““Making the Carbon Market work for

Development FinanceDevelopment Finance”

ADB Carbon Market ADB Carbon Market

ProgramProgramBruce Dunn

Environment Specialist

GEF Carbon Finance Meeting

15 November 2010, Washington, D.C.

Source: Point Carbon

Growing Carbon Market

(Forecast)

However…However…

  2008 2009 2010 2011 2012

  Final figures Final Figures Forecast Forecast Forecast

  Mt € m Mt € m Mt € m Mt Mt

EU ETS total 3,091 66,993 5,386 69,374 5,350 95,165 6,140 6,950

OTC 1,816 40,048 2,313 30,112 2,300 41,400 2,600 3,000

exchanges 1,152 25,488 2,851 37,110 2,800 50,400 3,300 3,700

auctions 42 965 78 1,019 90 1,620 70 60

options 80 492 144 1,134 160 1,745 170 190

CDM total 1,609 24,172 1,590 17,520 1,770 21,781 2,160 2,520

primary 549 6,039 304 2,548 240 2,160 170 130

secondary 1,037 17,943 1,252 14,776 1,490 19,370 1,940 2,330

options 23 189 34 196 40 251 50 60

JI 72 720 44 399 55 440 40 25

AAU 43 330 138 1,379 125 1,250 30 10

RGGI 71 178 765 1,773 985 1,590 1,085 985

Other total 34 119 75 284 110 440 110 120

Sum 4,920 92,511 7,998 90,729 8,395 120,666 9,565 10,610

Global CDM Slowdown?

Source: Point Carbon

Kyoto Protocol commitments ending in 2012; no agreed

international framework yet on post-2012

Lack of long-term price signal to give incentive for

economies to invest in low-carbon alternatives

Lack of investment/equity – carbon market contributing

to cash flow of approved projects, but rarely contribute

to project financing

Issues

?

Year: 2009 10 11 12 13 14 15 16 17 18 19 20 21

ProjectApproval

ProjectCompletion

Car

bo

n C

red

it V

olu

me

Issue 1: Post-2012 Uncertainty

Few buyers

End of Kyoto Commitments

Emission reduction portfolio (e.g. 10 year period)

Source: UNEP Riso Centre (March 2010)

Issue 2: CDM adds benefit to entities with (access to) funds in the

first place?

Distribution of CDM Projects by Scope(Registered as of July 2010)

ADB Carbon Market Program

Overview

ADB’s Climate Change Program

Finance Knowledge Partnership

Scaling-up Clean Energy

Encouraging Sustainable Transport and Urban Development

Managing Land Use and Forests for Carbon Sequestration

Strengthening Policies, Governance and Capacity

ModalitiesModalities

Pri

ori

ties

Pri

ori

ties

Promoting Climate-resilient Development

CMP

Carbon Market Program

Carbon Funds

1. Need underlying finance

2. Require carbon market technical support

3. Desire highest prices/best conditions for CERs

4. Seek upfront payment for credits to fill finance needs

Consultation in DMCs (2005-2006)

Question: “What do you need to scale up Question: “What do you need to scale up

low-carbon projects?”low-carbon projects?”

ADB long-term finance

Expert technical team

Dedicated credit marketing service

Carbon co-finance vehicle: Carbon Funds

Ongoing ADB Climate Change Projects Ongoing ADB Climate Change Projects (Sample)(Sample)

Underlying Finance:Ongoing projects (sample)

Country Project Type

Indonesia Geothermal power

India Wind power

Lao, PDR Small hydropower

Bangladesh Waste composting

China, PR Geothermal space heating

Pakistan Hydropower

Philippines Energy-saver bulb distribution

Thailand Biomass power

Mongolia Boiler efficiency improvement

Uzbekistan Small hydropower

China, PR Urban transport system

Upstream support in project preparation phase

Due diligence: technical, financial, legal, safeguards, governance

Capacity building trainings

Carbon credit valuation

Documentation preparation for credits (PIN, PDD, methodology)

Obtaining host country approvals

Facilitating project Validation & Registration

Downstream support in project execution and commercialization

Implementation / commissioning

Monitoring & Verification

Certification & Issuance of CERs to sponsor/developer & fund

Technical Support for CDM

Integrate Carbon Credit Valuation

Lower Additional Transaction Costs

General Project

Analyses

Additional

Analysis for

Potential

Emission

Reduction

Projects

Credit Marketing Facility

Terms of reference and fee structure pre-negotiated with

ADB; contracts directly with project entity as “seller’s

agent” to find best offer from buyers

Agents are only allowed to collect fee from the seller in

percentage terms of actual funds transferred from the

buyer to the seller

Currently retained agents

TFS Green: 2-3.5% charge depending on project size (in CER

volume)

CM Capital Markets: 1% charge regardless of project size

CMF Agents

Asia Pacific Carbon Fund (APCF) for credits up to end

of 2012, and Future Carbon Fund (FCF) for post-2012

Co-finances projects alongside ADB to help fill project

financing gap

Purchase of credits generated from now up to 2020

Can purchase 25-75% of expected carbon credits on

upfront payment basis and the remaining credits via

payment on delivery

Lower transaction cost if debt/equity financier is ADB

Carbon Co-Finance: Carbon Funds

Certain funds today, for commodity with uncertain

value in the future

Reduced budget commitments to close the financing

plan of projects

Comprehensive technical and implementation support

Extra credits from successful project implementation

can be marketed with ADB support for further financial

upside

CMP Summary: Main Advantages for Project Developers/Sponsors

Tech-transfer CDM to accelerate the transfer and diffusion of energy-efficient equipment/appliances and other clean energy technologies using CDM

Broadening the Regional Distribution of CDM through capacity building and project identification/development seminars in collaboration with IGES and UNFCCC Secretariat

Asia-Pacific REDD financing as part of the global REDD partnership (led by the World Bank FCPF and UN-REDD); possible future public-private regional REDD carbon fund

Other Ongoing Initiatives

THANK YOU!

Bruce Dunn / Toru Kubo

bdunn@adb.org / tkubo@adb.org

Regional and Sustainable Development Department

General inquiries: adbcdm@adb.org