINANCING FRAMEWORK? Line Sectors somewhat from the mainland and is more similar to that of Within national government, sectoral engagement and major the Small Islands Developing States. Zanzibar is particularly finance to date has been primarily limited to the forestry and vulnerable to climate change and thus may require relatively energy sectors (in line with REDD+). However, this type of higher resource allocations for adaptation. A combination engagement will have to be replicated across a number of of strategies to help ensure equitable access, reflective of sector line ministries (such as water, transport, and agricul- potential climate risk, might include the following: ture) as the NCCS is implemented. Unlike REDD+, there » More active engagement between mainland and is no specific funding source available for sectors to develop Zanzibar on steering and technical committees tasked actions plans, consult stakeholders, and perform other neces- with assessment and approval of funding allocations sary related activities, though planning will be a time- and » Discussion around possible funding modality with Zan- resource-intensive undertaking, and require significant coor- zibar, including options of either a dedicated thematic dination and technical expertise. A financing framework window for the islands or allocations under thematic needs to consider this reality, and institutional mechanisms windows that reflect issues of specific relevance to Zan- need to be put in place to coordinate among sectors as well as zibar (for example, coastal zones and vulnerable areas) for realistic resource allocations. or a separate fund or mechanism » Increased capacity support for Zanzibar—in line with Local Authorities the large-capacity increases needed on the mainland to LGAs are also critical for implementation of the NCCS. From gear up for future flows, implementation, and evalua- a local authority perspective, the Prime Minister’s Office- tion—through the United Nations Development Assis- Regional and Local Government (PMO-RALG) is keen to see tance Programme (UNDAP) process and other possible climate finance made accessible to local authorities at district support to the government on climate strategy and proj- level. However, there is some concern over the level of capac- ect formulation ity to manage and monitor climate change funds through existing structures. Non-state Actors A UNDP-convened stakeholder meeting on climate finance Zanzibar confirmed the interest among NSAs to play an active role in There is a political imperative—especially in the context of the design and oversight of climate finance, as well as to access the ongoing constitutional discussion—to forge consensus climate funds as beneficiaries and implementing agencies. on the modality through which Zanzibar can access climate The National Climate Change Forum (an umbrella NGO funds. For general budget flows, allocations to Zanzibar follow on climate change), the Tanzania Chamber of Commerce, an agreed formula (negotiated with the IMF in the 1990s), and several industry associations all indicated their desire to in which approximately 4.5 percent of national revenues go engage actively with the process. Tanzania will need to give to the islands.1 Zanzibar’s climate vulnerability profile differs consideration as to how non-state groups can both contribute to and have equitable access to climate finance, particularly 1 Revenues allocated to Zanzibar vary on a sector basis, for example, with where they provide services and capacity that fill government higher proportional allocations in specific areas such as marine and coastal gaps in public service delivery. sectors. DESIGN-APPROPRIATE FINANCE than general climate funds. Thus, it is highly unlikely that MODALITIES sufficient resources for adaptation could be mobilized There are many options that Tanzania might choose to through a single funding mechanism. Many of the current structure its finance for delivering the NCCS and ZCCS. institutional and financial constraints to financing climate As discussed earlier, most attention has been focused on adaptation would likely persist under a general climate setting up a single dedicated fund as the country’s vehicle fund, for example, the proliferation of fragmented and for climate finance. However, the time and resources to small-scale projects since the scale is generally too mod- set up new funds are high and management costs during est for long-term transformational actions. Since sectors operation can be substantial. Most development partners, and local governments are implementers, mechanisms to the largest source of climate finance in Tanzania, may con- ensure international climate finance reaches these institu- tinue to be more interested in funding specific programs tions to support their action plans will be critical. Financing Climate-Resilient Growth in Tanzania 23 Other instruments are possible, each having their own for example, the NCCS recommendation of a climate objectives and design considerations—these include bas- change window in a basket fund. The flexibility of differ- ket funds, policy-based instruments, and budget tracking ent financing mechanisms is appealing and expands fund- tools. Options for fund management are not mutually ing possibilities; yet, it will still be important to have an exclusive and a flexible approach would benefit Tanzania’s overarching coordination mechanism that can be used to planning framework. In fact, depending on Tanzania’s track finances and monitor results across funding sources. objectives for climate finance, more than one instrument will likely be necessary. CONSIDER A RANGE OF FINANCE By taking a more comprehensive view of the options, SOURCES Tanzania has an opportunity to design, at an early stage, In the NCCS, ZCCS, and FYDP, Tanzania is commit- a strategic framework that has the flexibility to increase ted to raising finance from both international and domes- the level of finance from diverse sources and to enhance tic sources to support action on climate change, however coordination mechanisms between financing structures there is little analysis of how much is needed and what that would help track and monitor funds. Appendix B sources are most appropriate. The process to develop a describes examples of different funding modalities that more strategic framework for financing action on climate could be relevant for consideration in Tanzania and the change will require alignment of financing needs with opportunities and constraints of each. For example, Tan- fund-raising as well as greater capacity to better under- zania may wish to start with a modest fund to support stand the funding landscape. This is especially relevant for sector and local government action plan development as sectors that will be implementing action plans. well as build systems and institutional capacity centrally. This could then be scaled up to support implementation A range of financing sources are possible—and neces- of action plans, country-wide technical assistance and sary—to fund climate change priorities. Although most planning tools, and a robust monitoring and evaluation climate finance to date in Tanzania has been bilateral (M&E) framework. assistance, with some support from international and mul- tilateral sources, the country has the potential to access Regardless of the funding modalities, Tanzania’s ability to many other sources of finance to implement strategic cli- access funds from development partners and international mate change plans and capitalize a climate fund if one is sources will benefit from strengthened financial manage- established. The NCCS and other planning documents ment and monitoring to account for climate finance. Mon- tend to list sources of climate finance but do less to assess itoring climate expenditures is currently a major challenge which are relevant for Tanzania’s priorities and examine in Tanzania (ODI 2013). As funding needs grow, so will the opportunities and constraints of these funds. Several competition for scarce resources, and funders will need of the more relevant sources for Tanzania are outlined in confidence that climate finance will deliver results. appendix B, with some initial analysis—a more detailed examination of various funding sources and how they This can be considered from two angles. First, specific to could practically contribute to climate resilience in Tanza- a dedicated climate fund, capitalization will require safe- nia may be a useful undertaking to feed into the decision- guards for transparency in fund management and spend- making process. ing on the ground to reduce fiduciary risk and increase the likelihood of capitalization by development partners, Additionally, given the significant resources that are international funds, foundations and other potential con- needed, it is highly unlikely that public revenue sources— tributors. Contributors require confidence that strong even with domestic, international, and bilateral assis- systems are in place to manage funds transparently and tance—will be sufficient. Private resources are critical, that results can be monitored and verified. Second, even and Tanzania will need to consider how best to engage if Tanzania develops a dedicated fund, there could be the private sector in financing investments that build resil- additional mechanisms for financing climate change, ience and also effectively use public money to mobilize 24 Financing Climate-Resilient Growth in Tanzania private finance. Tanzania already has an example of this tools for capacity building could, for example, establish a through the CIF’s SREP mentioned earlier, which not methodology so that sector action plans take a consistent only has mobilized US$50 million for renewable energy approach to developing, prioritizing, and costing actions. but aims to catalyze renewable energy development and Tools can also be developed for the various types of fund- reduce reliance on fossil fuel energy, in part through pri- ing modalities such as mainstreaming in sector plans. vate sector development. The Rwanda Environmental Management Authority has produced several tools that contribute to implementa- IMPLEMENTATION tion of the Green Growth and Climate Resilience Strat- egy, including a climate finance toolkit and guidelines to TARGET INVESTMENT TO PRIORITIES mainstream climate adaptation and mitigation in energy Large-scale investments in climate adaptation and mitiga- and infrastructure projects (Rwanda Environmental Man- tion are needed across a range of sectors and actors, which agement Authority 2011). This includes clear methods will in theory be guided by action plans. As described ear- on how to assess vulnerability, identify entry points for lier, this will be a complex undertaking: Tanzania would mainstreaming climate change, and integrate options for benefit from a systematic, structured approach to invest- climate adaptation and mitigation into policy processes, ments that guides programming, mobilizing funds, priori- finance, and evaluation at the national, local, and com- tizing and budgeting, implementing and spending at the munity levels. A pilot project financed by the DFID in intervention level, as well as tracking and monitoring. Many Tanzania is supporting planning processes and setting up of these aspects are mentioned in the NCCS but have not finance mechanisms in three dryland districts. A multi- yet been put into practice. A more systematic approach to year effort has been necessary to work with local officials, implementation could yield a number of direct and indi- communities, and pastoralists to identify vulnerabilities, rect benefits in terms of more cost-effective planning, less plan, prioritize investments, set up funding structures and fragmentation, better coordination, greater predictability seek financing, a process which is promising to generate and lower risk of diversion from strategic plans. This could resources to support some of Tanzania’s most climate- also help to mend the disconnect between the need for vulnerable areas.20 support on adaptation and substantially higher volume of funding for mitigation, by more clearly targeting and monitoring investments and tracking financial flows. SHOW EVIDENCE OF RESULTS Developing a management information system for climate finance could drive improvements in coordination BUILD CAPACITY OF KEY and decision making. It is highly unlikely that the current IMPLEMENTERS arrangements for financing climate action will change in Although Tanzania lacks a legal or policy framework for the near future. Donors and other funding sources will climate planning and finance, in the immediate term, the continue to finance projects and sectors in line with their country could benefit from high-level support (for exam- priorities and preferred types of funding modality. The ple, from the VPO-DoE and development partners) for near-term landscape of international climate finance is greater capacity in the areas discussed above. Capacity also unlikely to change significantly. As described in sec- building to date has been on an ad hoc basis but a large- tion 2, because of the fragmented nature of climate action scale, consistent approach is needed. This includes sec- in Tanzania, it is difficult to gain a comprehensive picture tor planning, accessing and tracking climate finance, and of what is financed and the level of climate expenditure, project planning and implementation. Climate change although the scale of finance is significant, in hundreds of planning (including mainstreaming) and implementa- millions of dollars. tion of those plans are new and additional processes for sectors and local governments, the main implementers, and it will take time and resources to build the capac- 20 See “Mainstreaming Climate Change Adaptation in Drylands Development ity for implementation. Development of programs and Planning in Tanzania,” http://www.tnrf.org/en/ccadapt/q2highlights. Financing Climate-Resilient Growth in Tanzania 25 The wide range of financing sources, projects, and stake- and gaps. Decision making on what activities to finance holders involved with implementing climate strategies, has been a challenge, in large part because of a lack of plans, and interventions does not have to result in a frag- information, which cannot be solved through a climate mented approach to climate change planning. A system fund alone. An economy-wide management system for designed to identify and track climate finance could be a climate information would have added benefits for trans- powerful tool to identify the climate change investments parency and be useful to a wide range of stakeholders that are financed and target resources toward priorities from civil society groups to potential donors. 26 Financing Climate-Resilient Growth in Tanzania CHAPTER FIVE WORKING WITH TANZANIA TO SUPPORT RESILIENT GROWTH The Bank, DFID, and other development partners are committed to supporting the implementation of Tanzania’s development and climate change plans as well as its financing strategies. As discussed in section 2, local development partners are the larg- est source of finance for climate change activities in Tanzania, with significant resources in the pipeline. With strategies in place in Mainland Tanzania and Zanzibar, Tanzania is well placed to leverage donor and other outside support to implement strategies and promote a growth path that is resilient to climate change and encourages low-carbon development and also use domestic revenues more strategically to ensure that eco- nomic growth mitigates rather than exacerbates the risks of a changing climate. To do so, Tanzania can work with development partners to signal what support would be most appropriate to meet strategic objectives. Development partners, including the Bank and DFID, have a range of instruments that are already accessible in Tanzania or used elsewhere in the Africa region to support climate change activities (figure 5.1): » Financial services to support investments and policy reform that mainstream climate change, target specific climate risks and vulnerabilities, and support policy and institutional reforms, through various forms of investment and policy opera- tions, mobilizing a variety of resources, including climate finance » Technical assistance and knowledge services to provide policy advice and analyses on specific knowledge gaps, support knowledge exchange globally and across sec- tors, and provide quality training and capacity building » Convening and coordination to build partnerships between stakeholders, including cross-government, joint programming with development partners to align sup- port, and building relationships with international and local practitioners Recognizing the scale and complexity of addressing climate change in a country with a rich climatic and geographic diversity such as Tanzania, these instruments can be tailored to suit different contexts and a variety of actors, including central coordi- nation ministries (for example, the MoF, Vice President’s Office, and PMO-RALG); line sectors (for example, agriculture, transport, water, and energy); and subnational Financing Climate-Resilient Growth in Tanzania 27 FIGURE 5.1. TOOLS FOR BUILDING RESILIENCE Financial Services Technical Assistance Convening and Project alignment with climate and Knowledge Coordination priorities Services National and local governments Climate finance In-depth analyses and policy Development partners Mainstreaming, including advice coordination through basket fund Cross-regional and South-South Other stakeholders (local and arrangements exchange international NGOs, private Investment projects specific to Data platforms sector, academia) building climate resilience Budget support for policy reforms (e.g. development policy operations) Delivering on Climate Resilience Support to leadership and strengthened coordination Implementation of strategic plans Strengthened capacity to plan and deliver Improved evidence base and information management Additional financial resources governments (for example, Zanzibar, districts, and urban a notable exception, which provides mitigation benefits local governments). Different instruments can also be through GHG reductions as well as adaptation through applied to specific thematic challenges such as water secu- increased access to electricity services. rity, urban resilience, and incentivizing development of renewable energy. Yet, the Bank and other donors could improve the tar- geting of climate action. There are potential entry points FINANCIAL SERVICES in most sector programs, new projects could focus on key climate vulnerabilities, and support could be provided TO SUPPORT INVESTMENT for strengthening institutional and policy frameworks— AND POLICY REFORM at the sector or national level—to establish a foundation The Bank already invests significantly in key Tanzanian for implementing comprehensive climate action through sectors that are both key to growth and aligned with breaking down barriers within governance, as described NCCS and ZCCS interventions, including current port- in sections 2 and 3. folios in energy (US$685 million), agriculture (US$262 million), water (US$245 million with approximately Development partners and other stakeholders can support US$220 million in the pipeline), natural resource manage- resilience through standalone operations or mainstream- ment (US$41 million), and urban development (US$581 ing into broader sector programs: million).21 Yet, although these sectors are strongly climate » New investment projects aligned with climate change linked, most operations in the Tanzania World Bank port- priorities. Investments could be designed specifi- folio are only loosely linked to climate adaptation objec- cally to support implementation of strategic cli- tives and none thus far support Mainland Tanzania or mate change plans such as the NCCS or ZCCS. Zanzibar’s climate change plans. Renewable energy is For example, Mozambique’s Strategic Program for Climate Resilience (2011) is supported by multiple funding sources, including the CIF’s Pilot Pro- 21 Figures include both active and pipeline investments as of May 2014. gram on Climate Resilience as well as the African 28 Financing Climate-Resilient Growth in Tanzania Development Bank, the International Finance partners such as the Bank and DFID have played Corporation (IFC), and the Bank, each of which a key role in providing assistance to design and are supporting projects in key sectors, including capitalize dedicated climate finance mechanisms, agriculture, coastal cities, transport, water manage- generally directly linked to support strategic cli- ment, forestry, and education. mate change plans. For example, the DFID sup- Although there are currently no projects in ported the planning, design, and capitalization Tanzania that are intended to directly support the of Rwanda’s Environment and Climate Change NCCS and ZCCS interventions beyond the plan- Fund through nearly US$40 million in resources ning and capacity building stage, direct support for from the U.K. International Climate Facility, and a projects that align with the objectives and interven- consortium of development partners and national tions are ongoing and in the pipeline. For example, entities pooled funds of over US$300 million in Tanzania’s recent pilot project financed through Bangladesh. the SREP through the CIF demonstrates the eco- » Ensuring climate change is mainstreamed in sector pro- nomic, social, and environmental viability of low- grams. Climate aspects could be incorporated as carbon development paths in the energy sector. part of ongoing sector-wide programs to promote This complements the NCCS’ strategic interven- adaptation or low-carbon growth. In Tanzania, tions on renewable energy, support for geothermal, basket fund arrangements exist for two of the key and diversification of energy sources. Although the sectors of importance for adaptation—water and SREP’s design is formally aligned with Tanzania’s agriculture—with investments in policy, planning, Renewable Energy Investment Plan, it is not linked research, capacity building, and infrastructure. to the NCCS. Tanzania could consider (a) how Together, these two baskets total US$1.5 billion these types of operations would best link to imple- in investments22 that are shaping the future devel- mentation of the NCCS and ZCCS and (b) how to opment of these key climate-sensitive sectors that mobilize additional investment for the NCCS and are top adaptation priorities in Tanzania. One ZCCS priorities. possibility would be to build a climate window » Climate finance. As discussed in section 2, Tanzania into these operations to fund resilience-related already accesses climate finance resources from a activities aligned with the sector priorities. Such range of sources, but there is a disconnect between arrangements are included within the NCCS as the need for action on adaptation versus the tar- a potential financing mechanism, noting these geting of most finance for mitigation (focused on could be an entry point for mainstreaming stra- a few energy infrastructure and forestry projects). tegic climate change interventions, sector action Although ongoing efforts are certainly important, plans, and activities with local governments, there is a clear need for more resources to strengthen thereby improving resilience in a significant sector climate resilience in Tanzania’s major investment portfolio. programs and the most climate-sensitive sectors » Budget support for policy and institutional reforms. Estab- and regions. Climate finance could provide an lishing the institutional and policy foundation for important source of additional funding. The NCCS comprehensive climate action is critical but can be points to a major role for development partners to time consuming and costly. Several countries have support the strategy through finance: development mobilized development policy lending (DPL) to partners can assist Tanzania both in identifying and support ongoing efforts to strengthen the legal and accessing international resources, and Tanzania institutional framework for climate action. Mexico, can guide development partners toward priorities with approximately US$3 billion of Bank support, that better support strategic priorities. implemented a series of policy lending programs Several countries have opted for a dedicated climate finance mechanism to streamline climate US$200 million through the WSDP and US$225 in the pipeline through the 22 action and funding. In all cases, development Agriculture Sector Development Program. Financing Climate-Resilient Growth in Tanzania 29 TABLE 5.1. STAGES OF WORLD BANK CLIMATE CHANGE ENGAGEMENT IN MEXICO Early Support (1999–2007) Strengthening (2007–2009) Consolidation (2010–forward) • Renewable Energy for • Mexico: Waste Management • Adaptation to Climate Change Impacts Agriculture Project and Carbon Offset Project in the Coastal Wetlands in the Gulf of • Introduction to Climate-Friendly • Climate Change DPL Mexico Measures in Transport • Environmental Sustainability • Urban Transport Transformation • Programmatic Environment DPL Program Financial Services DPLs I and II • Sustainable Rural Development • Green Growth DPL • Adaptation to Climate Change in the Water Sector Development Policy Loan • Low-Carbon DPL • Strengthening Social Resilience to Climate Change DPL • Forest and Climate Change Investment Loan and Forest Investment Program • Modernization of National Meteorological Service • LAC Regional Landfill Gas • Carbon Finance Assistance • Social Impacts of Climate Change Knowledge Services Initiative Program for Mexico • MoU Subnational Climate Change • Evaluation of Energy Efficiency • Low carbon study (MEDEC) • Othon P. Planco Sustainable Development Initiatives • Mass Urban Transport-Federal Strategy • Economic Assessment of Policy Program • Adaptation of the Water Sector to Interventions in the Water Climate Change Sector • Climate Change Public Expenditure Review • Forest Carbon Partnership Facility • Consolidation and • Preparation of the Clean • Water sector events in the lead-up to Convening and Strengthening of the Mexican Technology Fund Investment COP16 Coordination Office for GHG Mitigation Plan • Energy efficiency conference • High-level facilitation activities related to COP16 • Agriculture and forestry sector events during COP16 that built the foundation for climate action across levels and encourage climate-resilient planning key economic sectors and levels of government and development within the country’s key eco- (see table 5.1). nomic sectors such as agriculture, energy, health, Similarly, the first climate change development nutrition, and transport. policy operation (DPO) in Sub-Saharan Africa supported Mozambique in the implementation of its climate change resilience program, with US$50 TECHNICAL ASSISTANCE million. The DPO aimed to develop a firm founda- AND KNOWLEDGE SERVICES tion for long-term climate-resilient growth through As discussed earlier, effective climate change planning supporting policy reforms to make long-term and targeted finance is grounded in understanding risk growth and development plans more resilient to and vulnerability, the trade-offs of different develop- climate change. The funds provide direct support ment paths, and the costs and benefits of climate change to help the Mozambican government implement interventions. Tanzania is making important decisions to its NCCS across national, provincial, and local direct its development trajectory through plans, initiatives, 30 Financing Climate-Resilient Growth in Tanzania and investments (for example, FYDP, Big Results Now!, BOX 5.1. POTENTIAL AREAS FOR CLIMATE and sector programs). Fully integrating climate change CHANGE TECHNICAL ASSISTANCE into these plans is a challenge, partly because the evi- dence base of the costs and benefits is limited. Technical Based on global experience, Tanzania will benefit from considerable strengthening of current institutional arrange- assistance from the Bank, DFID, and other development ments and capacity to implement climate change plans, partners active in climate change can support both the both of which are likely to require considerable additional evidence base and build capacity to better mainstream cli- resources and outside expertise. Although climate capacity mate change and deliver on strategic plans and programs and resources are increasing in Tanzania, notably through through the following provisions: the UNDAP’s “Mainstreaming Environment and Climate » In-depth analyses and policy advice. Robust technical Change Adaptation in the Implementation of National analyses and assessments are needed to inform key Policies and Development Plans” project, these are signifi- cantly under-resourced compared to other countries with policy decisions, prioritize investments, and bet- existing climate finance mechanisms. Importantly, in other ter understand tradeoffs for climate resilience and countries, the financial resources to build this capacity have low-carbon growth. For example, the Bank and been largely provided by bilateral or multilateral agencies. the Ministry of Energy and Minerals are currently For Tanzania to access similar levels of support would undertaking a study on how climate change is likely require stronger engagement by the government with local to affect hydropower generation for all planned and development partners. As current in-country capacity for mobilizing and managing climate finance is limited, scaling existing dams in Tanzania. The study is expected to up action on climate resilience would likely require capacity provide guidance on whether continued investment building or technical assistance in the following areas: in hydropower is wise, given the impacts of climate » Strategy formulation change, but also to assess the relative importance » Investment planning, programming, and main- and costs of climate change versus sound land and streaming water management on hydropower generation. » Fund raising and investor/development partner For the Tanzania Southern Agricultural Growth relations » Financial management Corridor (SAGCOT) initiative, which aims to gen- » Training and capacity building erate US$2.1 billion in private investment in agri- » Marketing culture, there is a promise of widespread adoption » Monitoring and reporting of climate-smart agriculture as a means to enhance » Evaluation and appraisal productivity and sustainability. With the DFID and Norwegian support, a “Green Growth Invest- ment Framework” was designed to set forth spe- from Mexico, South Africa, Namibia, and Zambia cific investments that could result in the planned to present their strategic plans and share experi- SAGCOT sustainability vision. Additionally, with ences with Tanzania during the early stages of Bank and DFID support, the MAFC is developing preparation of the NCCS and ZCCS. a climate action plan for crop agriculture that out- » Data platforms. Technical assistance can also be pro- lines a detailed investment plan for achieving the vided to build and use tools for data management agricultural objectives of the NCCS. for use in climate change planning (see box 5.1). » Cross-regional and South-South exchange. There are For example, these types of tools can target spe- significant learning opportunities from the experi- cific vulnerable areas or sectors. The Shire Basin ence of other countries that have adopted strategic in Malawi is particularly vulnerable to flooding climate change plans and financing mechanisms, and obtained support for an Integrated Flood including in East Africa (Kenya, Ethiopia, and Risk Management Plan. This initiative includes a Rwanda). In November 2011, an event supported modeling framework, flood forecasting and early by the Bank and DFID in Windhoek, Namibia, warning systems, an action plan, and capacity brought together climate change planning experts development. Financing Climate-Resilient Growth in Tanzania 31 be requested to facilitate, for example, solutions to CONVENING AND complex cross-sectoral issues such as water security. COORDINATION » Coordination among development partners. The NCCS and As a cross-cutting issue that has an impact on nearly ZCCS point to the key role of coordination with devel- all aspects of society and development, climate change opment partners for technical assistance and finance, cannot be handled in isolation: it requires coordination and coordination between development partners is across sectors, levels of government, and stakeholders, also key to effective support and to leverage resources. and strong partnerships are fundamental to implement- Development partners promote interagency coor- ing sustainable interventions. In many countries, the Bank dination on climate change issues in Tanzania, and works with a range of government institutions, develop- could do more, for example, with joint financing ment partners, and national and international stakehold- arrangements specifically on climate change. ers to leverage its convening power to build synergies and The DFID’s Climate Change Institutional consensus that are critical to elevate climate change as a Strengthening Programme has provided joint tech- cross-cutting development issue. nical assistance to Tanzania on climate change » Intergovernmental dialogue. The impacts of climate planning with the Bank and UNDP to support tech- change—and effective responses to it—transcend nical assistance for implementation of the NCCS national, regional, and local boundaries, and there and ZCCS specifically on climate finance, devel- are benefits of international- and national-level oping of inputs to the sector action plan for agri- dialogue. Multilateral institutions such as the Bank culture, and urban resilience. The SREP (US$50 are particularly well placed to mobilize government million) is a coordinated investment project with coalitions, as has been done in the Sahel region to involvement of the African Development Bank, build resilient agriculture through boosting pasto- the Bank, DFID, and IFC. The estimated US$400 ralism and irrigation and climate-smart agriculture. million ( Johannessen et al. 2014) in pipeline fund- Major summits with Sahelian countries have been ing from development partners indicates the inter- held to discuss regional threats and opportunities est in financing resilience and a willingness to take for resilient agriculture to fight drought and build coordinated efforts to support Tanzania’s priorities. resilience. The Commonwealth Expert Group on » Coordination with other stakeholders. The NCCS and Climate Finance is another example of LDCs and ZCCS recognize the key role of a wide range of Small Island Developing States uniting and propos- stakeholders in implementing climate action, includ- ing specific measures for climate finance that are ing the private sector, academia, local and interna- more effective for their needs (The Commonwealth tional NGOs, CSOs, and academic institutions. 2013). An East African response to climate chal- Development partners can help to facilitate knowl- lenges could be powerful in setting priorities and edge exchange between key stakeholders, coordina- mobilizing resources. In Tanzania, assistance could tion mechanisms, and capacity-building programs. 32 Financing Climate-Resilient Growth in Tanzania CHAPTER SIX KEY MESSAGES FOR FINANCING RESILIENT GROWTH Tanzania is recognizing the threat of climate change and taking important initial steps toward building resiliency into economic growth plans and investments. These include actions on strategic planning through development of climate change strategies as well as on the ground, with investment projects targeting adaptation and mitigation. How- ever, these two elements have not yet been aligned, and important gaps exist in direct- ing finance toward priority investments that address risks, having a strong evidence base for investments, and coordination across stakeholders who are instrumental for implementation. Local development partners have been the source of the majority of climate funds resourced by Tanzania and can play an even greater role in supporting the develop- ment of a comprehensive climate policy, planning, and investment framework that can take the NCCS and ZCCS forward. These represent an opportunity to strategically mobilize investment financing and knowledge services and build strong partnerships so that climate resiliency is more effectively promoted to reach Tanzania’s develop- ment objectives. Building upon the NCCS and ZCCS, which set forth general priority themes for climate action, Tanzania must put in place processes and financing structures that meet the considerable challenges of financing and implementation. Strategic decisions must be taken to leverage and use scarce resources to convert plans into transformational action, learning from past challenges to deliver large-scale resilience results that will safeguard livelihoods, the economy, and the environment. This note recommends the following as Tanzania moves forward: 1. Approach an NCF with realistic expectations. Although Mainland Tanzania and Zan- zibar are in the process of establishing dedicated climate change funds, expec- tations should be realistic, taking into account the costs of establishing and managing such funds, as well as the scope of expected funding sources. Experi- ence shows that the time and resources needed to create new funds are high, and operational management costs can be substantial. If Tanzania does choose Financing Climate-Resilient Growth in Tanzania 33 to set up a dedicated climate fund (or funds), the instruments, such as district-level adaptation funds, objectives and expectations should be carefully show promising results from giving local govern- and clearly defined. Attracting climate financing ments the flexibility to quickly respond to climatic more broadly, however, will depend on the quality variability but also to finance resilience priorities of programs developed to support climate action. that may differ from central government plans. 2. Build resilience into sector programs for transformational Although to date this work has been limited to ru- impacts. Rather than relying upon a single fund- ral districts, there may be similar opportunities for ing mechanism, mainstreaming climate change urban areas. into existing sector programs is considered to be 4. Diversify funding sources and verify results. Although more likely to achieve large-scale, sustainable re- climate resilience financers are likely to continue sults. Most key vulnerable sectors and landscapes to support their own priorities, Tanzania can and (see box ES.2) are already targeted for significant should realize that funds will not be sufficient to investment. Taking advantage of such opportuni- fully adapt to climate change and will need to be ties, through mainstreaming climate change in, for complemented by additional sources, including example, basket funds for water and agriculture as from NGOs and the private sector. Corporate so- well as select urban infrastructure operations could cial responsibility funding, for example, could sup- improve the climate resilience outcomes of US$2 port climate objectives, including perhaps lever- billion in investments through the Bank’s portfolio aging significant ongoing natural gas investments alone. Climate finance could be used strategically to contribute to national, sector, or local climate to incorporate resilience elements into planned in- priorities. Clearly, Tanzania’s ability to attract frastructure investments (for example, to promote climate finance at scale will be contingent upon green infrastructure that builds urban resilience) demonstration of results. Toward that aim, a ro- or to design new programs targeting specific gaps bust tracking system would be important to verify for vulnerable sectors or geographical areas. that climate finance and mainstreaming achieves 3. Empower action at the local level. Tanzania can better results. Such a tracking system would enable mea- ensure that technical assistance and finance reaches surement of the outcomes of strategic plans and local governments. These governments lack discre- finance levels and (if successful) could unlock ad- tionary spending for weather-related risks and need ditional finance, given the higher confidence that better capacity to plan and respond. Innovative Tanzania can deliver on its priorities. 34 Financing Climate-Resilient Growth in Tanzania REFERENCES Agrawala, S., A. Moehner, A. Hemp, M. van Aalst, S. Hitz, J. Smith, H. Meena, S. M. Mwakifwamba, T. Hyera, and O.U. Mwaipopo. 2003. Development and Climate Change in Tanzania: Focus on Kilimanjaro. Organisation for Economic Co-operation and Development (OECD), Paris. The Commonwealth. 2013. Improving Access to Climate Finance for Small and Vulnerable States: A Report of the Commonwealth Expert Group on Climate Finance to the Commonwealth Heads of Government. London, U.K.: Commonwealth Secretariat. DFID. 2011. “Climate Change Screening of Government Budget Support.” Policy brief, 2011. Enfors, E. I., and L. J. 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Financing Climate-Resilient Growth in Tanzania 37 APPENDIX A LESSONS LEARNED FROM GLOBAL CASE STUDIES This report has drawn from global case stud- case studies are then applied to the Tanzanian context in ies, including several countries that have set the chapter that follows, to develop key considerations in up dedicated climate change funds. Countries the design of a financing framework for climate change. that have already established arrangements for climate change finance, or are in the process of doing so, can provide useful lessons for the development of a similar LESSONS ON THE ENABLING framework in Tanzania (see table A.1). To investigate ENVIRONMENT FOR IMPLEMENTING these issues, case study reviews were undertaken of cli- CLIMATE ACTION mate finance arrangements in Rwanda, Ethiopia, Ban- Countries with advanced institutional arrange- gladesh, Indonesia, and the Philippines. Although this ments on climate change and which have made summary largely draws from these cases, it also considers most progress on financing climate change activ- lessons from additional case study work on international ities are those with a high-level champion. Exam- examples commissioned by the MoF in 2013, which to ples include presidential support in Rwanda and prime date is in draft form (Mugurusi et al. 2013), and com- ministerial support in Ethiopia. Both countries have parative studies of climate finance readiness (GIZ and developed high-level vision statements to mainstream ODI 2013). It also benefits from a South-South learn- climate change into economic growth and development ing exchange in climate change planning, held with Tan- policies, that is, for developing a climate-resilient, low- zanian decision makers and representatives in climate carbon/green economy. In the Philippines, the Climate change planning from Mexico, Namibia, Zambia, and Change Commission is attached to the Office of the Pres- South Africa (Wade 2011). ident, and the Board of the dedicated fund (the PSF) has high-level support that helps ensure implementation is top The international case studies draw from a national priority. diverse set of funding and institutional mecha- nisms, recognizing that country context (includ- Case studies show that high-level support is ing strategic plans, governance, climate risk, also critical to overcome potential barriers and and financing gaps) is central to designing mech- deliver a climate finance structure in an effec- anisms to deliver action on climate change. The tive and timely manner. In the case of Bangladesh, selected cases range from highly ambitious—as in the climate finance is embedded in the legal framework, with case of Bangladesh, which has two large-scale trust funds a Climate Change Trust Fund Act (2009) mandating that (US$264 million and US$125 million) with funds acces- US$100 million per year for three years be allocated from sible by government and civil society—to more limited, the national budget to a climate trust fund. The Philip- including setting up a smaller sector-focused climate pines case shows the importance of ensuring buy-in and trust fund as a component of a larger subset of climate participation across government, including ministries of finance modalities as in the case of the ICCTF (US$8.5 finance and economic planning, endorsements which million for land, energy, and adaptation). This section were key to the record timing of passage of the Peoples first summarizes key lessons on the enabling environment Survival Fund Act along the actual uptake of the PSF for planning and financing climate change priorities and into policy and planning. It should be noted that countries then discusses experiences in financial arrangements for such as Bangladesh, the Philippines, Kenya, and Ethiopia climate change in the case study countries. Lessons from with high risk of natural disasters and food security issues Financing Climate-Resilient Growth in Tanzania 39 40 TABLE A.1. DEDICATED CLIMATE FUNDS CASE STUDIES Rwanda* Indonesia* Bangladesh* Philippines* Maldives Brazil Ethiopia Name Rwanda Indonesia Climate - Bangladesh PSF Maldives Climate Brazil National Climate Resilient Environment and Change Trust Climate Change Change Trust Fund on Climate Green Economy Climate Change Fund (ICCTF) Trust Fund Fund Change Facility (CRGE-F) Fund (FONERWA) (BCCTF) - Bangladesh Climate Change Resilience Fund (BCCRF) Capitalization GBP 22.5 million US$8.5 million BCCTF: US$264 US$24.6 million US$17.3 million US$177 million Not yet capitalized received in June million (forthcoming) (available loans); Bilateral and Bilateral and Likely to be 2013 US$15 million multilateral BCCRF: US$125 Bilateral and Multilateral grant bilateral and (available grants) Bilateral and grant finance million multilateral grant (development multilateral multilateral (development contributions, partners include Special tax on grant finance, Bilateral and grant finance, partners include endowments, the EU and profit made in government budget multilateral government the DFID, AusAid, bequests; AusAid) the oil production grant finance, budget, private and Swedish government budget chain + public, government budget grants International private, and (development Development international partners include Authority - development United Kingdom, forthcoming) partners Denmark, EU, Sweden) Financial Grants (near Grants, loans, and Grants to public Grants to local Grants to public Grants and loans Under discussion, Instruments to medium investments to agencies and civil communities/ agencies but mixture term), Loans/ public agencies society organizations including results guarantees (future based considerations) to public (90%) and private (10%) sector Financing Climate-Resilient Growth in Tanzania TABLE A.1. DEDICATED CLIMATE FUNDS CASE STUDIES (Continued ) Rwanda* Indonesia* Bangladesh* Philippines* Maldives Brazil Ethiopia Governance Steering Steering Governing PSF Board World Bank Steering Ministerial Committee, Committee, Council, Climate Change administered Committee Steering Technical Technical Management Commission Committee, Committee, Committee, Committee, (Secretariat and Technical Secretariat Secretariat Secretariat Technical advisory Committee Financing Climate-Resilient Growth in Tanzania role) Lead Ministry Ministry of Ministry of Ministry of PSF Board . Ministry of Environmental Environment and National Environment and is under the Environment Protection Agency Natural Resources Development Forests Climate Change with support from (MINIRENA) Planning Commission under prime minister’s the Office of the office President Focus Areas Adaptation, Energy and Supporting Windows being Adaptation and Mitigation and Green growth mitigation, and efficiency windows, vulnerable formulated; low-carbon adaptation projects and adaptation; environment sustainable forestry communities in emphasis on development and to support Strategic (sector related projects and peat land adapting to greater supporting studies (energy, reduction and policy management, climate uncertainty community agriculture, mechanism) and mainstreaming resilience - detailed in resilience across desertification, reactive windows. project activities sectors education, of national climate REDD++ projects) strategy Interim 2-Year Fund UNDP World Bank World Bank Brazil National Under discussion Trustee Management Bank for Social Team supported by and Economic the DFID Development *Indicates countries that underwent a more in-depth case study. 41 have tended to focus climate funds on these issues to offset It is highlighted that in both cases, the process of build- costly relief for extreme events. ing up the necessary capacity and processes to become “finance ready” took several years. Furthermore, in both Institutional frameworks for implementing and cases, significant external financial support and techni- financing climate strategies include a broad cal assistance (staff or management teams) were provided range of responsibilities across government, from local development partners to help build these aligned with existing responsibilities and capac- enhanced institutional structures. ity. In nearly all cases, there is a specific climate change unit or committee tasked with implementation that Close involvement and inclusion of stakehold- involves a wide range of stakeholders and maintains a ers is key to the design of a funding mechanism coordination role. Ethiopia and Rwanda have put in but also an asset in establishing credibility with place new or enhanced institutional structures to help potential funding sources. During the design process deliver their climate change strategy and to provide the of financing frameworks, close stakeholder engagement governance architecture around financial management, was shown to be key, including among line sector min- delivery, and evaluation. This usually involves extensive istries, planning agencies, local government, and NSAs. capacity building and increases in resources, with external The review of those countries that had successfully set teams (Rwanda) or a new facility (Ethiopia). For exam- up finance mechanisms also showed that the most com- ple, in Rwanda, the FONERWA Secretariat is housed mon source of capitalization in the short to medium term in the Rwanda Environment and Management Author- were contributions from development partners (bilateral ity (REMA) and overseen by the MINIRENA. The or multilateral), and this was facilitated through involving governance arrangements comprise a Fund Managing those partners in the fund design process to increase the Committee, Technical Committee, and Secretariat. The likelihood of eventual capitalization. governance structure allows the government of Rwanda (GoR), contributing development partners, the private Rwanda provides a strong example of stakeholder involve- sector, and civil society oversight of projects/programs to ment during the design of the FONERWA. The major- ensure maximum transparency and accountability. Plan- ity of the core fund design team was based in Kigali, ning, coordination, and budgetary oversight of the fund is Rwanda, full time or for extended periods to maximize ensured by the Ministry of Finance and Economic Plan- interaction with stakeholders. This continuous, on-the- ning (MINECOFIN) along with other relevant ministries ground team presence enabled an efficient and effective that are part of the governance structure. design process and helped improve awareness and ongo- ing participation. Stakeholder engagement required fre- Ethiopia has established a CRGE-F. The facility is governed quent interaction of a core cadre, including the Director by the CRGE Ministerial Steering Committee, chaired by General of the REMA, the Director General of Budget- the prime minister’s office, which determines the CRGE-F ing of the MINECOFIN, and the Climate Change focal priorities. The Ministry of Finance and Economic Devel- point of the DFID-Rwanda office. opment (MoFED) is the supreme body of the facility and responsible for overall administration and operations, pro- In addition, numerous individual meetings were held with viding financial integrity and management, procurement, relevant stakeholders ranging from development partners, appraisal of financial viability, and M&E. The Facility Sec- government authorities, and ministries to the Rwanda retariat is a unit seated within the MoFED, supporting the Revenue Authority, Rwanda Development Bank, and Management Committee in close coordination with the Rwanda Development Board, among others. The buy-in Environmental Protection Authority (EPA) and the CRGE and participation of the MINECOFIN and other bank- Technical Committee. The EPA chairs the technical com- ing and finance stakeholders was important for informing mittee, appraises project proposals and investment plans, proposed financing scenarios that included GoR contri- will establish a registry and undertake Monitoring, Report- butions, as well as financing instruments targeting private ing and Verification, and leads the CRGE unit. sector beneficiaries over the short, medium, and long 42 Financing Climate-Resilient Growth in Tanzania term. Stakeholder workshops were also a key opportu- HOW COUNTRIES HAVE FINANCED nity for engagement, including three primary workshops: CLIMATE ACTION Inception, Validation, and Final Design. To help maxi- Clear design principles and objectives are mize participation, the design team worked with the GoR required, setting out the purpose and objectives to schedule events as part of existing sector meetings, of finance mechanisms in relation to climate and which are well-attended. This included meetings of the other growth strategies. The objectives of a financing Environment and Climate Change Subsector, co-chaired framework underpin the design of finance mechanisms by the REMA and DFID. and can link directly to national climate strategies or national growth strategies. In Indonesia, for example, the Capacity requirements are large, and institu- objectives of the ICCTF are to operationalize national tional capacity can take several years to develop emission reductions and adaptation commitments includ- in going from early design of a financing framework ing mainstreaming climate issues into national, provincial, through to operation. Capacity building also requires and local development planning. The mandate is to sup- considerable resources, usually provided through exter- port the development and implementation of Indonesia’s nal assistance. The financial resources to build this capac- National Local Action Plan for GHG Emissions Reduc- ity have largely been provided by bilateral or multilateral tions and the upcoming National Action Plan for Climate agencies in other countries, demonstrating the impor- Change Adaptation. tance of dialogue with local development partners. A phased approach can be a sensible way to implement Rwanda’s FONERWA was created by law in 2005 and yet financing instruments and building capacity takes time, did not gain momentum until development of the Green normally over a three to five year time horizon (from ini- Growth and Climate Resilience Strategy later in 2010/11. tial design through to operation). Operationalization of the FONERWA was recommended as an immediate step to help finance the implementation In 2009, the government of Bangladesh (GoB) launched of the strategy’s projects and programs. This recommen- the Bangladesh Climate Change Strategy and Action Plan dation was subsequently taken up by the government (BCCSAP), a 10-year program (2009–2018). To opera- and development partners, as the FONERWA Law was tionalize this strategy and in light of the uncertain nature resubmitted for parliamentary approval, and the DFID of international adaptation finance from multilateral and sponsored the 2012 Fund design phase. The initial design bilateral sources, the GoB established the BCCTF under was subsequently operationalized through a management the Climate Change Trust Fund Act. The BCCSAP rec- phase, again funded by the DFID. ognizes capacity building as one of the six key pillars of the strategy, which in turn form the BCCTF’s thematic The PSF is more specifically geared to support efforts at areas, to strengthen government ministries to meet cli- the local level to help incentivize local communities to mate challenges. In Rwanda, operationalization of the actively engage in project formulation in partnership with FONERWA is being led by an external management con- CSOs. One benefit of the local-level orientation of pro- tract with the Centre for International Development and ject development is increased accountability of planning Training. The fund management project is taking place and development officers in local government units to over two years, between 2012 and 2014, and involves an adopt development plans that account for climate change. externally contracted (and financed) local Fund Man- agement Team, based in the environment agency and Designing a flexible strategy and funding model supported by a team of local and international experts. will increase the likelihood of sustainable financ- Capacity building of future Rwandan fund managers is a ing. Project-based financing offers guaranteed funds but critical part of the Fund Management Team’s role. The little flexibility for financial support to evolving devel- transfer of fund management stage, constituting the last opment issues, whereas the most flexibility is provided six months of the project, will be preceded by significant through budget support, with the trade-off of difficulties training and job shadowing. in ensuring effectiveness. NCFs can be an improvement Financing Climate-Resilient Growth in Tanzania 43 over project-specific support as they can lead to reduced solutions identified in partnership with vulnerable com- transactions costs, increased government oversight, and munities. The PSF Act mandates that project proposals the ability to pool funds from several sources and enable should include local community participation in pro- easier tracking of funds. Sector support grants can be a ject conceptualization and implementation, which helps suitable mechanism to mainstream climate change into ensure local ownership, awareness and empowerment, sector operations and policies. in turn promoting greater ownership of climate issues in local government. Some countries with dedicated climate funds are seeking to deploy a range of instruments, including grant finance, Choice of on- or off-budget funding modalities concessional finance, guarantee instruments, and insur- has implications for access to different funding ance schemes. The use of non-grant instruments can be sources and beneficiaries. Many finance mecha- used both to maximize the efficacy of available funds (that nisms create some form of structural separation between is, to make a mechanism revolving) as well as to mobilize “strategic” on-budget funds and “reactive” off-budget additional investment into vulnerable sectors and geog- funds. This allows parallel institutional structures as part raphies. They may also encourage outcomes and thus of a climate finance framework. On-budget funds allow enable M&E. The modality is decided by the fund design for the effective mainstreaming of climate action within rather than the capitalizing development partner (GCAP national planning processes, while off-budget funds pro- 2013). vide a different access modality for groups that are often excluded by central government—for example, local or NCFs have limitations that can lead to capitali- NSAs. Off-budget funds also increase the potential finance zation issues and parallel structures. Since 2008, streams by allowing direct development partner funding, the government of Indonesia has created a number of recognizing that some organizations cannot easily fund climate-related institutions and agencies and financing central government budget directly. It is also possible to modalities, including the ICCTF; the Climate Change have a mix of on- and off-budget arrangements: Rwan- Council (chaired by the President); the REDD+ Agency; da’s FONERWA provides access for civil society and the and the Indonesian Green Investment Fund (under the private sector in addition to the government (through a Centre for Public Investment at the MoF). There is a clear separate funding application), while Ethiopia’s proposed overlap of the dedicated climate change fund’s mandate CRGE has strategic (on-budget) and reactive (off-budget) with those of other institutions and initiatives, which has windows, with the latter introduced following discussion resulted in confusion among the development partner with local multilateral and bilateral development partners community and other potential investors, as well as lower on funding modalities and constraints. This then allows levels of support and capitalization from funding sources. funding from key organizations such as the Bank, which would find it difficult to fund a direct on-budget process The use of demand-driven mechanisms, where without additional controls. agencies and stakeholders can bid competi- tively for funds, can drive programming quality Domestic funding contributions can be secured and delivery among state ministries and NSAs. through legal mandates. Most funding mechanisms Rwanda is using this type of structure instead of supply- include some contribution from the country’s own budget. driven funding and also structured a mechanism strate- Guarantees from the national government, of either a flat gically around the types of emerging external climate amount such as a US$100 million per year (over three years) finance as well as the country’s climate change priori- as in Bangladesh, or a stream of revenues from other activ- ties on, for example, natural resource management and ities such as Environmental Impact Assessment in Rwanda, renewable energy, which have specific thematic windows. provide a strong level of national commitment and own- The PSF is another example where a demand-driven ership. For the PSF, contributions of domestic public rev- proposal process allows for the expressed needs of com- enues from the government are a central feature of fund munities to be met based on adaptation and mitigation capitalization mandated by the People’s Survival Fund Act. 44 Financing Climate-Resilient Growth in Tanzania Accordingly, 1 billion pesos (about US$24.6 million) will be key government priorities in relation to environment and appropriated under the General Appropriations Act as an climate change objectives. As an example, this was par- opening balance of the PSF. There is also a guaranteed 15 ticularly important for FONERWA in Rwanda as this is percent match of contributions to the ICCTF. demand-based rather than supply-oriented and based on a pipeline of preselected projects. In addition, as an over- Thematic climate finance can reflect and empha- arching framework, the windows facilitate capitalization size national climate change priorities in the based on actual financing gaps and expenditure (including allocation of finance, but stakeholders should be earmarking of funds) identified from a budget gap analy- involved in determining the themes. Most dedi- sis carried out by the design team. This was selected over cated climate change funds include support for climate other more mainstream approaches of generic themes change priorities through specific funding windows. In such as adaptation, mitigation, and environment, which Bangladesh, for example, the BCCTF under the Climate are highly crosscutting and overlapping in the Rwan- Change Trust Fund Act features six thematic areas, which dan context. These criteria were critical in tackling the match the six thematic areas of the BCCSAP. Project challenge of creating an overall fund design that consid- funding proposals are submitted based on those thematic ers a wide range of recommended interventions but also areas, which include comprehensive disaster manage- focuses on priority needs. ment; infrastructure; research and knowledge manage- ment; mitigation and low carbon development (renewable Establishing trust through effective reporting energy, forestation, and waste management); and capacity and fiduciary management is key to ensuring building and institutional strengthening. Indonesia’s cli- that a fund is sustainable and will continue to mate change fund has three priority financing windows: a attract finance over time. One of the objectives of land-based mitigation window; an energy window (focus- climate funds and other mechanisms is often to improve ing on promoting energy conservation and efficiency, as fiduciary management of climate change finance. This well as low-carbon energy technologies); and an adapta- is embedded in most funds, but the mechanisms to tion and resilience window (focusing on resilience through ensure sound financial management vary. For example, dissemination of climate information, adaptation strate- the BCCRF uses Bank technical assistance to ensure gies, policies, technology, and knowledge). sound fiduciary management. The other main financ- ing source in Bangladesh, the BCCTF, was established Rwanda’s climate change fund for implementation of specifically to address issues of fiduciary risk as trans- their strategy, FONERWA, has a framework where the- fers of pledged amounts could previously not be made matic financing windows and entry points directly link to directly to the government from development partners the core attributions and functions of the fund (as stipu- such as the United Kingdom. As a result, the BCCRF lated in the FONERWA Law). These were identified dur- evolved into a multidonor trust fund with the Bank serv- ing stakeholder consultations. A large number of possible ing as an interim trustee (five years) before handing over thematic financing windows and associated entry points management to the GoB. Key roles of the Bank include were possible. The project considered a number of these, performance of due diligence such as fiduciary manage- which were discussed with stakeholders. These include ment, transparency, and accountability as well as ensur- themes that more strongly align with emerging climate ing principles of economy, efficiency, and effectiveness. finance, themes that are sectoral in nature, and themes A key function of the Board of the PSF, which includes that are broadly crosscutting. government and representatives from academia, the scientific community, business sector, and NGOs, is One of the key objectives of having thematic financing promulgating policies that will maintain the fiduciary windows is to manage the structure and categorize the character of the Board. Financing Climate-Resilient Growth in Tanzania 45 APPENDIX B GUIDANCE ON CHOOSING FUNDING MODALITIES There are many options that Tanzania might design of an NCF would need to consider the level of choose to structure its finance for delivering the ambition (for example, small-scale project-based grants NCCS and ZCCS. As discussed earlier, most attention up to large programmatic funding), how the fund would has been placed on setting up a single dedicated fund as be structured, who could access funds, fund management, the country’s vehicle for climate finance, but other instru- M&E systems, and set capitalization targets. A fund would ments are possible, each having its own objectives and need to develop the necessary institutional capacity based design considerations. One starting point is understand- on the level of ambition and carefully phase its implemen- ing the basic functionality and types of objectives for on- tation as capacity is built. Phasing could, for example, link and off-budget climate finance, as outlined in box B.1. to the preparation of sector action plans, which could take several years. Options for managing climate finance are not mutually exclusive—in fact, depending on Tan- If an NCF is desired, the design should consider zania’s objectives for climate finance, more than the objectives of such a fund. For example, is it one instrument will likely be necessary. By tak- intended solely for fundraising? Is it intended as a tool to ing a more comprehensive view of the options, Tanzania pilot new approaches, as a safe space to challenge conven- has an opportunity to design, at an early stage, a strate- tional thinking and practices, which could subsequently gic framework that has flexibility to increase the level of be mainstreamed into sector ministries? (See box B.2.) It finance from diverse sources and to enhance coordination is simply a coordination device to help track donor and mechanisms between financing modalities that would help other international climate finance. As one component track and monitor funds. This section outlines in greater of an overall climate finance framework, an NCF could detail examples of different funding modalities that could further help to better align climate change planning to be relevant for consideration in Tanzania. The following national development priorities and help to resolve the section outlines six potential instruments that Tanzania fragmentation and institutional bottlenecks in the cur- could utilize and offers considerations for each. rent climate change framework. It could provide a unified focal point where the government, development partners, Table B.1 outlines these instruments and basic opportuni- civil society, and other stakeholders can engage on climate ties and constraints. change issues and make decisions and serve as a mecha- nism for managing partnerships and clearly defining and DEDICATED NCF coordinating the roles of various climate change stake- The Tanzania NCCS and FYDP propose that an holders. Further, an NCF could take advantage of ini- NCF be established. This follows a similar proposal to tial support for capitalization through UNDP’s UNDAP other national strategies in several other countries. Dedi- climate change mainstreaming project through the MoF cated climate funds have the potential to increase climate and VPO-DoE. finance flows, and they create a single institutional frame- work that helps streamline the processes for approving and Although a dedicated climate change fund could managing funds. In Tanzania, an NCF could include win- have a significant impact, there are serious limi- dows for existing climate finance (such as REDD+) and tations that need to be evaluated. Because Tanzania could be designed to link to supporting the framework out- does not have a climate change policy or climate change lined in the NCCS where sectors and local governments act, there is currently no legal basis for a climate fund, are largely responsible for implementing the strategy. The so the Environmental Management Act would likely need Financing Climate-Resilient Growth in Tanzania 47 BOX B.1. OPTIONS: ON- AND TANZANIA NATIONAL ETF OFF-BUDGET FINANCE There is currently an ongoing process of estab- lishing a national ETF in Tanzania, led by the On-budget finance VPO-DoE. The ETF is included under Section 213.41 These are finance flows that would be on-budget and sup- port Tanzania’s priorities as set out in the NCCS. Such of Tanzania’s EMA (2004), which stipulates that it would funds might be used to build capacity within a financing be managed under a Board of Trustees. Although the framework but would primarily be used to finance climate chairman of the Board has been appointed by the presi- investment plans and capacity within the sectors or geogra- dent, the minister has yet to appoint members of the phies identified by the NCCS (including sector action plans Board and the fund is not capitalized or operational. As and local development plans, for example). Finance might described in the EMA, the objectives of the trust fund are be provided as a form of General Climate Budget Support, with government making the allocation decision between related to facilitating research on environmental manage- sector priorities or as Sector Budget Climate Support, with ment, capacity building, and environmental grant awards funds tied to sector strategies such as REDD, water, agri- (including publications, scholarships, community environ- culture, or energy. Programming and delivery would pri- mental programs, and meeting costs for the Board and marily be the responsibility of the government but with national environmental committee). Climate change is robust transparency and reporting mechanisms to meet the not an area stipulated for ETF support. accountability requirements of financing organizations. Off-budget finance To date the details of the ETF are not known, These are finance flows that would be deployed on a and stakeholders such as the MoF and potential demand-driven basis. There are two main issues to note. First, such funds might still be accessible by national institu- funders such as development partners have not tions, but can also focus on nongovernmental stakeholders been meaningfully involved in the design. There- such as CSOs. Such funds would be more project-focused, fore, linkages between this fund and a potential fund- and beneficiaries might include local communities, CSOs, ing mechanism for climate finance are difficult to assess. the private sector, and subnational government. These Despite the lack of clarity around the scope and man- approaches are better where governments might have lim- agement of the ETF, some initial considerations can be ited capacity to engage with NSAs. The use of competitive bidding and external agents to publicize and manage such drawn. funds is common. Such approaches have also tended to use an external trustee when established. Second, these reac- First, there is a need to clarify the overall framework and tive structures allow key bilateral or multilateral agencies mandate between different funds, for example, to decide to directly fund specific project or program areas. This is whether there should be a separate NCF and whether a particular issue because some organizations (for exam- a climate fund and ETF could be linked in some form ple, United States Agency for International Development [USAID] and the Bank) may not be able to contribute to to simplify arrangements. The presence of several inde- a dedicated climate fund as part of an on-budget strategic pendent trust funds with similar or overlapping mandates program. For climate funds, this has been the case in other could cause confusion both within the Tanzanian gov- existing fund discussions (for example, in Ethiopia) and has ernment and with potential funders and could actually led to a reactive or off-budget window that is set up parallel result in lower overall levels of finance, such as happened to the on-budget finance. in Indonesia. However, it is unlikely that the ETF alone would have the capacity to be an adequate mechanism to be amended, or a new law proposed. This, along with for climate finance in Tanzania, given the significant the design period of a fund, will take time. The design is resources that are necessary for measurable impacts. particularly critical as leadership needs to define priori- ties and ensure strong and transparent mechanisms are in It is highlighted that the need for climate place. A robust analysis and dialogue with capitalization finance—especially toward 2020—is likely to sources, outlined in the previous section, would need to be extend far beyond the mandate of the ETF. A ques- done throughout the process. tion must be asked whether a dedicated climate change 48 Financing Climate-Resilient Growth in Tanzania TABLE B.1. OPPORTUNITIES AND CONSTRAINTS OF POTENTIAL FINANCE INSTRUMENTS Potential Instrument Opportunities Constraints NCF • Recommended by the FYDP and NCCS • Not all donors can capitalize • Possible inclusion of thematic windows for sector • No policy backing priorities • High-level leadership needed • Raise profile of climate change in Tanzania and serve as coordination mechanism • More appropriate for project-based finance Tanzania National • Already established but not yet operational • Not all donors can capitalize ETF • Legal basis in Environmental Management Act • Climate change activities may be • Could have climate change window compromised at expense of other • More appropriate for project-based finance environmental activities • Existing structure may not be suitable for climate finance • Unclear how funds could flow to sector action plans Sector programs and • Uses existing country systems and structures to • Institutional capacity for climate change basket funds address climate risks at sector/local level is low; strong capacity • More appropriate for mainstreaming in sectors building across government necessary through direct support • Would require strong coordination to • Generates awareness within sectors monitor and track results • Leverages existing funding sources to climate proof investments • Mechanism for sector action plans to influence sector operations • Direct access by sectors to climate finance • Takes advantages of donors programs already supporting sectors Thematic funding • Support sector mainstreaming and potentially sector • Reliance could maintain current windows climate action plans fragmented nature of climate finance • Could be used to encourage finance for thematic • Challenge to determine overall results priorities, certain stakeholders, or practices (for of climate finance if spread across many example, innovation) sectors through different funds or windows Policy-based • Could be used to develop policy framework for • General budget support more difficult to instruments climate change at national or sector levels track • General budget support for mainstreaming climate change • Generally significant resources Budget tracking • Assists in monitoring, coordinating, and tracking • Could take time to establish mechanism on-budget finance • No current institutional role for custodian • Could contribute to monitoring if finance targets are of climate finance information reached for both on- and off-budget finance • Aids in transparency and accountability of fund use fund or the ETF would more effectively channel finance ODA flows, requiring a high degree of fiduciary manage- to an extremely broad number of thematic areas (for ment, M&E, and so on, that would need to align with the example, deforestation, agriculture, energy, and water). In MoF’s capabilities. Harmonizing climate finance across the medium term, for example, toward 2020, the financ- the government will require strong coordination between ing flows could be substantial, possibly similar to current the VPO-DoE, MoF, development partners, and other Financing Climate-Resilient Growth in Tanzania 49 BOX B.2. OPTIONS: HOW AMBITIOUS stakeholders. Although a small, project-based portfolio COULD A FUND BE? of climate projects could be managed within a thematic window of an environment fund (as some other countries Based on the assessment of existing flows over the next few have done), those countries who wish to scale up to access years, a lower and upper estimation of the potential for climate finance flows and more sector investment plan- capitalization of a dedicated climate change fund over a five-year period has been made based on external finance ning arrangements have built dedicated climate funds and only (without commitment of domestic resources). At the architecture firmly based around country systems for pub- lower end, a capitalization target of US$10 million is iden- lic financial management (for example, Ethiopia). tified, which would be a largely project-driven and institu- tional development and capacity initiative and would not justify significant institutional reform or expansion. At the MAINSTREAMING CLIMATE CHANGE upper end, a possible target would be US$50–70 million. IN EXISTING SECTOR PROGRAMS This presupposes a similar level of finance to that currently AND BASKET FUNDS identified and recognizes that up to 50 percent of flows The NCCS is committed to mainstreaming cli- might continue outside the government mechanism, while mate change within sectors through sector-spe- others are already mainstreamed in official development cific action plans and includes mainstreaming assistance (ODA) and budget flows. A higher capitalization climate change through existing basket funds target would need to be accompanied by significant insti- and a probable mechanism for climate finance. tutional development and the establishment of a dedicated climate unit. There is recognition that the sectors will be responsible for programming and delivery, with any climate fund institu- It is highlighted that the level of ambition (that is, the tion (for example, the VPO-DoE) providing a supporting desired funding level) will need to align with the institu- role on coordination, capacity building, and reporting. tional and financial structure, in that it is very unlikely that high levels of capitalization will be achieved if the institu- Discussions with government stakeholders also indicate tional framework remains largely business-as-usual. recognition of the need to improve capacity in the design and delivery of sector action plans. It might be expected that a finance mechanism would disburse or program 25–30 percent of its capitalization There are some concerns among both develop- per year. Under a high capitalization scenario, this would equate to between US$15–25 million per year. This would ment partners and sectors that there is insuffi- allow the fund to align with longer-term sector planning cient institutional capacity to deliver on scaled-up processes and provide an opportunity to engage in ongo- climate finance. This particularly relates to fund-raising, ing fund-raising activity to ensure that the fund does not programming, monitoring, and reporting. Attracting and get depleted and that it can operate on a sustainable basis. retaining high-quality staff is also a key consideration. Dis- Although it may be relatively quick to establish a basket cussions with line ministries indicate that the process of fund under the national climate strategy, the process of coordination of climate change programming and finance fund-raising, sector-led programming and establishing could be significantly improved. A fund mechanism needs credible governance and reporting mechanisms will take to ensure that opportunities for “gate-keeping” and monop- longer (with or without a dedicated climate fund). Draw- olizing climate funds by departments and individuals are ing upon the experience of other countries, at least 1.5–3 years could be reasonably expected to fully operationalize a avoided, especially in the decentralized structure outlined climate finance framework and capitalize a dedicated fund in the NCCS. if one is established. Establishing, promoting, and manag- ing external windows for subnational government, civil Where possible, the climate finance framework society, and the private sector will also require significant should seek to leverage existing institutional lead times. Depending on the level of ambition adopted by infrastructure and programming capacity rather Tanzania, implementation could be done in a phased man- than replicate parallel project delivery architec- ner to ensure that the institutional infrastructure reflects ture. Where robust institutional, programmatic, and the level of operation and capitalization at any given time. financing arrangements exist within a sector (for example, 50 Financing Climate-Resilient Growth in Tanzania the Water Sector Development Programme [WSDP] or sector orientation. Discussions with stakeholders have water basket fund), ways to partner or cooperate with identified the following potential thematic options within such mechanisms should be explored. For example, the Tanzania, outlined in box B.3. DFID intends to pilot payment by results for the provi- sion of rural water points by local government and dis- POLICY-BASED INSTRUMENTS tricts through the WSDP (supported by five donors in Alongside contributions to existing government coordination with Tanzania). Although such activities are funds or coordination mechanisms, consider- not necessarily climate change specific, an NCF could be ation might also be given to addressing climate used to attract funds from international climate finance change issues directly through policy-based donors who would then finance climate-relevant water lending instruments, such as Bank DPOs. For exam- and sanitation activities through the WSDP and alongside ple, the Bank has approved the second in a series of three the basket fund, making use of its innovative structures power and gas sector DPOs, which are supported by a and M&E frameworks. The climate finance mechanism US$21 million Energy Sector Capacity Building Project. would become the overarching coordination mechanism Although this DPO does not include low-carbon devel- through which these finance flows were coordinated, allo- opment objectives, climate policy could be addressed in cated, managed, and tracked. The delivery architecture future lending operations where appropriate for both would be embedded in existing institutional structures energy and other climate-sensitive sectors. where possible. The Agriculture Sector Development Pro- gram could be another potential mechanism. The work of the existing sector funds and plan- ning mechanisms would also have to be closely Under a business-as-usual scenario and in the integrated. These include such mechanisms as the absence of a centralized climate finance mecha- WSDP Water Basket Fund, the Rural Energy Fund, and nism, Tanzania could pursue a mainstreaming the Tanzania Agriculture and Food Security Investment strategy whereby each of these sector mechanisms Plan. In the absence of a centralized climate fund, these would be responsible for its own fund-raising and sector funds would provide the default entry point for climate programming. Each would continue to benefit donors seeking to mainstream climate action into govern- from existing institutional support by the VPO-DoE. The ment programs and processes or could complement an risk in this scenario is that much of the institutional capac- off-budget climate fund with on-budget finance for main- ity and architecture required to access and manage climate streaming. However, under current structures, each sector finance flows would need to be replicated across a range would be responsible for mobilizing and mainstream- of ministries. This would likely have significant impacts on ing climate finance and the process of capacity building the scope and effectiveness of the climate action agenda in would have to be replicated for each ministry. Tanzania and potentially reduce opportunities to redirect funds to best performers or highest priorities areas. BUDGET TRACKING MECHANISMS Introducing a system to track climate finance THEMATIC FUNDING WINDOWS could serve as a coordination mechanism and One option common to many funding mecha- help monitor finance levels and results. As described nisms is the use of thematic windows that set in section 2, because of the fragmented nature of climate rules and boundaries for the use of finance projects in Tanzania, it is difficult to gain a complete pic- accessed. Such windows may act as a basis for alloca- ture of what is financed and the level of climate expendi- tion—or even competitive allocation—within government ture. The climate public expenditure review undertaken by or among NSAs. The exact thematic windows vary across the ODI and UDSM found that no tracking exists for cli- national funds (including basket funds and dedicated mate-related expenditures, climate change is not explicitly climate change funds), for example based on thematic addressed as a theme in the national budget process, and Financing Climate-Resilient Growth in Tanzania 51 BOX B.3. OPTIONS: WHAT COULD THEMATIC WINDOWS SUPPORT? Provide capacity building and as a separate window of a dedicated fund given the specific mainstreaming support and often ring-fenced nature of the funding. A specific allocation could be made for building capacity Promote innovation within the climate finance mechanism itself and across the A window could be developed specifically to support the line ministries. Funds could be used for training, improvement development, innovation, and transfer of mitigation and of access to and understanding of climate information, and adaptation technologies to Tanzania. programmatic development at a sector level. It is clear that a great deal of time and investment will be needed to move Target certain geographic areas from the NCCS toward costed, sector-level investment plans A targeted geographic window could be used, which might that are actionable from a finance perspective. This process is take the form of an allocation for a specific set of administra- time-consuming and would require some level of consultancy tive districts or might be defined by vulnerable geographies or support to assess and prioritize actions. Currently these plans agroecological zones (for example, coastal zones, islands, arid are an unfunded mandate from the NCCS, and as such, there lands, and highlands). is a risk that climate-sensitive sectors may not have the capac- Allocate funds to Zanzibar ity for their preparation and implementation. Discussions with the government of Zanzibar suggest that Support sector programs (for example, water, agri- the potential role for Zanzibar in a climate finance mecha- culture, forestry, and energy) nism has not yet been discussed. There is an issue whether a A series of windows might be structured for each of the likely dedicated fund would become a United Republic of Tanza- priority sectors. These might absorb or align with existing nia fund (thus including Zanzibar) or whether separate funds climate-relevant sector funds. Funds would be allocated by would be developed for Mainland and Zanzibar. If the for- the finance mechanism on the basis of programming needs mer, there are important issues over the access and allocation identified under the NCCS (for example, where there was a of funds and whether access would be through a thematic financing gap not supported by existing funds). Alternatively, window on a sector basis (for example, recognizing higher each ministry might be invited to submit fully-costed program relative vulnerability for Zanzibar on coastal issues) or as part bids on a competitive basis where it is envisaged that sector of a wider demand-driven process. The access and allocation resources are likely to prove inadequate. However, there were is therefore affected by the design of a fund. Regardless of the some comments at one stakeholder workshop1 that such an instruments used (for example, NCF, ETF, or mainstreaming approach might preclude effective planning in those areas in sector programs), the issue of UNFCCC finance should be where ministries actively cooperate, such as the agriculture- considered as these funds would flow through the Mainland industry or agriculture-water sector nexus. government. Support mitigation or adaptation Support CSOs Thematic windows could reflect the broad climate change- A window might be developed explicitly for CSOs, poten- related financing themes, as identified in the NCCS. The gov- tially managed by an external manager along the lines of the ernment might then allocate funds across the sectors based on recent climate change component under the DFID-financed the NCCS (for example, land use, energy, and transport for Accountability in Tanzania program. Alternatively, a per- mitigation) or allow competitive bidding by the relevant min- centage of funds might be earmarked for CSO purposes, istries for funds based on program concepts. Both areas could distributed by the government. Currently Tanzania does be linked to potential national strategies such as Nationally not actively use civil society as a significant delivery partner Appropriate Mitigation Actions (NAMAs) and national adap- for climate change projects. At the same time, development tation plans to decide priorities and allocate funds. Not every partners are keen to support the role of CSOs in addressing sector would be guaranteed funding. REDD+/forestry could climate change and improving national governance. At a par- access mitigation funds but more likely would be established ticipatory workshop (GCAP 2013), representatives from civil society indicated their interest in supporting the design and governance structure around climate finance mechanisms as well as in being able to access funds for delivery of national 1 Workshop on climate finance held as part of the UNDAP program; see climate change priorities. Involvement of CSOs requires GCAP (2013). careful consideration of absorptive capacity, financial man- 52 Financing Climate-Resilient Growth in Tanzania BOX B.3. (Continued ) agement capacity, and fiduciary risk, all of which have been would look like or how participation would be incentivized. It challenges in climate-related projects in Tanzania.2 is possible that private sector companies might become both contributors (for example, large energy companies through Incentivize investment by the private sector EIA funds) as well as beneficiaries of such a fund though the The private sector is featured in the NCCS implementation NCCS does not list private sector actors as potential benefi- framework in a general sense for potential engagement both ciaries of a fund to, for example, incentivize innovation or off- in public and private partnerships, and the NCCS encourages set the costs of mitigation. A thematic window could be used the private sector to participate in mitigation activities such as to support investment in low-carbon and resilience technolo- REDD+, CDM, and carbon markets. The NCCS also men- gies, potentially through a managing agent. The role of the tions the private sector as a potential contributor to a fund insurance sector in cooperating with the finance mechanism but does not have details on what this type of engagement to provide risk products to potentially exposed private sector actors could also be explored. 2 See, for example, the case of REDD+ pilot projects in Tanzania. there is no coding of climate expenditures within the bud- finance architecture are likely to be the early get, so any analysis must be a manual process. beneficiaries of international climate finance. It is clear that there are a range of potential options for Large volumes of unlabeled climate-related financing climate change activities in Tanzania, but there finance are already mainstreamed into sector is likely to be significant competition for international cli- budgets but are not currently captured as cli- mate funds between beneficiary countries, particularly as mate finance in reporting structures. These may be the volume of development partner finance is likely to financed either through national budget revenues or bilat- fall short of global commitments made to date. Current eral sector budget support (ODI 2013). In addition, there international public finance assessments, such as the Pub- are development partner activities in climate-sensitive lic Expenditure Finance Assessment undertaken in 2010, areas (for example, energy, agriculture, and water), which indicate that Tanzania will have to strengthen several are currently not identified as climate finance but which areas of public financial management if it is to compete are climate relevant and have climate co-benefits. With a successfully for these funds. single fund unlikely given the number of sectors involved The Public Expenditure and Financial Account- in climate change implementation and the likely continu- ability assessment indicates that Tanzania has a ation of project-based support for some time, the ability good record of overall budget performance and to track climate spend could be valuable for project plan- fiscal discipline and that legal aspects of public ning and defining funding gaps, prioritizing resource allo- financial management have been well addressed cation, transparency, and evaluating results. For example, in recent years. However, a number of shortcomings sectors such as agriculture and water have built manage- have been identified, which are being addressed. Key ment information systems which can track sector budgets. concerns are the level of engagement of the legislature in It could be possible to work within these existing systems to the budget process, the quality of budget classifications, integrate climate change activities, but additional analysis the lack of a realistic resource-supported medium-term would be needed to examine the feasibility and linkages sectoral analysis, wider goals without adequate financ- with a national-level effort to track climate spend. ing possibilities, and the full integration of recurrent and development budgets. There is a need to improve the MANAGING AND COORDINATING quality of budgeting and bring back credibility to the RESOURCES budget as a firm government financial and operational Public Financial Management plan (ODI 2013). Those countries that have robust public financial management systems, a track record of results In Tanzania, it has been found that predict- delivery, and have created a credible climate ability and control of budget execution could be Financing Climate-Resilient Growth in Tanzania 53 improved. The uncertainty in availability of funds for sec- performance management are adequately addressed. The tors is an example of the lack of predictability. Because of NCCS recognizes the need for effective monitoring and the persistence of modified cash rationing, sector requests reporting systems to accompany climate finance flows, but for cash releases cannot always be met, resulting in difficul- these mechanisms do not yet exist. ties in implementing their policies as planned. On the other side, the ineffectiveness of payroll controls and insufficiency The NCCS sets out monitoring as a central part of internal controls and audit in non-salary expenditures in of the strategy to ensure that the NCCS and asso- the MDAs have also been identified as areas of concern. ciated mobilized resources are implemented in In general, accounting, recording, and reporting remain an effective way. Three levels are recognized: input weak, undermining the management of services and the (cost effectiveness); process (mainstreaming effectiveness); intended allocation of resources (GCAP 2013). and output. If a climate finance mechanism were to use existing institutional and programmatic infrastructure In addition, the level of work required to access for delivery purposes, care would need to be taken that and program large climate funds should not be existing sector reporting frameworks were aligned with underestimated, with each source of finance development partner and multilateral donor expectations mandating that recipients meet its processes related to M&E. Most development partners and multi- and demands. Each source will also have expectations lateral financing agencies operate at the level of outcome around the structure of reporting and monitoring outputs (which is further along the results chain from outputs). and impact assessment and this would need to be incor- porated alongside national M&E frameworks. Finally, In addition, development partners indicate that should Tanzania be successful in mobilizing funds, the they are moving increasingly toward results- institutional frameworks supporting delivery would need based finance (RBF) models to support effective- to be scaled up to reflect the associated programming and ness and efficiency of ODA. Under RBF models, reporting obligations. disbursements are related to independently monitored outcomes. Such models are being trialed in the energy TRACKING CLIMATE SPEND and water sectors, with the DFID supporting such instru- A system to track climate finance and measure ments within the Tanzania Water Basket fund. A climate this against priorities could be a valuable coor- finance framework may consider this trend and seek to dination tool. As mentioned earlier, there are specific align indicators with RBF models where appropriate. In coordination issues within Tanzania and between the the low-carbon sector, the DFID are pioneering results- Tanzanian government and sources of climate change based finance in the small-scale energy sector together finance. Despite the benefits of dedicated climate funds, with the GIZ and Energising Development (EnDev). the limitations are such that it is highly unlikely that a sin- A number of proposals were solicited from Sub-Saharan gle fund would be able to coordinate all domestic, interna- Africa, including Tanzania, where it was proposed to pay tional, bilateral, and multilateral climate finance. Tracking distribution and service companies providing solar light funds through mechanisms such as a management infor- and home systems to expand into underserved areas in the mation system, budget codes or markers, or similar tools lake region. The RBF facility would subsidize the expan- that build on existing systems could allow decision makers sion of these companies into less profitable and poorer and funders to have greater awareness of current resources markets on a per-unit-sold basis. and where they flow, identify funding gaps with strategic plans, and target resources more appropriately. Having a strong system for coordination and tracking climate finance in place now could have Climate finance will require a high level of benefits for future funding sources. For example, accountability and transparency. Institutional there are ongoing discussions on how the GCF can pro- arrangements for any selected financing instruments vide enhanced direct access at scale (that is, for enhanc- will need to ensure that both financial transparency and ing country ownership of projects and programs) and 54 Financing Climate-Resilient Growth in Tanzania how this could be achieved (such as through quantity climate finance. Given the shortfall of resources yet performance payments or other approaches, noting the substantial demand for climate finance, those countries fund objectives of efficiency and effectiveness). Overall with the most effective, efficient, robust, and transparent international pledges still fall far short of the 2020 goal national structures and governance and with a good track of mobilizing US$100 billion in climate finance, of which record in programming, monitoring, and evaluating flows the GCF is intended to be the centerpiece of long-term might be more competitive in accessing GCF resources. Financing Climate-Resilient Growth in Tanzania 55 APPENDIX C CONSULTATION This policy note was prepared as part of a multiyear The policy note was able to influence as well as draw from engagement and policy dialogue on climate change plan- related studies and initiatives to plan and manage climate ning and finance between the DFID and the Bank as a finance in Tanzania. Preparation of the note benefited joint technical assistance program. As an iterative process, from inputs, coordination, and collaboration with the fol- the note evolved with the changing landscape of climate lowing teams: change planning and finance in Tanzania in the initial stage of adoption of the NCCS and ZCCS. Options for a Climate Finance Mechanism/Climate Fund in Tanzania Financed by the DFID (finalized July 2013) and undertaken by the GCAP. The team consisted of Paul Watkiss, Jillian Dyszynski, Gerard Hendriksen, Vikrom Mathur, and Matthew Savage. Tanzania National Climate Finance Analysis Financed by the DFID and undertaken by the ODI (finalized September 2013). The team included Pius Yanda, Deograsias Mushi, Abdallah Issa Henku, Faustin Maganga, Honesty Minde, Nico Malik, Adolphine Kateka, Neil Bird, and Helen Tilley. Roadmap to Support the Implementation of the Tanzania NCCS and ZCCS Financed by the DFID (finalized March 2014). The team included Lars Mikkel Johannessen, Jacquelin Ligot, and Kahana Lukumbuzya. The National Climate Finance Mechanism Technical Committee Established by the MoF after a presentation of the policy note’s initial conclusions in February 2014. The multidisciplinary team, which met regularly with the objective of framing a climate financing framework, included Mr. Jimreeves Naftal, Mr. Abbas Kitogo, Ms Amy Faust, Mr. Stephen Mariki, Mr. Razack Lokina, Mr. Ladislaus Kyaruzi, Ms Faraja Ndulesi, Neema Mkwizu, Mr. Kanizio F. K. Manyika, Ms. Lilian Lukambuzi, and Mr. Waryoba Nyakuwa. Framework for a National Climate Change Financing Mechanism (NCFM) for Tanzania Financed by the UNDP (finalized December 2014). The team included John Dominic Balarin and Kahana Lukumbuzya and worked closely with the National Climate Finance Mechanism Technical Committee. The DFID/Bank team gained inputs, presented findings, experts throughout the technical assistance period, and engaged with key decision makers and technical including the following forums and meetings: November 21, 2012 Joint VPO-DPGE meeting on climate change and climate finance, jointly chaired by Inger Næss (DPGE chair) and Dr. Julius Ningu (Director of Environment). December 12–13 2012 Initial scoping mission undertaken by GCAP, which included meetings with Mainland and Zanzibar Ministries of Finance, Department/Division of Environment, and development partners. February 11, 2013 Coordination meeting for climate change and climate finance activities, including the MoF, VPO, UDSM/ODI, and development partners. Chaired by the DFID on behalf of the DPG-E Climate Change subgroup. March 11–15, 2013 Second scoping mission undertaken by the GCAP, which included meetings with Mainland and Zanzibar Ministries of Finance, Department/Division of Environment, development partners, UDSM, Tanzania Meteorological Agency, MAFC, and several NGOs such as Oxfam and the Tanzania Forest Conservation Group. On March 11, initial conclusions from the mission were presented to the DPG- E. On March 14, initial conclusions on the climate finance case studies were presented at a workshop in Bagamoyo, which was attended by the MoF, VPO, and other MDAs. Financing Climate-Resilient Growth in Tanzania 57 October 3, 2013 Climate finance coordination meeting, chaired by the MoF and including the VPO, and development partners. February 17, 2014 Coordination meeting and presentation between the VPO, MoF, and development partners (chaired by the MoF, DPS Pr. Adolph Mkenda and attended by Sazi Salula, Permanent Secretary of the Vice President’s Office). March 2014 Presentation of climate finance roadmap to the government and development partners Individuals who participated in the above meetings included the following: VPO-DoE Sazi Salula, Permanent Secretary Dr. Julius Ningu, Director of Environment Richard Muyungi, Assistant Director of Environment Ladislaus Kyaruzi Stephen Mariki Esther Makwaia Magdalena Mtenga MoF Pr. Adolph Mkenda, Deputy Permanent Secretary John Mavura Jimreeves Naftal Emmanuel Tutuba Kiraiya J.S. Neema Mkwizu Bartholomew Lyamuya Telesphory Kamugisha Waryoba N. Nyakuwa Zanzibar MoF: PS Khamis Omar, Zanzibar Planning Commission: Amina Shaaban First VPO-DoE: Sheha Mjaja, Aboud Jumbe Other MDAs MAFC: Shakwaanande Natai, Caroline Kilembe, Mary Majule Tanzania Meteorological Agency: Augustin Kanemba Prime Minister’s Office - Disaster Management Department: Fanuel Kalugendo UDSM Pius Yanda Abdallah Issa Henku Razack Lokina NGOs Tanzania Forest Conservation Group: Charles Meshack, Nike Doggart Oxfam: Marc Wegerif Tanzania Organic Agriculture Movement: Jordan Gama, Michael Farrely Development Partners Royal Embassy of Norway: Inger Naess, Berit Tvete Embassy of Finland: Mikko Leppanen Embassy of France: Philippe Boncour, Violaine Lepousez GIZ: Falk Negrazus UNDP: Abbas Kitogo, Gertrude Lyatuu, Rita Mutani, Mandisa Mashologu, Susanna Pykala, Amani Ngusaru Canada Department of Foreign Affairs, Trade and Development: Victoria Mushi EU: Maria Iarrera, Maria Chiara Femiano SIDA: Samer al Fayadh, Stephen Mwakifwamba USAID: Robert Layng, Mikala Lauridsen DPG-E Secretariat: Anna Caprile, Debbie Arnold 58 Financing Climate-Resilient Growth in Tanzania environment and natural resources global practice P O L I C Y N O T E W O R L D B A N K G R O U P R E P O R T N U M B E R ACS11581 1818 H Street, NW Washington, D.C. 20433 USA Telephone: 202-473-1000 Internet: www.worldbank.org/environment Twitter: @WBG_Environment