Climate Finance Final Study

Contributions of Climate Finance on Public Sector

reduces greenhouse gas emissions and funds renewable power like wind or solar. Helps communities adapt to climate change impacts

Climate Finance Definition

local, national, or transnational financing that seeks to support mitigation and adaptation actions that will address climate change

Climate Adaptation Definition

Process of adjusting to actual or expected climate and its effect. Seek to moderate harm or exploit beneficial opportunities

Three key elements

-macro perspective

-process of adjustment

-moderating harm or exploiting beneficial opportunities

Climate Change Definition

The observed changes in statistical distribution of weather patterns over an extended period of time. Can be studied over millions of years

Adaptation Strategies

-Reduce emissions

-Enhance removals

-Moderate harm or exploiting beneficial opportunities

Adaptation is the collective reaction of the actors within an economy to a structural change that is driven by the climate

Autonomous vs. Planned Adaptation

Autonomous does not constitute a response to climatic stimuli but is triggered by ecological changes in natural systems and by market or welfare changes in human systems

Planned adaption is developed and initiated prior to developing conditions that drive the community to adapt

Anticipatory vs. Reactive Adaptation

Reactive occurs after the fact and in response to environmental factors while they are occurring or after they occur

Anticipatory is planning for climate change before impacts have occurred

Private vs. Public

Private is for the direct benefit of a private actor (enterprises and private financiers)

Public is usually implemented by the government for the overall benefit of the public (policy makers and public finance institutions)

Adaptation Gap

Gap between global adaptation needs and the funds available for adaption. Adaptation finance gap is the difference between the costs of meeting a given adaptation target and the amount of finance available to do so

Time Value of Money

a dollar is worth more today than the value of a dollar in the future

Social Discount Rates

Used to put a present value on costs and benefits that will occur at a later date

Market Discount Rate

the rate of return required by investors based on the risk of the investment

Discount Rate

interest rate the federal reserve charges banks for overnight loans. Higher than market rates

Maturity of Debt

The number of years until the instrument experation date

Short term maturity: less than a year

Intermediate maturity: between one and ten years

Long term Maturity: more than ten years

What is the Bonds Market

Funded large-scale, long-term capital intensive projects in states and cities as well as their operational expenses

Shareholder Approach

Wanting to properly align commitments and business practices with the Paris Agreement

Discounting

Determine the present value of cash flow

Compounding

Focuses on the growth of investments over time

Net Present Value

Difference between an investment’s market value and its cost

Should be accepted if positive and rejected if it is negative

Discounted Cash Flow

Process of valuing an investment by discounting its future cash flows

Paybacks

Amount of time required for an investment to generate cash flows sufficient to recover its initial cost

An investment is acceptable if its calculated payback period is less than some prespecified number of years

IRR

Discount rate that makes the net present value of an investment zero

Determine the single rate of return summarizing the merits of a project

Which is better, higher or lower IRR

Higher IRR is better and should be accepted