Written by Juan Benavides and Javier Blanco
Aims and main message
The NDC Action project, led by the United Nations Environment Programme (UNEP) in collaboration with the UNEP Copenhagen Climate Centre (UNEP-CCC), aims to facilitate the implementation of climate-resilient and low-carbon development aligned with national and global goals. Fedesarrollo, as the National Technical Institution (NTI), spearheaded the technical work of NDC Action in Colombia. To address the problem, Fedesarrollo developed a roadmap connecting public and private resources with the objectives and initiatives of the Nationally Determined Contributions (NDCs). This policy brief describes the protocols developed by Fedesarrollo to screen and advance decarbonization projects in Colombia. The NDC Accelerator is a simple methodology to generate a preliminary portfolio of climate projects for promotion and structuring by specialized teams.
Context and problem
Colombia faces a significant challenge in bridging the gap between current national emissions trajectories and its Nationally Determined Contribution (NDC) commitments. The NDC outlines Colombia's pledge to reduce greenhouse gas (GHG) emissions by 51% by 2030 compared to business-as-usual (BAU) scenarios (Gobierno de Colombia, 2020). However, current emission trends indicate that more aggressive and prioritized mitigation efforts are needed to meet these targets.
In 2018, the most recent year for which greenhouse gas inventory data is available, Colombia's total emissions reached 303 MtCO2e (IDEAM, Fundación Natura, PNUD, MADS, DNP, CANCILLERÍA, 2021). This level is higher than the projected emissions under the NDC's business-as-usual scenario for 2020, which was 291.3 MtCO2e (Gobierno de Colombia, 2020). This indicates that not only have emissions not decreased, but they have actually increased compared to the NDC projections. To achieve the 2030 emissions target of 169.44 MtCO2e, a reduction of 44% from the 2018 levels is required.
A critical aspect of this challenge is the need to accelerate and prioritize financing for high-impact mitigation projects across key sectors. The sectors with the most significant gaps in emissions reduction include energy, transportation and agriculture (livestock and land use change). These sectors not only contribute substantially to the country’s GHG emissions but also offer the most potential for impactful mitigation strategies.
Findings
The project acceleration proposed by Fedesarrollo aims to fast-track the development and financing of high-impact climate projects to achieve the NDC. This process involves identifying and prioritizing a portfolio of projects through a structured approach, ensuring alignment with national climate goals. The methodology emphasizes strategic preparation, including thorough analyses and risk mitigation strategies, to ensure project viability and successful implementation. Prioritization is based on GHG reduction impact and delivery speed, focusing on high-impact and quick-win projects.
The acceleration “protocol” is composed of three elements:
1) Prequalification
Projects are eligible if they are aligned with the Green Taxonomy and are considered a government priority. Eligible projects that are being currently structured by the government or private parties should not enter the acceleration process because they duplicate efforts and do not bring additionality. Finally, projects with additionality potential and preliminary costing should enter the prioritization process. Proposals for studies and consultancies should not exceed 1% of the total available public funding. They must be directed towards projects that are eligible but have not yet met the criteria for additionality and maturity.
2) Screening with a MACC curve
The marginal abatement cost (MAC) is the additional cost of an intervention that reduces greenhouse gas emissions by one ton. It is calculated as the difference in investment costs (CAPEX) and operating and maintenance costs (total cost of ownership, or TCO) between the intervention and the status quo, divided by the difference in CO2 equivalent (eqCO2) emissions. This ratio can be positive or negative, with negative MAC indicating opportunities that reduce emissions while generating a net gain. When a country, region, or sector has alternatives for reducing eqCO2 emissions, these can be ranked by cost, resulting in the marginal abatement cost curve (MACC).
3) Prioritization
Once projects have passed the screening process, investment projects with negative MAC or which are socially profitable should be prioritized based on speed of delivery and materiality. Projects which can begin operations within two years and can reduce sectoral decarbonization commitments by at least 0.25% are preferred. Lastly, equity and inclusion criteria are evaluated. It is suggested to include up to two criteria, such as community involvement or project location in PDET or ZOMAC areas. Equity and inclusion should serve to untie sound decarbonization initiatives, but not become the root motive for building a pipeline of NDC projects.
Recommendations
Recommendation 1: Enhance governance and leadership
Appoint a strong institutional leader manage challenges and coordinate acceleration actions. This reduces risks and ensures clear leadership and accountability, facilitating NDC achievement. Strengthen, under the leadership of the designated entity, a system of checks and balances to reduce the possibility of discretionary alteration or abandonment with the political cycle (forced conversion of projects into 'white elephants').
Recommendation 2: Ensure robust safeguards and social acceptance
Strengthen accountability systems and consultations to minimize project risks and ensure compliance with standards, addressing political and economic constraints. Social consultation will reduce selection based on political influence, and prioritization using objective criteria attracts competent operators and more financiers.
Recommendation 3: Strengthen technical and financial structuring
Prequalify structuring firms based on capabilities and use advanced designs verified by independent engineers. This enhances project quality and investor confidence. Structuring firms will propose the business model for each project, specify the type of financing (public, private, or PPP), risk allocation and mitigation measures, minimum equity contributions, repayment modalities and profiles for debt and dividend distribution, as well as the need for public support (subsidies).
Outcomes
The prioritization protocol will mobilize resources for high-impact climate projects. The protocol directs resources toward initiatives that not only reduce greenhouse gas emissions but also generate economic benefits. The protocol fosters collaboration between public and private sectors, attracting investment and expertise necessary for project execution.
Impact
The acceleration produced by the protocol is essential for addressing financing gaps in key sectors, including energy, transportation, and agriculture. This structured approach fosters a robust climate action framework to meet NDC goals in a timely and effective manner.
Acknowledgements
We would like to thank UNEP through the NDC Action Project and the UNEP Copenhagen Climate Centre for their financial support and collaboration for this research-based advisory.
Disclaimer: The views expressed in this publication are those of the authors and should not be attributed to Fedesarrollo or UNEP.
References
Gobierno de Colombia. (2020). Actualización de la Contribución Determinada a Nivel Nacional de Colombia (NDC). Bogotá: Gobierno de Colombia. Comisión Intersectorial de Cambio Climático.
IDEAM, Fundación Natura, PNUD, MADS, DNP, CANCILLERÍA. (2021). Tercer Informe Bienal de Actualizaicón de Colombia a la Convención Marco de las Naciones Unidas para el Cambio Climático (CMNUCC). Bogotá, Colombia: IDEAM, Fundación Natura, PNUD, MADS, DNP, CANCILLERIA, FMAM.
