World Bank Carbon Finance Experi

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World Bank Carbon Finance Experi Powered By Docstoc
					World Bank Carbon Finance Experience,
       Strategy and New Funds

   Workshop – How to develop CDM
     projects in Central America,
          March 27-28, 2003

          Rodrigo Chaparro
                     Nature of Carbon Finance Projects

                                   Investor               Banks

                              Equity                              Debt

        Promote Sustainable
                                                                    Power Purchase Agreement

                                                   $$                               Main Product
    $                $                                                              e.g: electricity

        Carbon                     Credits
         Fund                                Emission Reduction
                                             Purchase Agreement
2                2
         Bank Carbon Finance Business
              Family of Products
• PCF as “flagship”: $180 million
• Netherlands Clean Development Facility – CDM only,
  $30 million/year over 2002-2005
• Community Development Carbon Fund (CDCF): to
  start May/June 2003 at $40-50 million
• BioCarbon Fund (BioCF): to start by Sept 2003 at $30-
  40 million
• Climate Neutral Bank; starting March 12th

       PCF Shareholders
         ($180 million)

Public Sector (6)
Governments of Netherlands, Finland, Sweden,
Norway, Canada, and Japan Bank for
International Cooperation
Private Sector: (17)
RWE - Germany, Gaz de France, Tokyo Electric
Power, Deutsche Bank, Chubu Electric, Chugoku
Electric, Kyushu Electric, Shikoku Electric,
Tohoku Electric, Mitsui, Mitsubishi, Electrabel,
NorskHydro- Norway, Statoil -Norway, BP,
Fortum, RaboBank, NL
 Bank’s Carbon Finance Business at a Glance

• Value of Emissions Reductions Purchase Agreements (ERPAs)
        negotiated: 15, $38m
• Number and value of approved PCF projects: 28, $119.2m
• Number and value of NDCF projects: 13, US$ 157.1m
• Total estimated investment in 30 approved projects: US$ 1.081 billion

              Most Important Findings
1.   Regulatory uncertainty remains post-Marrakesh:
     •   CDM Executive Board still to review and approve methods for carbon asset
     •   No Entry into Force of Kyoto Protocol
2.   CDM/JI Carbon Asset Creation remains complex and lengthy: lead times
     of 3-7 years for project design through delivery of first ERs.
3.   Private Sector is not buying directly in CDM/JI on a significant scale
4.   Capacity Building is Urgent
     •   first carbon purchase in each country and sector is key to build awareness
     •   Carbon finance and TA for capacity building must go hand in hand to support
         carbon market development
5.   Small projects and hence smaller countries and poorer communities will
     lose out unless risks and costs are managed by intermediaries, despite
6.   LULUCF – Sink Assets are high value to sustainable development but
     poorly understood and at risk as an asset class                        7
                                             Carbon Finance flows 2001-2002

       Volume of ER Projects (MtCo2e)



                                         8                                                                           Asia


                                                          USA                                                        Latin America
                                               Annex II               JI Countries                      CDM Countries
Source: Authors’ own calculation, based on transaction database assembled with Natsource, and PointCarbon
Certifying Sustainable Development Outcomes

• Bank has shown that it is feasible and cost effective
  to create and certify local environmental and
  community development benefits along with carbon
• Examples from PCF:
   – Colombia Jepirachi Wind Power Plant (19MW) also
      • potable water,
      • electricity for schools/clinics and
      • small fishing port for local indigenous peoples;
   – Plantar Project in Brazil (23,400ha fuelwood plantation)
     also certifies:
      •   Worker health improvement
      •   ABRINQ certification of no child labor or exploitation
      •   Biodiversity benefits                                    9
      •   FSC certification of improved forest management
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: $ 40K

                                                                    Baseline Study and Monitoring
                                                                    and Verification Plan (MVP)
                                                                       • Baseline : $20 K
 Periodic verification &                                               • Monitoring Plan: $20K
   • Verification: $10-25 K
   • Supervision: $10-20K
                                                                    Validation process
                                                                    • Contract, Processing
                                                                    •and documentation: $30k

   Construction and start up                            Project Appraisal and Negotiation
     • Initial verification at start-up: $25K           • Consultation and Project Appraisal: $105K
                                                        • Negotiations and Legal documentation: $50K

                                                Total through Negotiations
                                                 • All expenses: $265 K                                10
Impact of Carbon Finance on FIRR
  Technology                     DIRR
  Hydro                          0.8-2.6
  Wind                           1.0-1.3
  Bagasse                        0.4-3.6
  Energy Eff.-District Heating    ~ 2.0
  Gas Flare Reduction              2-4
  Biomass                          2-7
  Municipal Solid Waste           5-10
World Bank Carbon Finance Strategy:
Carbon Finance Beyond PCF
1. Expand Carbon Market Development
   Provide First-of-a-kind opportunities: Introduce more
    countries and companies to carbon market
   Benchmark carbon asset creation and Crowd-In private
    sector: Increase certainty and lower entry barriers
   Expand access to CDM/JI assets in early market: Bank
    intermediation is critical to expand supply
2. Strengthen TA/Capacity Building
3. Demonstrate credible forestry/agriculture “sinks”
4. Open Markets for small projects and small countries:
5. Build Credibility in AAU Market: Greening of AAUs 13
• Small projects are burdened by high transaction
• Small and poorer countries will miss out on private
  sector carbon finance
• Need special efforts to:
  – mitigate risk, bundle small transactions
  – standardize both CDM/JI requirements and business
• Carbon Sequestration has important rural development, poverty
  alleviation, sustainable natural resource management and global
  environment implications
• PCF carbon sinks projects demonstrate how to create and certify
  biodiversity improvements and contributions to rural welfare, but
  PCF can only do 3-4 projects
• Need dedicated fund to demonstrate and benchmark carbon sinks
  assets in support of sustainable agriculture and forestry, watershed
  management and biodiversity conservation.

Benchmarking and Securing Supply of High
   Quality ERs includes….
 • Reducing Risk and Uncertainty in Supply: Preparing
   Standardized baselines/monitoring plans for replicable
   carbon projects which lower risk in carbon asset creation
   for host countries and buyers
 • Greening “Hot Air”: helping transition economies
   market their assigned amount units by helping design
   investment programs which utilize revenues from AAU
   sale to invest in clean technology to create actual
   emissions reductions

   Carbon Finance Strategy: Summary
• Respond to Host Country demand for carbon finance
• Extend carbon finance to the smaller, poorer countries
  and rural communities
• Demonstrate carbon finance for carbon sinks
• Strengthen and expand capacity building for mitigation
  and adaptation
• Explore practical arrangements for “greening” AAUs
• FY03 business plan targets:
    negotiated ERPAs, $155m (PCF on track; NCDF ahead);
    cumulative approved projects for negotiation, $250m;
Benefits to New Funds Participants
 High quality ERs for compliance and trading
 Cheaper: expertise of established carbon finance
  team at incremental cost
 Risk mitigation via diversification, hedge future
 Knowledge of carbon asset creation, market
  intelligence: internships, training, advice
 Marketing: Corporate social responsibility
 Origination Options: Bring projects to fund
 Parallel Purchase: Access to additional CO2e to
  grow carbon portfolios at low risk and effort       19