CLIMATE EFFICIENT INDUSTRIESYerevan, Armenia

Etienne Kechichian

October 1, 2015

Industrial resource use will increase in the coming decades, particularly in Asia.

Meanwhile the resources are increasingly inter-linked and resource prices are becoming more volatile.

Industries are challenged by…

Firms can address various market failures through green measures and investments.

Growing consciousness among international buyers for green products and services

A global survey by EY (of 257 executives from $1bn plus corporations) conducted reveals 50% organizations are implementing some form of green minded supplier qualification, 39% have plans which means 91% of firms will evaluate suppliers based on environmental sustainability practices.

Energy/Resource Security Firm Preference Consumer Preference

52%

45%

44%

41%

40%

37%

35%

32%

27%

26%

0% 20% 40% 60%

Reducing costs

Increasingprofitability

Governmentmandates

Corporate socialresponsibility

Reducing carbonemissions

Pressure fromcustomers

Price of fossil fuels

Public opinion

Pressure fromsuppliers

Enhance brand

Top 10 factors that are driving the demand for green

investments from businesses

Target to reduce industrial GHG emissions by 1.2 million tons/ year by 2020 Have saved firms and governments over $4 million in operating costs in the textile

sector

20% of GHG emissions from industries; 10% residential Existing technologies can save $600 billion a year for consumers and businesses CEI helps lower operating costs and mitigate environmental/ resource linked risks Set up in 2013, CEI is WBG response to climate change and environmental

challenges in industries

Standards & Incentives Priority Sectors Industrial Areas

Climate Efficient Industries

Green buildings Industrial equipment Appliances

Textiles Cement Cleantech

Eco-industrial parks Low-carbon zones Climate-resilience

Climate Efficient Industries

Global portfolio

3

4 Pipeline Projects

18 Active Projects

2 Closed

Egypt –Industrial Energy

EfficiencyJordan

Competitiveness and Investments

Bangladesh –Partnership for

Cleaner Textiles

Bangladesh Low-carbon Zones/

PSPSDVietnam Industrial

Resource Efficiency

Pakistan –Punjab Energy

Guatemala -Enhancing MSMEs Productivity Project

Mauritania - Green Seafood Cluster

Nouadhibou

KnowledgeManagement & DisseminationActivities

In Progress Green Financial Mechanisms Toolkit (Fall 2015) CEI Global Field Guide (Fall 2015) Low-carbon Zones Global Event (Fall 2015) Climate-action and Competitiveness event (Fall 2015) Flagship Report Green Competitiveness (Spring 2016)

Completed Low Carbon Zones: A Practitioner’s Handbook

Green Building Code Colombia

Dominican Republic Cleaner Production in

SMEs

Brazil - Frontier States Investment

Generation

Turkey – Green Zones

Kenya – Export Competitiveness and Innovation

Kenya - LCZs

Brazil – Industrial Symbiosis

Indonesia Green Building Regulations

Green Building

RegulationsPhilippines

Green Building Promotion Vietnam

Green Buildings

India

LAC Green Building Construction and Permits

Green Building China

Clean Cement Africa

Morocco EE standards

The overall potential of financing EE

4

Source: IEA (2014) World Energy Investment Outlook.

Moderate effort on EE>$500 B/yr by 2035

Unlocking EE with Financial Mechanisms

Political and economic instability Limited liquidity and access to finances in

the market Limited legislations, regulations, and

obligation schemes to promote and enforce energy efficiency measures

Limited funding programs or instability of the resources of existing funding programs

Limited experience and will of public agencies

Limited capacity and unwillingness of LFIs to finance EE measures

Limited standardization and capacity to conduct measurement and verification

Political and economic instability Limited liquidity and access to finances in

the market Limited legislations, regulations, and

obligation schemes to promote and enforce energy efficiency measures

Limited funding programs or instability of the resources of existing funding programs

Limited experience and will of public agencies

Limited capacity and unwillingness of LFIs to finance EE measures

Limited standardization and capacity to conduct measurement and verification

Financial Mechanisms are tools to overcome barriers and establish enabling environments that unlock the investment potential of the EE market by providing incentives to investors and trigger commercial financing.

Financial Mechanisms are tools to overcome barriers and establish enabling environments that unlock the investment potential of the EE market by providing incentives to investors and trigger commercial financing.

Challenges for FMs in developing countries Challenges for FMs in developing countries

IFC Areas of investment

Private sector solutions for climate mitigation / adaptation and inclusive development

ENERGY: Low carbon generation, energy efficiency,

storage, smart grids.

BUILDINGS: Low carbon strategy, energy efficiency,

sustainable materials.

TRANSPORTATION: Vehicles, systems, fuels and logistics

WATER: Capture, treatment, conservation, wastewater

treatment

AIR & ENVIRONMENT: Emission control, trading and offsets

MANUFACTURING: Green chemicals, RE/EE supply chain,

cleaner production.

AGRICULTURE & FORESTRY: Land mgmt, low carbon and

adaptation strategies, biomass.

RECYCLING & WASTE: Recycling and waste treatment services

Climate business will only scale and have impact with significant private sector participation – that is where IFC has an important role to play

IFC Financing of green investments

7

2014 commitments:

$2.5 billion

2005-2014 cumulative commitments:

$13 billion

Renewable Energy54.1%

Energy Efficiency

39.9%Other

mitigation5.9%

Adaptation0.1%

RE Generation44%

Thermal Efficiency6%

EE in T&D5%

EE in Transport3%

Indusrial/Agri EE3%

Forestry2%

Green Buildings5%

Components & S1%

newable Captive U2%Long-term FM

6%

Trade Finance23%

IFC invests in process improvements and other technology to reduce energy, water, and other resource use in sectors such as cement, metals, pulp and paper, chemicals, construction, and power generation.

IFC Advisory to financial intermediaries

8

Main objectives: Developing internal capacity for FIs and

supporting their pipeline development for SEF lending.

Supporting regulatory improvements for energy efficiency and renewable investments;

Building partnerships with technology suppliers, auditors, vendors, Energy Service Companies (ESCO) networks;

Value of financing facilitated $ 1.8 billion

FIs supported by Advisory 62 in 22 countries

Value Loans Disbursed by FIs $906 million

Renewable Energy Produced 245,000 MWh/p.a.

Energy Use Avoided 15,700,000 MWh/p.a.

GHG Avoided 17.5 million tons CO2e/p.a.

IFC’s SEF Global Portfolio

Near zero default rate on $1bn portfolio

Aiming to promote sustainable and low-carbon growth by supporting financial intermediary lending to clean and resource-efficient projects as well as renewable energy investments in emerging markets.

World Bank EE credit lines to local banks

World Bank energy efficiency credit lines

The success of a credit line depends to a great extent on the selection of competent and committed financial institutions.

A technical assistance component built into the credit line helps lower the technical and financial risk of projects.

2008-2018 total financing:

$3.98 billion

Establishing a stable, long-term energy and industry policy is crucial for promoting investments in energy efficiency market.

Market Maturity Stage

Market matures

Regulations, and Standards & Labeling ramp up

Subsidies and fiscal incentives phased out

Public Financing(grants) PPPs Private Financing

(Venture Capital / PE)

Research & Development

Stage

Market Deployment

Stage

Commercialization (Diffusion)

Stage

Target Setting & Strategic Vision

Awareness Campaigns & Training Programs

Government is an important catalyst for EE market development

Adapted from: Hilke and Ryan, 2012 and Wang et al., 2013, McGregor and James, 2011, WWF and Cleantech, 2012

10

Demonstration Stage

Market pullProduct/technology push

Policy instruments have to target different strategies at different market development stages.

Planning Stage

What we are doing in assisting the financial mechanisms

How To Design and Implement a FM Program for Resource Efficiency (or EE)

CEI reviews and analyzes existing FMs by drawing on the experience of the government and other stakeholders to suggest new or modified FMs to improve EE in the manufacturing sector

Steps Activities

1. Initial country analysis Set objective and scope of initial analysis Quantify resource use Resource use drivers Market analysis of related sectors Resource efficiency potential Technical capacity audits Financial capacity Mapping financial sector Existing resource efficiency policies and FMs Investment potential and barriers (e.g. market failures in private financing) Identify stakeholders

2. Ensuring stakeholder engagement

Transparency Inclusiveness (stakeholder consultation) Accountability (MVE)

3. Setting FM program targets Identify potential FMs Decide whether to (i) disable, (ii) improve, and/or (iii) add to existing FMs

4. Selecting FM package Overview types of FM framework (voluntary and mandatory; strengths and weaknesses in general of both)

Specifics of FMs How FMs should be phased in/out

5. Implementation Capacity building (for policy-makers, financial institutions, manufacturing sector) Communications

What are the main challenges?

Financial Barriers

General

Limited access to capital for SMEs Interest rates on loans are high in general which restricts access to finance for many companies High collateral requested by banks for lending Shortages of lending capacity in the banking system High upfront costs of EE investments Lack of proper business plans including detailed financial information Internal procedures and investment appraisal rules of banks Long payback periods required for EE investments vs. short term view of business activities Budgets do not prioritize EE

Institutional and Administrative Barriers

Regulatory

Unstable regulatory framework for EE Electricity subsidies which distort the price signals for EE investment Large public debt of the government with limited budget for fiscal incentives for EE Difficult decision-making process at the government level Lack of clear definition of which equipment falls under EE and the unavailability of clear or adequate regulation

Institutional Uncertain institutional framework as to the allocation of responsibilities

Structural Short-term view by government and market players People prefer stability to taking a risk Other factors related to running a business get priority over EE

Information and Awareness Barriers Lack of information on EE

Imperfect information about EE opportunities SMEs lack of awareness of EE technologies Lack of understanding/ knowledge of available financing programs

Skills & knowledge

Banks and beneficiaries do not have the required skills In general, the education system is not ready

Shnorhakalutyun