Stepping up for Climate Action: Finance Ministries and NDCs
Making Nationally Determined Contributions (NDCs) a reality goes far beyond hitting national climate targets. When considered part and parcel of development planning, NDCs provide a pathway for job creation, poverty reduction, improved public goods and services, and meeting countries’ sustainable development goals. Ministries of Finance (MOFs) are the gatekeepers of public resources and investment processes and therefore have an essential role to play in the development and implementation of ambitious—yet realistic—climate action.
“The change can’t happen without economic policy, that’s clear. [Involving Ministries of Finance in the NDC process] will bring a lot of competitive advantages in addressing…the inevitable impact of climate change, and those who are early movers will benefit,” remarked Pekka Moren, Co-Chair of the Minister of Finance Coalition.
The Coalition of Finance Ministers for Climate Action brings together fiscal and economic policymakers from more than 50 countries to implement six guiding ‘Helsinki Principles' that promote climate action and a just transition through fiscal policy and public finance management tools. Jamaica and Uganda, the Country Champions for Helsinki Principle 6, are working with the NDC Partnership Support Unit and the World Bank to actively engage MOFs in the revision and implementation of financially grounded NDCs submitted under the Paris Agreement.
In August 2020, the NDC Partnership, together with the Coalition of Finance Ministers for Climate Action, hosted a virtual event on the crucial role MOFs play in the development and implementation of NDCs. Opening remarks were delivered by the Finance Ministers and Sherpas from country champions Jamaica and Uganda that worked with the NDC Partnership and World Bank on common guidelines for MOFs to engage in climate action. This was followed by a panel of country experts from Jamaica, Uganda, Colombia, Ireland, and the Philippines, who spoke on different entry-points for MOFs in the development, revision, and implementation of NDCs with a particular emphasis on public financial management (PFM) systems (see the event agenda and full list of speakers here).
The Helsinki Principle 6 Workshop and Coalition paper, Ministries of Finance and Nationally Determined Contributions: Stepping Up for Climate Change guides countries on pathways to mainstreaming NDCs into PFM systems, with good practices shared by six member countries. Findings from the report identify five lessons from MOF engagement in development and mainstreaming of NDCs:
1. Strong MOF leadership and coordination strengthens the realization of socio-economic and climate benefits: Optimizing the benefits of climate action planning and overcoming the challenges associated with fiscal and domestic financial constraints requires leadership, coordination, and a clear connection with national priorities. Climate action is usually integrated into line ministries’ mandates. However, the involvement of a MOF is crucial to ensuring that appropriate resources are allocated and the proposed policies and sector interventions are implemented.
2. An MOF can help create an effective and achievable NDC by providing reliable costing and macroeconomic assessments of climate interventions: Macroeconomic analysis can improve decision making, optimize economic benefits and mitigate risks from climate change. Costing gives a more precise idea of the financial resources required to implement the different programs and interventions, the feasibility within macro-fiscal constraints, and a strong basis for budget allocation negotiations.
3. MOF input at the review and development stages are essential for effective mainstreaming of NDCs: To support the development of a realistic NDC and enable its effective implementation, Ministries of Finance need to consider how PFM laws and regulations will affect implementation. This can include analysis of procurement policy, investment plans, and fiscal policy and how these enable or prevent the attainment of NDC goals.
4. An MOF is essential for institutionalizing NDCs into national PFM systems: It is crucial that climate change is institutionalized into national PFM systems. Monitoring financial flows or tagging expenditures are common tools and link climate throughout the budget cycle. The MOF task is wider and more complex, including ensuring all line ministries and other budgetary entities are training in new climate-sensitive protocols, new tax policies are having the intended impacts, and private sector incentives are effective.
5. An MOF can pursue a variety of entry points and phased approaches to suit their economic situation when mainstreaming their NDC: A MOF does not need to hold all knowledge and skills immediately to engage in climate action; instead, it can be an iterative process which evolves. Countries have been ‘learning by doing’, assisted by interagency collaboration, peer learning, and international support.
Mr. Amar Bhattacharya of the Brookings Institution and the Coalition of Finance Ministers’ COVID-19 Working Group closed the event by putting each intervention into the context of the challenges and opportunities presented by the COVID-19 pandemic. Mr. Bhattacharya underlined that “NDCs need to be anchored in long-term economic growth and development strategy, but also NDCs can be extremely powerful in helping to inform the decisions we have today in terms of priorities for recovery packages.” Mr. Bhattacharya notes that MOFs will have a key role in the preparation of coherent sustainable investment strategies, implementation of climate-friendly fiscal policies such as carbon pricing, and in ensuring that domestic and international financing is available for support NDCs and stimulus investments.
Moving forward, the Partnership will continue to support the work of the Coalition of Finance Ministers and the integration of climate action in countries’ development plans, PFM systems, and COVID-19 economic recovery efforts. The NDC Partnership will continue to act as a catalyst to strengthen MOF engagement and capacity to support transformative climate action through the mobilization of resources and NDC planning and implementation support. You can find the full webinar recording and panelist presentations here.
This blog was written by Sam Morton of the NDC Partnership Support Unit, with valuable input from members of the Support Unit.