Innovative finance agreement between the Swiss Federal Office for the Environment and the United Nations Development Programme charts new pathways to unlock the development benefits of decarbonization in developing countries
Switzerland and UNDP to deploy $42 million to boost private climate investments that advance socio-economic development in developing countries
March 11, 2022
Geneva - The Swiss Federal Office for the Environment (FOEN) and the United Nations Development Programme (UNDP) announced today a $42 million pay-for-results collaboration to unlock the development benefits of private climate investments in developing countries while supporting Switzerland to reduce greenhouse gas emissions generated by its government operations.
Beyond emissions reductions, climate mitigation projects can directly or indirectly yield many development benefits – including job creation, access to energy, support to livelihoods and food security, gender empowerment and more. This new agreement – the first of its kind for UNDP – will be active from 2022 until 2031, and aims to boost the development benefits associated with climate mitigation projects. Initially, it will support energy access through solar power in Vanuatu and climate-smart agriculture in Ghana, with the possibility of supporting additional projects and countries.
In-line with the outcomes of the COP26, Switzerland will reduce its greenhouse gas emissions by using Internationally Transferrable Mitigation Outcomes (ITMOs) to indirectly pay for climate mitigation projects with strong development benefits in developing countries. UNDP will implement projects that will generate up to 2,3 million tonnes of CO2 equivalent in emissions reductions for Switzerland while advancing progress on the Sustainable Development Goals (SDGs) in developing countries. In order to catalyze finance and increase the scale and impact of these projects, UNDP will focus on projects that leverage private sector investments, with all project investment and implementation costs to be covered by private sector partners. UNDP will channel payments for ITMOs to private sector project proponents who invest upfront in low-carbon solutions in developing countries through a payment-for-result mechanism. The payment-for-result scheme incentivizes private investments by creating additional revenue for investors, which lowers the risks and makes these investments bankable. On average, for a project under this mechanism, private sector investments will be equivalent to four times the carbon payments generated by ITMOs.
"I am delighted that Switzerland and UNDP are deepening their collaboration through innovative development finance mechanisms,” said UNDP Administrator Achim Steiner. “Decarbonization and climate action are powerful drivers of development. This new type of collaboration highlights the innovative development approaches that catalyse finance by incentivising the private investments needed to enable countries to achieve their climate goals in a way that brings numerous development benefits on the ground.”
“We are proud to enable these projects with UNDP. They are the first of their kind to ensure environmental integrity, no double counting of emissions and the promotion of sustainable development,” comments Katrin Schneeberger, Director of the Federal Office for the Environment (FOEN).
The new project developed under this framework in the Pacific Island nation of Vanuatu will bring clean, reliable electricity to 90,000 people – representing 80 percent of the population currently without access to electricity in the country – while creating 300 new jobs and generating an income of $3 million per year. This will be implemented in partnership with Swiss company Power-Blox AG, who will bring in the US$23 million investment needed to deploy their innovative rural electrification technology in targeted communities – which is five times more than the carbon payments that will be generated by the ITMOs associated with this project. “Access to clean electricity empowers people and brings economic opportunities,” said Esline Garaebiti, Director General of Vanuatu’s Ministry of Climate Change. “This project will enable Vanuatu to rapidly and drastically narrow its energy access gap, which would improve the livelihoods of tens of thousands of people across the country.”
This collaboration, as part of the Paris Agreement, supports countries which are already engaged with Switzerland on cooperative approaches through bilateral agreements, and provides a framework for innovative financing. As part of this, in December 2021, UNDP partnered with the Swiss State Secretariat for Economic Affairs (SECO) to provide the technical assistance necessary to develop Article 6 transfer readiness and enhance countries’ carbon market participation in up to six developing countries.
UNDP’s ongoing innovative collaboration with Switzerland to build green and inclusive developing countries’ economy is a pillar of UNDP’s Sustainable Energy Hub - a new, all-of-UNDP initiative to support countries in transforming their energy systems to enable the achievement of the Paris Agreement targets and the UN Sustainable Development Goals.
Overall, the Government of Switzerland is also a vital partner in UNDP’s mission to end extreme poverty and accelerate the structural transformations to recover forward better and greener from the COVID-19 pandemic, with the Swiss agency for Development and Cooperation (SDC) being the 6th largest core donor to the organization.