Development and Climate Change A

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					Development Finance and Climate Change:
  A Strategic Framework for the World Bank Group

               Michele de Nevers
    Senior Manager, Environment Department
                The World Bank
                  September 19, 2008

    Climate Change is a Development
• Addressing climate change is critical to development and
    poverty reduction
•   Asymmetry of impacts and causes: poorest countries
    and communities will suffer earliest and most – rich
    countries made largest contribution
•   Increasing energy access remains critical
•   Unprecedented scale of solutions needed for finance,
    technology, capacity
•   Unprecedented global cooperation necessary
        • Adaptation – key for developing countries
        • Mitigation – global imperative
• Leadership by developed countries required as per
Developing Countries Most At Risk:
Climate Threats
Drought       Flood           Storm         Coastal 1m             Coastal 5m            Agriculture
                                           All low-lying Island   All low-lying Island
  Malawi     Bangladesh      Philippines                                                        Sudan
                                                  States                 States

 Ethiopia      China         Bangladesh         Vietnam              Netherlands            Senegal

Zimbabwe       India         Madagascar           Egypt                 Japan              Zimbabwe

  India       Cambodia        Vietnam            Tunisia             Bangladesh                  Mali

Mozambique   Mozambique       Moldova          Indonesia              Philippines               Zambia

  Niger         Laos          Mongolia         Mauritania                Egypt              Morocco

Mauritania    Pakistan          Haiti             China                  Brazil                 Niger

  Eritrea     Sri Lanka        Samoa             Mexico               Venezuela                 India

  Sudan       Thailand         Tonga            Myanmar                Senegal                  Malawi

   Chad       Vietnam          China          Bangladesh                  Fiji                  Algeria

  Kenya        Benin         Honduras           Senegal                Vietnam              Ethiopia

   Iran       Rwanda            Fiji              Libya                Denmark              Pakistan

             Low Income
             Middle Income                                                 Source: World Bank
 Energy Access and Low Carbon
• Providing Energy Services for A Better
    Quality of Life
• Worldwide, nearly 2.4 billion people use traditional biomass
    fuels—wood, agricultural residues, and dung—for cooking
    and heating
•   Nearly 1.6 billion do not have access to electricity.
•   Four out of five people without access to electricity live in
    rural areas
•   Without access to modern and sustainable energy services,
    poor people are deprived of opportunities for economic
    development and improved living standards.
Climate Change is not new for the World Bank

• 1993      Began implementing / leveraging GEF
            funding for climate change
•   1999    Pioneered Carbon Finance through $180
            million Prototype Carbon Fund
•   1999    ”Fuel for Thought” Environment Strategy
    for     the Energy Sector
•   2001    Adopted Environment Strategy with
            climate change pillar
•   2006-08 Clean Energy Investment Framework
          – (i) increased access to energy, especially in Sub-Saharan Africa; (ii)
            accelerated transition to a low carbon energy economy; and (iii)
            adaptation to climate variability and change.
• 2007         IDA and Climate Change Paper
• 2008         Strategic Framework
          – Regional strategies
Recent progress in climate change

• Energy portfolio has grown (from $6 billion in
    FY03–05 to $11 billion in Fy06-08); low carbon
    share up from 28% to 40%
•   Carbon Finance business grown to $2 billion, with
    two new facilities approved
    – Carbon Partnership Facility
    – Forest Carbon Partnership Facility
• Low carbon growth and adaptation studies; WDR
• Pilot program to begin measuring GHG emissions
    of the WBG lending portfolio is underway; shadow
    price for carbon
 The Development Challenge
To ensure robust economic growth and development
  progress in poorer countries despite:

• Added costs and risks from climate change…
   – Additional hundreds billions of dollars per year to tackle the problem
   – Unabalated, threatens to reverse development gains
• Asymmetric impacts…
   – highest for poorer countries that contribute least to the problem
• Continued disparities..
   – in GDP and energy use per capita among developed and developing
     countries for decades
• …and the lack of decision making framework
   – to address multiple uncertainties, and spatial and temporal trade-offs
     over the very long term
          The Political Challenge
A very complex and difficult UNFCCC process due to:

• Unprecedented scale of solutions needed for
    finance, technology, capacity
•   Unprecedented global cooperation necessary
    – Concerted action by many countries
    – Leadership by developed countries
    – Transfer of finance and technology to developing
      countries (likely exceeding the development assistance
      to date)
• Unprecendented political will to make it happen
Objectives of the Strategic Framework
 1. Enable the WBG to effectively support
    sustainable development and poverty
    reduction at the national, regional, and
    local levels, as additional climate risks
    and climate-related economic
    opportunities arise.
 2. Exploit the WBG’s potential to facilitate
    global action and interactions among all
        Guiding Principles - I
• Priority of growth, energy access, and MDGs in
  developing countries
  – Resources should not be diverted form core
    development needs
• Country-led approach
  – ―No regret‖ actions with robust benefits to developing
    countries under any future climate policies and impacts
• Primacy of the UNFCCC process
  – neutrality to negotiations while contributing through
    knowledge and practical examples
• Working in strategic partnerships to achieve
  global impact
Guiding Principles- II
• Inform and support - not override - the
  development objectives of operational strategies
  by WBG entities
  – Facilitate synergies
• Customized support per client demand
• Focus on learning and capacity building
  – including learning by doing
• Flexibility to accommodate new developments in
  negotiations and knowledge
  – Key actions and indicators for FY09 – FY11
  – Interim progress report in 18 months
          Six Areas for Action
1. Support climate actions in country-led
     development processes
2.   Mobilize concessional and innovative finance
3.   Facilitate the development of innovative
     market mechanisms
4.   Leverage private sectgor resources
5.   Accelerate the development and deployment of
     new technologies
6.   Step up policy research, knowledge and
     capacity building
1. Support climate actions in
country-led development processes

• Strengthen resilience of communities and
  economies to climate risks
  – water, agriculture, DRR, social and HD dimensions
• Capture full range of sustainable development
  benefits: social, economic, environmental, from
  local to global
  – forest management, urban development, CZM
• Take advantage of low carbon growth
  – energy, transport, end-use EE
2. Mobilize concessional and
innovative finance
 • Learn and share lessons from Climate
     Investment Funds
 •   Ensure strong IDA performance to help meet
     MDGs and leverage new and additional financing
     for climate resilience
 •   Increase complementarity and effective use of
     all instruments at WBG disposal
 •   Contribute to the development of the global
     climate financial architecture and monitoring of
     financial flows to developing countries
3. Facilitate the development of
innovative market mechanisms

 • Deepen reach of carbon market
   – including benefits to local communities
 • Increase customized application of climate
   risk insurance
 • Put capital markets to work for climate
                        Available Resources
(Total Needs est.                         Carbon Market:
$170bn+ / year)            GEF                CDM&JI              World Bank                   both
                        $ 0.25 blln         < $ 8 billion            Group
                         for FY09            for FY09             (IBRD/IDA/
             GEF                                                  IFC/MIGA)
          $ 0.25 blln                                             $1.9 billion
                                                                    for FY09           Climate Investment
                                                                                         Funds by MDBs
    Adaptation                                                                              $ 6 billion
                                        Main Resources
   $ 0.3-0.5 blln                          to address
                                        Climate Change
             UNDP                                                               Other MDBs
        $ 0.09- 0.12 blln                                                        $3 billion
         for adaptation                                                          for FY09
                      Global Climate                               Private
                      Change Alliance                              Donors
                        € 0. 3 blln     GFDRR
                                                      Donors         $?
   Adaptation                           $ 0.07 blln
 (Total Needs est.                                                           FY09 estimates are projections

                                        Huge Gap
 $28-67bn / year)
  Climate Investment Funds
• Transformational impact at scale
• US$6 billion target
• Clean Technology Fund
  – contribute to demonstration, deployment, and
    transfer of low-carbon technologies
• Strategic Climate Fund
  – pilot new development approaches or scale-up
    activities aimed at a specific climate change challenge
    or sectoral response through targeted programs
     • Pilot Program for Climate Resilience
• Equitable governance and decision making

                                     Carbon markets
                                                           Kyoto framework
                                                           EU ETS (domestic)

                                                           Kyoto signatories
                                                           outside EU ETS
                                                           Annex I countries with
                                                           economies in transition.
                                                           Potential JI countries

                                                           Non Annex I countries.
                                                           Potential CDM host

         Non-kyoto voluntary initiatives

      Regional Greenhouse Gas Initiative (RGGI)
      States in the Northeastern United States have also
      passed carbon regulations for stationary sources
      Western Regional Climate Initiative
      California is also a leading participant in a
      regional initiative to reduce its emissions.

Source: Element Markets
           Kyoto Compliance Market (US$ million)                          Voluntary Market (US$ million)

     Project-Based                               Allowance                                              Voluntary &
     Transactions                                 Markets                                                  Retail
                                                                     Chicago Climate
        CDM                                                             Exchange
                                           EU Emissions
        7,400                                Trading                Source: State and Trends of the Carbon Market 2008
                                              50,100                      NORTH AMERICAN INITIATIVES
                                                                     State/Provincial level
                                    New South Wales                  Western Climate Initiative (WCI,
                                      Certificates                   Western US/Canadian states, incl
   Secondary                                                         California): 15% reduction by 2020.
      CDM                                 220                        California to reach 1990 levels by 2020.
     ± 5,500                                                         Regional Greenhouse Gas Initiative
                                                   EU ETS            (RGGI): Similar but less ambitious cap-
                                     2005-07: EU ETS market @        and-trade initiatives in the Midwest and
                                     US$85 billion of which          North-East US States.
           CDM                       US$50 billion in 2007 alone.    US Federal level
 2002-07, cumulative
                                                                     Both Presidential candidates favor deep
 commitments in                            AUSTRALIAN ETS            cuts: prospects for legislation ?
 CDM: US$15.5
 billion.                            Draft carbon trading scheme

Source: State and Trends of the Carbon Market 2008, Reuters 2008    Source: Natsource 2008
4. Leverage private sector
• Continued support to improving overall
    investment climate, and enabling environment
    for EE and RE
•   Use IFC, MIGA and IBRD guarantees more
•   Package traditional instruments with climate
•   Use customized applications to support
    underserved clients such as municipalities and
5. Accelerate the development and
deployment of new technologies
• Scale up CGIAR work on agriculture technology
•   Maximize opportunities provided by Clean
    Technology Fund and GEF/IFC Earth Fund
•   Support clean technology development:
    – IFC preparing strategy for investing in clean
    – The Bank is designing a program using successful
      innovation models from other sectors (including
      CGIAR) –by end calendar 2008
6. Step up policy research,
knowledge and capacity building
• World Development Report on climate change (Nov 2009
•   Work with UN and OECD partners to strengthen
    monitoring and reporting on progress with global climate
    – including Bank global monitoring reports such as WDI
• Build country-specific and global knowledge of additional
    cost of adaptation and low carbon growth
•   Develop methods to analyze climate risks and GHG
    emissions at the project level
•   Expand training and knowledge sharing on climate –
    development linkages
              GHG analysis
• WBG-wide initiative
• Builds on existing applications
    – GEF and CF projects, some WB clean energy projects, IFC
      projects exceeding 100,000 ton of CO2 per year
• Expands to a larger pool of projects for learning and
    capacity building purposes
•   Focus on facilitating access to additional climate financing
•   Not to be used for decisions about the use of traditional
    WBG instruments
•   WB –pilot projects in energy, transport and forest sectors
    on a demand basis; IFC – progressive application building
    on existing Performance Standard 3
Examples of Actions and Indicators
                          2009 ~ 2011
• Screening is applied for:
    – climate risk in hydropower and other water investments with
      long life spans
    – energy efficiency opportunities, starting with energy projects
• Forest Carbon Partnership Facility and Carbon
    Partnership Facility operational
•   Climate Investment Funds capitalized and operational
•   Guarantees and climate risk insurance products in
    greater use
•   Increased support to sustainable forest management,
    agriculture and food production, and sustainable energy
    transport and urban development investments,
•   Global knowledge products on climate action
Examples of Actions: Energy Sector
• Financing for EE and new RE increases by average of
    30% per year
•   Expanding hydropower program
•   Helping reduce GHG intensity of fossil fuel use
•   Continued support to energy sector reform and price
•   Share of ―low carbon‖ projects reaches 50% by FY11
    (from 40% achieved under CEIF)
    – Majority of other projects are access, sector reforms, T&D
• Energy Strategy (FY10) will articulate WBG approach to
    various forms of renewable and non-renewable energy
    – including possible support to economic analysis and regulation
      for nuclear power
To conclude…
• A successful global climate policy can – and
  should – provide new economic opportunities to
  developing countries

• New and innovative financial instruments are
  necessary to achieve climate smart development

• The Startegic Framework aims to position the
  WBG to effectively contribute to a successful
  solution and quickly scale-up support once it is

                                …thank you.