A broad suite of proposals for financial instruments in the next EU budget could be used to foster climate-relevant finance. But currently there are no explicit provisions that specify the scope and scale of action in spite of the commitment to spend at least 20% of the EU budget on climate related activities. This presentation provides an overview of the stage of ply and discusses options for further policy action.

1. Use of financial instruments way forward
in the 2014-2020 EU MFF
Axel Volkery
Senior Fellow & Head Environmental Governance
‘Next MFF: Incentives and safeguards for climate friendly investments’
Brussels, 26 March 2013

2. Needs and priorities for climate action
• The transition to low carbon and climate resilient economy requires actions across
sectors including energy, transport, buildings, enterprises, agriculture and water
• Integrated action in an urban context is also gaining increasing importance
Require substantive investment needs for
mitigation and adaptation to climate
change, e.g.:
• Additional investment of €200 billion by 2020
for energy efficiency in buildings
• Additional investment of €50 billion until 2020
for the EU SET Plan
• Additional annual grid investment costs range
between €160 and €840bn by 2050
Face a number of barriers and risks for
mobilising private capital, e.g.:
• Financial barriers
• Technical barriers
• Information and skills barriers
• Regulatory and structural barriers

3. Overview and relevance of barriers
* Many of these barriers will be very context specific and will depend on the specific MS/region and/or project characteristics

4. What are EU financial instruments?
“Union measures of financial support provided on a complementary basis
from the budget in order to address one or more specific policy objectives
of the Union. Such instruments may take the form of:
• equity or quasi equity investment,
• loans or guarantees,
• or other risk sharing instruments,
and may, where appropriate, be combined with grants.”
Regulation 966/2012, Title I of Part One. Art. 2 (p) (own accentuation)

5. 2014-2020 MFF: Rules for using financial instruments
• Market failures or sub-optimal investment:
financially viable projects that face difficulties in
attracting funding from markets
• Additionality: crowd-in funding in addition MS
instruments, private finance, or other EU
interventions
• Leverage effect: Mobilise global investment
exceeding size of EU contribution (target range of
values based on ex-ante evaluation)
• Alignment of interest: possibly fostered by co-
investment, risk-sharing or other financial
incentives (support in a proportionate manner).
• Ex-ante evaluation: conditional for establishing
financial instruments (needs and
consistency, performance indicators)
• Ability to generate revenue: operational
requirement for the use of financial instruments
is the project’s ability to generate revenues

6. 2007-2013 MFF: Some lessons learnt
Positive
+ Leverage of private finance, positive effects on
access to finance during financial crisis
+ Additional levers for EU policy objectives
+ Provision of experts skills – capacity building
across governance scales
+ Revolving funds improve the quality of projects
and fiscal discipline
Negative
- Inconsistencies and overlaps
- Concerns about the ’additionality’ of actions
(deadweight situations)
- Link to EU’s strategic policy objectives not always clear
– trade offs between flexibility and targeting
- Lack of information, visibility and acceptance – need for
cultural change underestimated
Climate relevance
 Financial instruments are no “silver-bullet” but can share risks and leverage private capital
 Existing financial instrument can be harnessed for climate action but need to be better targeted
and scaled up
 Most promising areas for the use of financial instruments include:
o Energy efficiency in SMEs and buildings
o The promotion of renewable energy technologies (emerging and mature)
o Low carbon and climate resilient energy infrastructure
o Adaptation to climate change and climate resilient developments

7. 2014-2020 MFF: evolution of main financial instruments
FP7
• Risk Sharing Finance
Facility (RSFF), incl. Risk
sharing instrument (RSI)
CIP
• High Growth and
Innovation SME Facility
(GIF)
• SME Guarantee Facility
(SMEG)
Loan-Guaruantee Facility for
Ten-E Transport (LGTT)
EU Project Bonds Initiative –
Pilot phase
European Process Micro-
Finance Facility (EPMF)
2007-2013 MFF2014-2020 MFF
Research,
Innovation,
Development
Growth, Jobs, Soci
al Cohesion
MFF area
2014-2020
Financial instruments
under ERDF and ESF
Infrastructure
Fin. Instruments
(2007-2013)
centrally managed
Horizons 2020
• Debt Facility for R&I, incl. RSI II
• Equity Facility for R&I
Fin. Instruments
(2007-2013)
shared managed
Fin. Instruments
(2014-2020)
centrally managed
Fin. Instruments
(2014-2020)
shared managed
Special support
instruments under CSF
Funds
• EU level
• ‘Off the Shelf’
• Tailored
• Direct loans and
guarantees to
beneficiaries
COSME
• Loan Guarantee Facility (LGF)
• Equity Facility for Growth (EFG)
• CCI (cultural and creative
industries guaruantee facility)
(new)
• Student Loan Guruantee Facility
(new)
• Social Change and Innovation
Microfinance
Connecting Europe Facility
• Loans and/or guarantees
facilitated by risk sharing
instruments, including
enhancement mechanism to
project bonds
• Equity Instruments
EEEF (European Energy
Efficiency Fund (hybrid)
Tech. Assistance (ELENA) New FI under LIFE Programme ?
Financial instruments
under EAFRD
Marguerite–special investment
vehicle for infrastructure
Policy-based
guarantees under ESF
?

8. Gaps and opportunities for stepping up climate action
through financial instruments in 2014-2020 EU budget
• Provisions on financial instruments are very generic
• In principle, all proposed financial instruments could be used to support climate
change mitigation and adaptation projects
• Biggest opportunities exist under Cohesion and Rural Development Policy, Horizon
2020, CEF and LIFE
• Biggest gaps in terms of available financing concern decarbonisation of energy
infrastructure, renewable energy generation of cross border relevance and the
demonstration, deployment and market uptake of new renewable energy
technologies
Action needed in two directions:
1) Modify proposed financial instruments in the 2014-2020 EU MFF
• Scale up support for climate action
• Better targeting and prioritisation of climate action
2) Creating new instrument under LIFE

9. Priority options for modifying centrally managed
financial instruments
Programme Financial instrument Option
Horizon 2020 Debt facility: RSI – II (SMEs) Introduce a demand-driven
‘climate window’ for SMEs
Debt facility: RSFF II (non-
SMEs)
Introduce a demand-driven
‘climate window’ in the RSFF for
mid-caps and large companies
CEF Loans and/or guarantees
facilitated by risk sharing
instruments, including
enhancement mechanism to
project bonds
Expand Project Bonds under CEF
to renewable energy generation
together with connection to the
grid

10. Priority options for modifying shared managed
financial instruments
Programme Financial instrument Option
CSF funds
including
Cohesion
and Rural
Development
Policy
Off the shelf
instruments
Tailored instruments
Ring fencing to EU level
instruments
Introduce a dedicated loan and
guarantee facility for energy efficiency
Technical assistance for capacity building
and knowledge transfer

11. Priority options for creating new instruments
Programme Financial instrument Option
LIFE Sub-programme Climate Action
- Adaptation
Allocate funds for technical
assistance dedicated to
adaptation to climate change

12. Recommendations for support actions
• Introduce a project selection criterion to incentivise all beneficiaries and
project promoters to integrate horizontally climate change
• Introduce ex-ante conditionality to systematically mainstream climate
change in investment planning through risk/vulnerability assessment
• Introduce monitoring indicators and reporting requirements for financial
instruments related to climate action
• Improve absorption rates and effectiveness of Cohesion Policy funding
• Create dedicated expert groups on selected aspects of private financing for
climate
• Single focal point to provide support for project promoters in working with
different types of private investors

13. !Thank you for your attention!
Dr Axel Volkery
Senior Fellow
Head of Environmental Governance
avolkery@ieep.eu
www.ieep.eu
T. +32 2 2111 090
Follow us on Twitter @IEEP_eu
Institute for European Environmental Policy
15 Queen Anne‘s Gate
London
SW1H 9BU
Hooikaai 55
1000 Brussels

14. 2014-2020 MFF: Financial instruments central management
Programme Financial instrument Expected leverage
effect
Climate relevance
Horizon 2020 Debt facility:
-RSI - II (SMEs)
-Loans and guarantees non-SMEs activities to midcaps and large firms
-Loans and guarantees to R&I (non-SMEs) activities of mid-caps and large
firms, universities, research institutes, research infrastructure, etc.
Leverage: 5 - 20 √
Equity facility for R&I Leverage: 18 √
COSME Loan guarantee facility (LGF) Leverage: 30 √
Equity facility for growth (EFG) Leverage: 10 √
CEF Equity instruments No details are available
Loans and/or guarantees facilitated by risk sharing instruments,
including enhancement mechanism to project bonds
Leverage: 15-20
(for PB)
√
LIFE Programme FI No details are available √

15. 2014-2020 MFF: Financial instruments under shared management
Policy area Financial instrument Expected leverage effect* Climate relevance
Cohesion
Policy
Special support instruments
under the ERDF and CF
For equity-based instruments, it is estimated that one euro
of public support led to equity investment into enterprises
between 1 euro and 3.4 euro.
For guarantee-based instruments, between 1 euro and 7.5
euro.
For loan-based instruments, between 1 and 2 euro
√
Rural
Development
Special support instruments
under the EAFRD
No details are available at this point √
*It will depend on the specific instrument and national/regional context