Transcript allocated - World Bank

World Bank Climate Finance
Instruments for Change
Johannes Heister
World Bank Office Bangkok, 13 November 2008
Contents
• UNFCCC negotiations
• World Bank Role
• Carbon Finance
• Climate Investment
• Synergies
Bali Action Plan
Two negotiation tracks
• Convention track: Ad Hoc Working Group on Long-Term Cooperative Action
(AWG-LCA)
• Protocol track: Ad Hoc Working Group on Further Commitment for Annex I Parties
under the Kyoto Protocol (AWP-KP)
• Four focus areas: Mitigation, Adaptation, Technology, Finance
• Key language:
– Nationally appropriate mitigation commitments / actions
– Measurable, reportable and verifiable
– Supported by technology, enabled by finance and capacity building (developing
countries)
Progress?
•
•
•
Meetings, presentations and discussion on concepts and ideas to improved mutual
understanding and trust.
Parties agreed to start serious negotations in Poznan (COP 14, December), Parties to
prepare proposals.
Target timeline: new agreement at COP16 (Copenhagen) – how likely?
Key negotiation issues
Mitigation:
– Who will commits to which GHG reductions? Sectoral targets?
– How to support mitigation action?
• Carbon market: CDM / JI “reform”, scope and scale (REDD, CCS,
programs/sector)
• Public funding: New financial mechanism?
Adapatation:
– New focus on adaptation as development issue.
– How to finance? Tax on all GHG trading? How to manage (UNFCCC)?
Technology:
– Intellectual property rights. Accelerated technology development,
deployment.
– New framework for technology transfer (China, EU).
Finance:
– Proposals for “new financial mechanisms” as vehicle to meet developed
countries’ Convention commitment to provide finance.
– Developing countries: UNFCCC “superfund”, financed by new and additional
developed country contributions, replace GEF and other multilateral funds.
World Bank Role and Strategy
Development and Climate Change:
A Strategic Framework for the World Bank Group
• A framework to guide and support the WBG’s response
to development challenges posed by climate change.
• Not a WBG climate change strategy.
• No pre-emption of UNFCCC decisions.
• World Bank core mission:
– Remains supporting growth and overcoming poverty,
– while recognizing the added costs and risks of climate change
and the evolving global climate policy.
• An effective response to climate change must combine:
– Mitigation of global GHG emissions — to avoid the
unmanageable.
– Adaptation at regional, national and local levels — to manage
the unavoidable.
• Approved by World Bank Board and Development
Committee in October 2008.
Available Resources for Climate Change
Mitigation
(Total Needs est.
$170bn+ / year)
GEF for
mitigation
$ 0.25bn
(FY09)
Carbon Market:
(CDM & JI)
< $8bn
(FY09)
Both M&A
Clean
Technology
Fund
$5.2bn
(4 years)
Strategic
Climate Fund
$0.9bn
(4 years)
GEF-admin.
UNFCCC funds*
$0.25bn
(FY09)
UNFCCC
Adaptation Fund
$0.3-0.5bn
(thru 2012)
World Bank
$1.9bn
(FY09)
Main Resources
to address
Climate Change
Other Multil.
Dev. Banks
$3bn
(FY09)
UNDP for
adaptation
$0.09-0.12bn
Adaptation
(Total Needs est.
$28-67bn / year)
Global
Desaster
Fund (GFDRR)
$0.07bn
EU
Global Climate
Change Alliance
€0.3bn
FY09 (Fiscal Year) estimates are projections
* Least Developed Countries Fund & Special Climate Change Fund
Bilateral
donors
$??
Private
donors
$??
A Huge Gap
World Bank Role, Financing Tools for Mitigation
To help developing countries undertake
– “nationally appropriate mitigation actions in the context of
sustainable development“
– without compromising growth
– by transferring finance and technology from developed
countries
– in a “measureable, reportable and verifiable” manner
(Bali Action Plan)
Financing tools to achieve that goal
–
–
–
–
Carbon Finance (CF)
Climate Investment Fund (CIF)
Global Environment Facility (GEF)
World Bank Group: IBRD, IDA loans, also MIGA, IFC
Carbon Finance
Carbon markets surpassed US$100 billion by the end of 2007…
Allowance markets
(US$ million)
EU Emissions Trading Scheme
50,100 in 2007 alone
(more than double from
previous year)
New South Wales
Certificates
220
Project-based transactions
(US$ million)
CDM
7,400 (30%
over 2006)
JI
500
Secondary
CDM
± 5,500
Voluntary market in 2007 – niche segments (US$ million)
Chicago Climate Exchange
70
Source: WB State and Trends of the Carbon Market 2008, Reuters 2008
Voluntary & retail
270
World Bank Carbon Funds & Facilities
(1st generation)
16 governments, 66 companies: funds pledged: US$2.2bn – ca. $350m uncommitted.
Specialty funds (CLOSED)
Country funds (CLOSED)
Prototype Carbon Fund: $180m,
multi-purpose, pilot fund.
Netherlands European Carbon Facility:
NL Min. Economic Affairs. JI projects.
Community Development
Carbon Fund – T1: $128.6m,
small-scale CDM projects.
Spanish Carbon Fund – T1: €220m,
multi-purpose.
Carbon Fund for Europe: €50m, multi-purpose.
BioCarbon Fund – T1: $53.8m
CDM and JI LULUCF projects.
Umbrella Carbon Facility – T1:
$737.6m (2 HFC-23 projects in
China).
OPEN for new projects:
BioCarbon Fund – T2: $38.1m
Community Development
Carbon Fund – T2: planned.
CLOSING:
Netherlands Clean Development Mechanism
Facility: NL Min. Env., CDM energy, infrastructure and industry projects.
Italian Carbon Fund: $155.6m, multi-purpose.
Danish Carbon Fund: €58m, multi-purpose.
OPEN for new projects:
Spanish Carbon Fund – T2: $70m, multipurpose.
www.carbonfinance.org
Carbon Partnership Facility
“A partnership for lower-carbon
transformation”
Carbon Partnership Facility (CPF)
BUYERS
(governments, companies)
Minimum financial
contributions
Willingness to
purchase emission
reductions when
generated over the
long term
Program
development &
implementation
Carbon Asset
Development
Fund (CADF)
ER sale and
purchase
Carbon Fund
SELLERS
(governments, companies)
ER contribution
Willingness to
develop and
implement specified
emission reduction
(ER) programs and
sell ERs
Partners (advisory role): Host Governments, Donors, other
CPF: Objectives, Features, Portfolio
Objectives:
• Targeting long-term emissions
• Scaling up of mitigation action
• Strategic, transformational
interventions in sectors
Features
• Programs, not individual projects
• Partnership between buyers and
sellers
• Fostering demand and supply in
uncertain market
• Open to other trading regimes
Tranches and windows:
• First tranche now open for conributions, target size: €350m
• Further tranches planned, overall target size: $5bn over 5 years
Portfolio (1st tranche):
• Energy generation, transmission, distribution - Energy efficiency - Waste
Management - Oil and gas – Transportation
• Thematic approaches: urban, rural, industrial development
Participation in CPF-T1
• Buyer Participants
– Public or private entities
– Commitment to contribute to the Carbon Fund – €35 million for
both (Buyers may pool their resources)
• Seller Participants
– Public or private entities
– Commitment to develop ER Program and sell ERs to the Carbon
Fund
– Acceptable to the Bank in accordance with established criteria
• Partners
– Donors: Commit to contribute at least €2 million to CADF, can
convert to Participant status.
– Host Countries: Governments of countries where programs are
(expected to be) developed
– Other entities that make a significant contribution to the CPF
(e.g. financial, technology partners) - determined by Trustee.
Carbon Asset Development Fund (CADF)
• Provides grants for development of program framework
and methodology to host countries and Sellers of ER.
• Also covers:
– the management costs of the Facility
– World Bank due diligence, appraisal and on-going supervision
– ER program / ERPA maintenance costs (verification,
modifications to methodology, …)
• Funded by:
– Buyers: an upfront signing and program preparation charge plus
an annual management charge
– Sellers: contribution from ERPA payments
– Donor contributions (ODA)
• CADF can fund activities across CPF tranches.
Seller Participation and ER program operational procedure
Bank
Support
Seller submits a
Program Idea Note
CADF Grant
Agreement
(optional)
- Client executed!
Seller prepares CFD
Buyers’ CFD Nonobjection
-Negotiation Mandate to
Trustee
ER payments
to Seller
PIN reviewed &
approved by WB
and allocated to
Tranche(s)
Seller Participation Agreement
- Includes key terms &
exclusivity
Seller finalizes design
& carbon
documentation
Registration,
ER verification
& certification*)
WB due diligence
Validation*) **)
ERPA(s) with
CPF Carbon Fund
*) In case no applicable regime, PC advises on whom to use for validation & verification
**) Host country endorsement/approval as appropriate
Process for Host Countries
• Government signs a Partnership MoU with the Trustee to
become a Partner.
• As a Partner, the government would:
– Work in partnership with the Bank to identify and develop ER
programs.
– Participate in governance of the Facility in an advisory role.
• May enter into a CADF Grant Agreement to benefit from
technical assistance for:
– Upstream program identification and development – preProgram Idea Note (PIN) stage.
– Specific Program related work on enabling environment.
• Government (or gov. agency) could later become a
Seller Participant by submitting a PIN, and upon PIN
approval signing a Participation Agreement.
CPF-T1 Program Criteria
• Consistency with UNFCCC or Kyoto Protocol, or a
future climate agreement.
• Manageable technology risk: commercially available,
or demonstrated, or at an advanced stage of
development.
• Predicable GHG emission reductions and acceptable
level of uncertainty.
• Broad program types with focus on energy
generation and use, waste management, oil and gas,
transportation, and urban and other themes.
• Underlying Bank financing preferred.
Target timeline & next steps
• Facility is currently open for contributions
– CADF operational once €10m reached (€5 million pledged so
far)
– Target to reach €350m in the Carbon Fund by end of the
calendar year (confirmed participations so far totaling €100+
million)
• PINs can already be reviewed.
• CADF should be operational in December. Small
identification grants and country executed preparation
grants become available.
• Review of regional CPF strategy. EAP should have 3
programs in Tranche 1.
Forest Carbon Partnership Facility
“A partnership to make
REDD happen”
Forest Carbon Partnership Facility (FCPF)
Participants Committee (10 recipients & 10 donors with same rights)
Primary decision making body, including all policy issues
Readiness Mechanism
Carbon Finance Mechanism
Readiness Fund: ~$150 mil.
Funding for REDD Readiness
(capacity building) (2008 - ?):
Carbon Fund: ~$200 million
• Reference Scenario
• National REDD Strategy
• National Monitoring System
REDD = Reduced emissions from
deforestation and degradation
Ad Hoc Technical Advisory Panels
Selection
of REDD
recipient
countries
Payments for Emission
Reductions (not necessary
purchase) (2009 - ?):
• Performance-based
• Verification, reporting
• Registration
Buyer Participants Committee
Participants Assembly (recipients & donors)
Observers (Indigenous People, NGOs, IGOs, privat sector)
FCPF: Objectives and Principles
Objective
To assist countries with (sub)tropical forests to get ready to reduce
emissions from deforestation and degradation (REDD).
Guiding Principles
Partnership:
•
Developing (“REDD”) countries and Caron Fund Participants (donors) are equally
represented on Participants Committee (10+10, equal voting rights)
Country-driven, country-based, voluntary:
•
•
•
•
National strategies for REDD
National reference scenarios
Projects within national accounting approach
(“National” does not mean “governmental” only)
Neutral to climate change negotiations:
•
•
Capacity building & testing of performance-based financial approaches
Learning & dissemination of knowledge
Catalyst:
•
$350m will not save the world’s forests  private sector is needed for scaling up.
FCPF Countries
43 Requests for
Participation
28 R-PINs:
14 selected
in Jun. 08
+11 selected
in Oct. 08
(5 more
to be selected
in March 2009)
South America (8):
• Argentina
• Bolivia
• Chile
• Colombia
• Ecuador
• Guyana
• Paraguay
• Peru
• Suriname
Meso America (7):
• Costa Rica
• El Salvador
• Guatemala
• Honduras
• Mexico
• Nicaragua
• Panama
Africa (17):
• Cameroon
• Central African
Republic
• Dem. Republic of
Congo
• Equatorial
Guinea
• Ethiopia
• Gabon
• Ghana
• Kenya
• Liberia
• Madagascar
• Republic of
Congo
• Senegal
• Sierra Leone
• Sudan
• Tanzania
• Uganda
• Zambia
SE Asia, Pacific (8):
• Indonesia
• Lao PDR
• Malaysia
• Papua New Guinea
• Philippines
• Thailand
• Vanuatu
• Vietnam
South Asia (2):
• Nepal
• Pakistan
+ 3 Brazilian states (Acre, Amazonas, Mato Grosso)
Climate Investment Funds
Public money to jumpstart action
Climate Investment Funds (CIF)
Joining Forces
Features
MDBs have joined forces:
– to establish a portfolio of funds
and deliver financing, that will
– scale up investments to meet
the challenges of climate
change,
– unleash the potential of the
public and private sectors to
address climate change.
The CIFs will:
• complement other multilateral
financial mechanisms;
• avoid pre-judging a future climate
agreement  “sunset clause”;
• prevent proliferation of many
small initiatives;
• provide coherence in financing
investment plans.
Two Funds
• Clean Technology Fund (CTF): scaled-up financing for demonstration,
deployment and transfer of low-carbon technologies with a significant
potential for long-term GHG emissions savings.  US$5.2bn / 4 years
• Strategic Climate Funds (SCF): funding to support various programs
that will test innovative approaches to climate action.  US$0.9bn +
CIF Structure and Governance
Partnership Forum
Clean Technology Fund
Strategic Climate Fund
Trust Fund Committee
Trust Fund Committee
Observers
with equal representation of donors
and recipients
Observers
from relevant
organizations (GEF, UN)
Pilot
Program
for Climate
Resilience
Sub-Committee
Forest
Investment
Fund
Other
SCF
Program
SubCommittee
SubCommittee
www.worldbank.org/cif
Clean Technology Fund (CTF)
Countries that:
• Are eligible to receive development assistance (ODA)
• Have an active program with a multilateral development bank
Investment criteria:
• Country-wide or regional / sub-regional programs
• High GHG abatement opportunities:
–
–
–
–
–
significant GHG savings and/or
demonstrate savings potential at scale
development impact
implementation potential (capacity)
additionality
• Technology-neutral
• Priority sectors:
Power – Transport – Energy efficiency (buildings, industry, agriculture)
Instruments
• Concessional financing (grants, concessional loans)
• Risk mitigation instruments (guarantees)
WBG and GEF Resources
Critical for success
Global Environment Facility (GEF)
• GEF allocated $2.4bn to climate change (1991-2008).
• GEF-4 replenishment: $1bn for climate change over 4 years.
• Objective:
– Reduce GHG emissions through transforming markets.
• Mitigation target:
– GHG emissions equivalent to 400m tCO2.
• GEF-4 strategic programs for financing of mitigation:
1. Energy efficiency in buildings.
2. Energy efficiency in industrial sector.
3. Market approaches for renewable energy.
4. Sustainable energy from biomass.
5. Sustainable, innovative urban transport systems.
6. Management of land use, land use change, and forestry (LULUCF) to
protect carbon stocks and reduce emissions.
World Bank Group:
Leveraging Resources for Climate Change
• The WBG is committed to increase its funding for energy efficiency
and renewable energy investments by 30% per annum.
• In FY08, the WBG approved renewable energy and energy efficiency
projects worth $2.7bn, exceeding the 30% commitment.
• The bulk of funding comes from the the Bank’s own resources
(~2.4bn in FY08).
• Climate change-related trust funds (GEF, Carbon Finance, CIF)
increasingly contribute (~0.3bn in FY08 from GEF and carbon
finance).
• These funds leverage significant public and private investments.
• All funding sources have their own specific objectives and selection
criteria.
• Achieving a maximum mitigation impact requires creating synergies
through bundling of different financial sources.
Synergies
through blending of resources
Synergies in Project Finance
Grant: subsidy for public good
(+)
CF
C
a
s
h
F
l
o
w
Cashflow: payment for
climate service
GEF
Year
CTF
(-)
Concessional investment finance
Synergies in Transforming Markets
Saturation %
Adoption of Low-Carbon Innovation
Market Take-off- Phase II
CF
GEF
Time
CTF
Early Entry-Phase I
Market Saturation or MaturityPhase III
Synergies in Policy Implementation
Incentive Payments
for REDD
FCPF Carbon Fund
Inter alia
Reforms &
Investments for
REDD
Forest Investment Fund
Inter alia, once operational
REDD
Readiness
FCFP Readiness Fund
Inter alia
Project Example 1 – IGCC
(from CTF discussion document)
• Supporting deployment of IGCC technology (Integrated Gasification
Combined Cycle)
– Goal is to reduce the cost of technology through early demonstrations.
• CO2 reductions: ca. 600k tonnes per year
– compared to a business-as-usual scenario
• Total project costs: ca. US$1bn
– Sponsor equity: $160m
– Sponsor debt: to cover remaining gap
– Clean Technology Fund (CTF): $150-200m
– World Bank (IBRD loan): $200m
– GEF (grant): $10m, for preparatory support & technical assistance
– Carbon Finance (CPF): $70m (over 7 years), expected payment for
emission reductions.
Project Example 2 – Wind
(from CPF discussion document)
• Wind Power Development Project
– Goal is to stimulate wind farm development and wind industry.
• 400 MW wind farm starting in 2009
– Wind power not yet cheaper than natural gas use.
• Financing needs:
– Sponsor equity: $270m
– Tariff policy support: create feed-in tariff at attractive rate –
qualifies for GEF support of up to $10m)
– Concessional finance: for investment itself – qualifies for CTF
support of up to $225m)
– Carbon Finance (CPF): guaranteed off-take payment for emission
reductions (0.9m tCO2 for ~ $9-20m annually)
Synergies exist between CTF, CPF, and GEF
• Objectives are similar
• Project activities are similar
• Instruments are compatible
– CTF & CPF fit together well
– CTF and GEF completment each other
– CPF & GEF can work but will require some care
…but use with some caution
• GEF payments to support investment need to be firewalled
against investments resulting in carbon off-take agreements
– Otherwise, both GEF and CF would claim credit for same avoided tonnes
of GHGs
• Current GEF policy:
– GEF can demonstrate, CF can replicate.
– GEF can guarantee, if guarantee is called, carbon credits are forfeited.
– GEF support for land degradation or biodiversity projects can result in
biocarbon credits, if GEF is not used to pay for transaction costs.
… towards climate friendly development
• Synergies between climate financial instruments can be exploited either in
simultaneous or sequential programming.
– Requires forethought and understanding.
– Improves both efficiency and impact of financing.
• There are also synergies between financing climate projects and funding for
other public goods:
– GHG emissions (“Kyoto”) and ozone depleting substances (Montreal Protocol)
– REDD (UNFCCC) and protection of species (Biodiversity Convention)
– Energy efficiency (climate change) and better air quality (smog)
• Climate protection is a long-term commitment. The efficient and effective
use of climate finance instruments requires:
– A stragegy for bundling and processing of financial flows from different sources.
– Consideration of, and funding for, public co-benefits from climate projects.
– Integration of climate finance with development planning and policy making
under climate change and sustainable development constraints.
– Recognition of the potential role of climate finance in World Bank strategy
documents, e.g. Country Assistance Strategies.
More information
http://www.carbonfinance.org
http://www.worldbank.org/cif
http://www.thegef.org
[email protected]
Thank you!