Agriculture as _ of GDP 1993

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					        World Bank
    involvement in GIS
       development

             Oleksandr Filonenko
Carbon Finance Business Consultant, WB Ukraine office
                 25 April, Budapest

                CEU/REC Workshop
          What is GIS?

A voluntary mechanism established by the
selling country to assure buyers that
proceeds from AAU trade will finance
bilaterally agreed environmental projects
and programs through and beyond 2012.
             Market Realities
   CDM and JI not expected to deliver all
    compliance needs
   Demand for 400-2000 million AAUs
    • If Canada remains out of the international
      market, likely in lower end of range
   Supply: at least 3 times larger
   Implications:
    • Likely to be a buyers’ market
    • Sellers may have to be price takers, however
      Ukraine and Russia can have more impact on
      trade terms than others
    • Early movers could have advantage
        JI Projects vs. GIS
   Kyoto Protocol Rules            No Kyoto Protocol rules
   Direct “GHG reduction/          No direct “GHG reduction/
    ERU” -link                       AAU traded” -link
   Project by project              Programmatic/sector wide
   ERUs issued after actual        AAUs can be traded ahead of
    GHG reduction                    physical GHG reduction
   P & P sector market             Market mainly governments
   ERU fully fungible              AAU limited fungibility
   Direct transaction between      Financial intermediary or
    seller and buyer                 fund structure used
   no conditions on revenue        Scope and terms of revenue
    use                              use negotiated bilaterally
   Payment on ERU delivery         Flexible financing schemes
   Revenue stream until 2012       Revenues possible post-2012
   Large number of projects        Less experience. WB
    under implementation             supports market
                                     development
    Buyers’ and Sellers’ Concerns
   Transparency
   Accountability
   Efficiency, clear procedures/criteria
   Environmental integrity
   Robustness
   Legal authorization for trading AAUs
   Price
              Green Investment Scheme:
              Generic structure and financial flows
                       Greening reports
      AAU                                                        Host
     buyers                AAUs                               Government
                                            $
                                                                  $


                                  Special budget arrangement

                Supervisory/Invest
                   ors’ Board                           $
                                                                      Verification of
                                                                      environmental
                     Financial                                           results
                     instrument


         $



Investment            Energy supply
financing              Industry
• Equity        $                               emission reductions/environmental benefits
  investors              E Eff. buildings
                          Other: “hard”
• Banks                   and “soft”             2008                     2012          2020
        Negotiation and Pricing
             Mechanism
   Auctioning
    • Politically more acceptable, transparent
    • However, works best if well developed market
      and large number of potential buyers
   Bilateral negotiations
    • Works best in particular for pilot phase
   Hybrid solutions
    • E.g. pre-screening or tendering of EoI from
      buyers against a minimum price and other
      criteria
        Options for Revenue Use
   Climate change mitigation investment projects
    across sectors
   Reduction of local/regional pollutants
   GIS management, monitoring, verification,
    reporting
   Technical support to project developers
   Policy development, market barrier removal,
    education?
   Adaptation to climate change?
   Biodiversity conservation?
    World Bank Support for GIS (1)
   Analytical work (GIS options studies in Bulgaria,
    Latvia, Ukraine)
   Technical assistance for development of institutional
    and regulatory framework for AAU trading (paid by
    the Bank for Ukraine and reimbursable for Latvia)
   Grants for preparation of green investment schemes
    (Japanese trust fund grants for Ukraine and Russia)
   Underlying finance for GIS projects (build GIS
    windows around lending products)
   Purchase of greened AAUs via carbon funds’
    participants including the CPF
   Securitization of AAU receivables (potentially in
    future)
    World Bank Support for GIS (2)
   Ukraine: GIS Options Study 2007. WB T/A and
    PHRD grant work will be completed by the end of
    2008. The GoU has indicated its strong interest in a
    pilot transaction, and that the WB is welcome as a
    participant;

   Latvia: GIS Options Study 2007. WB T/A to
    support implementation will be completed in late
    2008. Negotiations with several buyers on a pilot
    transaction are underway. Since the WB provided
    fee-based TA for the preparation/implementation of
    the GIS the WB will not participate in the pilot
    transaction.
    World Bank Support for GIS (3)
   Bulgaria: GIS Option Study in 2004. WB has
    discussed provision of a loan to finance AAU
    greening activities. The GoB’s position on the sale of
    AAUs is not yet confirmed;

   Czech Republic: Became eligible for AAU transfers
    in February 2008. No direct WB support for GIS but
    strong relationship through long cooperation on GEF
    and JI. The GoCR has indicated its interest in a WB
    purchase of AAUs and some TA for GIS
    development. The first target GIS activity might be
    energy efficiency in the residential sector;
    World Bank Support for GIS (4)
   Hungary: Became eligible for AAU trading
    in December 2007. No direct WB support for
    GIS. The government has indicated its
    interest in a transaction with the WB’s
    carbon funds. The first target GIS activity
    will be energy efficiency in the residential
    sector.

   Russia: PHRD grant for the Russian GIS was
    launched in January 2008; huge greening
    potential, but not likely to be a quick mover.
    World Bank Support for GIS (5)

   Romania: The WB has discussed loan
    support for a low carbon investment facility
    that could include AAU transactions as one
    financing tool;

   Poland: The Government is interested in
    discussion a potential transaction with WB. A
    GIS forum (workshop) is being organized
    and will be held in Warsaw in June.
               Ukraine and GIS
   National Environmental Investment Agency of
    Ukraine was established in April 2007. Currently
    gains political weight, and becoming a key authority
    on emissions trading
   Ukraine will become eligible for GIS and JI Track 1
    after April 29th, 2008
   Pilot AAU transaction is under preparation; the
    procedure for this transaction is adopted by GoU on
    March 19, 2008, however conditions will still be
    negotiated individually with concrete buyer(s)
   Trading of greened AAU will be available after the
    Law on GHG Regulation will be re-drafted and pass
    the Parliament
Possible GIS Projects in Ukraine
   Large potential for GHG reductions, but
    shortage of investment and incentives
   Sectors with large GHG emissions and a
    large reduction potential:
    •   Fuel extraction, transport and processing
    •   Iron and steel production
    •   Power and heat production
    •   Industrial energy use
   Opportunities are also with end-users:
    • Residential sector
    • Transport sector
   Forestry
      Carbon Partnership Facility
    CPF – long-term carbon trading platform for buyers
    and sellers with flexibility to current and future
    climate policy regimes, and scale of carbon
    abatement activities
   Approved by WB Executive Board on Sept. 25, 2007
   Focuses on large-scale and long-term activities
   Taking a sectoral/ programmatic approach to asset
    development
   Minimum required starting capital: 0.5 billion USD
   Operation will start as soon as minimum funds are committed
    by buyers (expected 4Q/2008)
   Encompasses ER trading for at least 10 year period beyond
    2012
   CPF structure will contain:
     Carbon Asset Development Fund
     Carbon Fund
  Generic Selection Criteria for
         CPF Programs
1. Priority sector
    - for Ukraine and in accordance with WB Country
    Partnership Strategy
2. Partner reliability
    - Committed towards program implementation
    - Capable to implement program or attract technical
       capacities externally
3. Manageable risks
    - Ability to generate steady flow of emission reductions
    (ERUs, AAUs, VERs, RMUs) over a long period of time
    - Political “green light” at local and state level
    - Absence of environmental and other externalities
4. Robust financing plan
    - Access to investment
    - Carbon finance disbursements based on ERPA
                             GIS and CPF
                                       GIS                                CPF
Possible        CPF + Forestry                               Energy Generation, Energy
Target                                                       Efficiency, Waste
Sector                                                       Management, Oil and Gas,
                                                             Transport
Target          The Host Country (and Project entities of    Private and Public Sector
Partners        the activities eligible for the GIS)

Type of         Program and/or Projects                      Mainly Program
Approach
Role of the   Commitment to establish and implement          Commitment to develop one
Host Country transparent and accountable GIS and sell        or more programs for the CPF
                AAUs to the buyers (MoU, AAUPA)              and to sell ERs to the CPF
                 Establishment of regulatory, budgetary     (LOI, ERPA)
                and administrative frameworks                 Establishment of the criteria

                 Selection of the target projects/program

                 Verification and Monitoring

                   Transfer of AAUs
Immediate       The government of the Host Country or        Partners including the
Recipient of    authorized institution(s)                    government of the host
Carbon                                                       country
Revenue
      Thank You!

           OLEKSANDR FILONENKO
Carbon Finance Business Consultant, Ukraine CO
      E-mail: ofilonenko@worldbank.org

				
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