Transcript this file - Carbon Finance at the World Bank

Carbon Finance
Strategy at the World
Bank
CHARLES CORMIER
December 2005
The Kyoto Protocol
36 Developed Countries and Economies in Transition
(namely Canada, Japan, EU15 and economies in
transition) agreed in 1997 to:



reduce GHG emissions by 5.2 % below 1990 levels
in the commitment period 2008-2012
Total demand created for GHG Reductions: ~5 to
5.5 billion
Marrakech Accord: agreed in Nov 2001 sets rules
of implementation
Status: came into force in February 2005



Coming into force: requires ratification of 55
Parties to UNFCCC representing 55 % of CO2
emissions (US constitutes 36 %; Russia 17% )
As of November 2005, 157 states ratified
representing 66.1% of developed countries
US / Australia will not ratify, but Australia will meet
targets
How can Developed
Countries/EITs meet their
obligations under Kyoto?



Domestic Reductions
Carbon Sinks: direct human-induced land use
change and forestry activities (limited to ~330
Mt/C02e)
International Credits (Kyoto Mechanisms):
• International Emissions Trading
• Project –Based: Joint Implementation
• Project – Based: Clean Development Mechanism
“..domestic action shall constitute a significant
element of the effort by each Party..”
Structure of the Carbon
Market
Project-Based
Transactions
JI and CDM
Allowance
Markets
EU Emission
Trading Scheme
UK ETS
Voluntary
Retail
Other
Compliance
New South Wales
Certificates
Chicago Climate
Exchange
600
Total Value of Contracts
over 1 b$ (data in million U.S.$, nominal)
500
Known
Estimated
400
300
200
100
0
1998
1999
2000
2001
2002
2003
2004
2005
(Jan-Apr)
Main Buyers: European
Governments and Firms
In percent of volume purchased From Jan.04 to Apr.05
USA
4%
World Bank
purchases (22 % of
total) attributed prorata to each
participant in various
carbon funds
Japan
21%
Australia
3%
Canada
5%
New Zealand
7%
Gov. Netherlands
16%
Other EU
32%
UK
12%
Supply Concentrated in
Middle-Income Countries
In percent of volume sold from January 2004 to April
2005
Rest of Latin America
22%
OECD
14%
Transition
Economies
6%
Africa
0%
Brazil
13%
India
31%
Rest of Asia
14%
Top three countries
(India, Brazil and
Chile) account for
58% of volume; Top
five (which also
includes Bulgaria and
Romania) account for
70%
Non-CO2 Gases Dominate
In percent of volume purchased from Jan.04 to Apr.05
Landfill Gas
Capture
10%
Other
N2O
7%
4%
Hydro
12%
HFC
25%
Wind
7%
Forestry
(LULUCF)
4%
Energy
Efficiency
2%
Biomass
11%
Animal
Waste
18%
Prices Depend on Risks
(weighted average prices from Jan. 2004 to April 2005 in
U.S.$ per metric tonne of CO2e)
$8.00
$6.00
$4.00
$2.00
$0.00
ER
VER
CER
ERU
Climate Change and the
World Bank Mission


What we work for: poverty alleviation
and sustainable development
We accept IPCC conclusions that
• least developed countries stand to lose most
• the poorest have the least capacity to adapt to
climate change, especially in rural areas

Carbon finance offers an unprecedented
opportunity to increase private and
public investment in clean
technologies in developing countries,
thus contributing to sustainable
development
The World Bank’s Objectives
in the Carbon Market

Contribute to Sustainable Development
• Support Developing Countries To Maximize Gains from
Carbon Finance
• Add Value to CDM Projects through safeguard policies/
additional sustainable development value

Catalyze the Carbon Market
• Supporting the regulatory framework – developing new
tools, collaboration with the regulator
• Expanding the capacity of other financial and
development institutions through cooperation with other
development banks
• Providing opportunities for purchases by the private
sector
• Increasing market liquidity by creating projects with
large volumes with a portion available to the private
sector
The World Bank’s Objectives
in the Carbon Market II

Strengthen the capacity of developing
countries to benefit from the emerging
market for emission reduction credits (CFAssist)
• $10 million Bank administered trust fund for capacity
building and technical assistance program established in
FY05.
• Assists interested developing countries and economies in
transition to develop and implement CDM projects
• Three to five year program to develop sound structures,
where local institutions gain the capacity to prepare and
review projects for approval.
World Bank Carbon Finance Products
~$950 million under management
Prototype Carbon Fund: $180 million, multi-shareholder
Community Development Carbon Fund: multi-shareholder. First
tranche closed at $128.6 million; second tranche to open once
Portfolio for first tranche is well developed
Bio Carbon Fund: $53.5 million; multi-shareholder;
second tranche opened in September 05
$180 million – single government participant (Dutch Government)
$80 million committed - Italian multi-participant
Netherlands JI
~$40 million.Economies in Transition only (with IFC)
Facility
$220 million – Spanish Government; will be open to private
sector
$75 million – Danish multi-participant
Under development: Carbon Fund for Europe
How Carbon Funds Work
Technology
$
Industrialized
Governments
and
Companies
Technology
$
Finance
Bank Managed
Carbon Fund
Finance
Developing
Countries and
Communities
CO2 Equivalent
CO2 Equivalent
Emission Reductions
Emission Reductions
Payment on delivery of emissions reductions, not up-front
capital costs
Carbon Asset Creation and Maintenance
Manufacturing Process and Costs based on Bank experience
Preparation and review of the Project
Project completion
• Upstream Due Diligence, carbon risk
assessment and documentation: $ 25K
Carbon Asset Due Diligence
For new methodologies
•Baseline : $30 K
• Monitoring Plan: $25K
Periodic verification &
certification
• Verification: $10-25 K
• Supervision: $10-20K
Validation process
• Contract, Processing
•and documentation: 25k
Project Appraisal and Negotiation
Construction and start up
• Initial verification at start-up: $25K
• Consultation and Project Appraisal: $60K
• Negotiations and Legal documentation: $100K
Total through Negotiations
All expenses:
$265 K for regular size projects
$150 K for small scale projects
PCF TECHNOLOGICAL DISTRIBUTION
ACTIVE PCF PORTFOLIO PROJECTS - TOTAL OF APPROX US$176 MILLION
Bagasse
1%
N20
Biom ass
Rem oval
8%
Coal Mine 7%
Energy
Efficiency
4%
Methane
11%
Cem ent
Manufacturing
6%
Sm all Hydro
15%
Wind
6%
Geotherm al
1%
Waste
Managem ent
37%
LULUCF
4%
Strategic Issues in CDM Market
Development
Potentially Competing Interests
 CDM needs to deliver high volumes to keep
cost of Kyoto compliance affordable

Developing country government preferences
going into 2nd Commitment Period negotiations
is that CDM helps modernize and de-carbonize
infrastructure
 “Sustainability” concerns constrains asset
choice in many OECD governments, and some
corporations
Market Inflection Points to Watch
 Post-2012 market signal by EU and/or KP
Parties on long lead time assets
 Second phase ETS review of sequestration/
LULUCF assets
THANK YOU !
www.carbonfinance.org