the world bank climate change program: recent initiatives and developments wb office bangkok...
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The World Bank Climate Change Program:
Recent Initiatives and Developments
WB Office BangkokDecember 14, 2007
Mitigation Background - What is needed now?
As we enter post-Bali phase of climate change challenges, urgent need to take action and scale up mitigation efforts. Support long-term investments for transition to low-carbon
economy; integrate carbon finance into public and private investment decisions
Shift away from a project-by-project approach to systematic programs of investments in a strategic way
Establish a long-term regulatory framework that provides certainty of a carbon price signal
Provide incentives for development of low-carbon technology
Create incentives for avoiding deforestation
The Carbon Partnership Facility
The Carbon Partnership Facility: main focus
Align itself with the Regions’ long-term strategies of assistance to the Bank’s client countries
Integrate carbon finance as an instrument to support the Bank’s operational programs.
Focus on mitigation opportunities in multiple sectors with long-term, large-scale impact on emission trajectories at the country level. All countries are targeted.
Mainly focus on the regulatory period beyond 2012, or the end of the Kyoto Protocol’s first commitment period. Flexible with regards to climate policy regime.
Start now, before long-term investments (e.g., power development, transport systems) have locked in future emissions.
Promote technology and leverage finance for low-carbon investments.
CPF - Buyers and Sellers in a Partnership
SELLERS(governments, companies)
Minimum ER contribution
Willingness to develop and
implement specified emission reduction programs and sell
ERs
BUYERS(governments, companies)
Minimum financial contributions
Willingness to purchase emission reductions when
generated over the long term
(Can focus on specific
programs, countries, …)
Supported by
Carbon Asset Development Fund (CADF)
What would “scaling up” entail?
Support national, sub-national (e.g., provincial level, large cities) or sectoral low-carbon development strategies.
Move from custom-made mitigation projects to programs of low-carbon investments.
Aggregate small sources of emissions in mitigation programs, such as end-use energy efficiency through demand-side management.
Develop simpler, standardized, and more cost-effective methodological approaches and administrative procedures, e.g., programmatic, sectoral, cross-sectoral, wholesale.
Eliminate regulatory impediments and improve enabling environment for low-carbon development.
Broaden scope of carbon finance by opening up new opportunities, e.g., carbon capture and storage.
What types of programs would it support?
Renewable energy Fuel substitution to lower or zero carbon fuels Supply-side energy efficiency, process energy improvement,
and demand-side management: New power generation using advanced technologies Rehabilitation of old, inefficient power plants Industrial process efficiency Lighting efficiency Transport systems
Waste management systems Gas flaring and leak reduction Carbon sequestration and storage
CPF: Basic portfolio and “opt-in” to Special Windows
Energy Generation
Energy Efficiency
Waste Management
Oil and Gas
Transport
Buyer 1
Commits to purchase from all of the basic portfolio
Basic portfolio• established when Facility becomes operational• all Buyers participate in them• Consultative groups of buyers and sellers may be establishedto advice the Bank
Buyer 2
Special Windows• proposed by Trustee during operational phase as neededand based on buyer interest• Buyer Participants opt-in to the Tailored Windows
CCS?
Forestry?
Buyer provides an additional $ contribution if wants to participate
Voluntary market?
Carbon Asset Development Fund
New feature compared to existing WB funds Benefits Sellers and host country entities by
providing resources for: ER program development Carbon related feasibility studies Methodology work Enabling environment
Benefits Buyers by enhancing the quality and timeliness of the ER Programs
Funded by fees from Buyers (upfront and annually over time)
and Sellers (ERPA payment deductions) Donor contributions
Minimum participation levels
Sellers: commitment to develop one or more Programs for the
Facility and to sell ERs to the Carbon Fund Further criteria to be established based on consultations
Buyers: €[70] million for governments €[35] million for private sector promissory note or pre-payment; cash drawn down over
time if participates in Special Window, an additional
contribution Donors to the CADF: minimum of €2 million
Methodologies
May use CDM/JI methodologies, CDM Program of Activities approach
Other programmatic/sectoral approaches would be explored, e.g., A common baseline for, e.g., power or a product,
expressed as a carbon intensity/emission per unit of production
“Deemed savings” approach (pre-determined emission credit per activity) in lieu of tracking over time
Agreed “automatic” eligibility of certain technologies/ activities to claim credits (in a country and timeframe)
Standardization, benchmarks
Pricing approach Objective to agree to an approach that is transparent,
coherent, and able to adjust to changing market conditions Needs to reflect the transaction risk profile, e.g.,
asset type and market segment length of the contract risk sharing between the Sellers and Buyers
It may use, as appropriate: both fixed and variable pricing elements indexation and inflation/currency devaluation-based corrections
Such an approach would imply that some ERPAs defined in fixed € terms rather than fixed volume delivered ER volume becomes the variable
The pricing approach will be developed in consultation with the Participants and approved by the Partnership Committee
What is an ER Program? A series of the same and/or associated activities for
which a common approach can be developed Involves scale-up through replication and “mass-
production” May include multiple entities undertaking the
investments, and involve one or several ERPAs May be undertaken through a program implementing
agent Would support sectoral strategies and transformation May include elements that help create or improve the
enabling environment, and assist with technology dissemination
Examples from China:I. Biogas programRationale for engagementMin. of Agri. is targeting an increase of household bio-digester installation by 18 million units by 2010 and 20 million by 2015 (China Biogas program).
Existing Bank Dialogue Already five provinces in the Bank’s China eco-farming project, targeting installation of over 580,000 bio-digesters. Pilot project (Hubei) well advanced in CDM validation process and will establish a standardized procedure for quick replication.
Potential Scope for pilot and scale-up, including Household Bio-digester Program, Large-scale farm biogas program, Biomass gasification Program to all five provinces.
Danish Energy Authority/Foreign Ministry keen on associated TA support
II. Provincial EE programRationale for engagementProvinces are allocated 20% of national Energy Intensity Reduction target and have to achieve this via concrete regulations, policies and programs.
Existing Bank dialogueBank in discussions with 3-4 provinces (highest energy consumers) on a package including loans, CF, TA to support their EE programs.
Potential areas of engagement green lighting, public building retrofitting, building codes, Labeling, mandated
higher energy performance standards for household Electric appliances Conversion of existing power plant to CHP to supply heat to new primary
district heating systems Key industrial companies to undertake process integration and optimization
(steel, oil refinery, ammonia) Government procurement program to make procurement decision based on
life-time cost (more energy efficient) rather than least upfront cost
Carbon Bundling Arrangement: Can be bundled through FI involved in financing program, or other coordinating entity to blend government subsidy with CF and commercial loans
Shandong wants Bank to provide TA to establish a CDM center for this.
What’s different from current carbon finance operations?
Firmly anchored and “driven” by CAS/CPF, Region and client priorities
More transactions based on Bank lending and other operations
Sellers have more say in governance, pipeline development, pricing and other contract terms
Counterparts on seller side more likely to be in the public sector than in current CF
Project development/preparation TA facility (Carbon Asset Development Fund)
Business implications
Targets: CPF operational April/May 2008 Capitalize at a rate of $1bn/year over FY09-FY13
Each $1bn would support 10-20 major programs*
Pilot program development in FY08 Scale up in operations from FY09 onwards,
with roughly 1-4 programs/Region/year*
* assuming 5m tons/program and $10-$20/ton of emission reduction
FCPF Forest Carbon Partnership Facility
Piloting a System of Positive Incentives for Reducing
Emissions from Deforestation and Degradation
Context
“Avoided deforestation” excluded from the Clean Development Mechanism
World Bank CF experience in forestry sector: BioCarbon Fund: LULUCF pioneer since 2004,
including W2 for avoided deforestation at project level Request from G8 Heiligendamm Communiqué
to design forest carbon partnership 26 IBRD and IDA countries have already expressed
interest in participating Extensive consultations over the past year+
with donors, international organizations, NGOs, private sector Australia and Japan have made public
announcements of financing; at least 5 other donors have indicated financing will be likely
Context
0
200
400
600
800
1,000
2007 2008 2009 2010 2011 2012 2013 2014
millio
n $
Readiness Pilots Incentive System
Proposed ResponsePrepare for a system of positive incentives post-2012 that includes REDD through
o Capacity building: readiness for a future systemo Pilot performance-based payments
Readiness: $100 m
Pilots: $200 m
> $1 b
Proposed response: FCPF main focus
Characteristics of the Facility
South-North Partnership Both sellers and buyers will be represented in the
governance structure NGOs, Int’l orgs., Indigenous Peoples groups and non-
contributing private sector will have observer status Not pre-empt negotiations
Close cooperation with parties and UNFCCC secretariat Learning by doing
Pilot different approaches Test different implementation strategies
Include all actors and stakeholders Seek guidance from private investors Reach out directly to the drivers of deforestation during
implementation
Features of the Facility
Eligibility of countries
Subtropics LimitSubtropics Limit
Subtropics LimitSubtropics Limit
Expressions of Interest Received
Argentina Indonesia Bolivia Kenya Cameroon Laos Central African Republic Liberia Colombia Mexico Costa Rica Nicaragua Democratic Republic of Congo Pakistan Ecuador Panama El Salvador Papua New Guinea Gabon Paraguay Ghana Peru Guatemala Republic of Congo Guyana Vanuatu
Expressions of interest received ($165 m. committed)
Two mechanisms
Readiness
READINESS FUND
Capacity building
Carbon Finance
CARBONFUND
Purchase of Emission
Reductions
Readiness Mechanism
Build the capacity of countries to access a future system of incentives
Components (“Readiness Package”): Reference scenario
Historical emissions + Future emissions?
Emission reduction strategy Monitoring system
Target: $100 million ~ 20 countries Competitive selection + balance
Carbon Finance Mechanism
Pilot carbon finance transactions for “ready” countries before post-2012 regime is in place
Target: $200 million
~ 5 countries
Competitive selection + balance
Expressions of Interest Received
Next steps for both facilities
Forest Carbon Partnership Facility
November (8 – 9) 2007: Additional consultations with NGOs and International organizations
November (12 - 13) 2007: Final Consultation Round on the Term Sheet and Information Memorandum (potential donors, sellers and buyers)
December 2007: Launch at CoP13 (Bali)
March/April 2008: FCPF declared operational
Carbon Partnership Facility
December 2007: Announcement at CoP13 (Bali)
January – March 2008: Joint consultative meetings with potential buyer and seller participants to finalize detailed design and governance of CPF; release of Information Memorandum
Spring 2008: CPF could start operations, if $500 million in purchase commitments has been reached by then.
Expressions of Interest Received
Key contact persons
Forest Carbon Partnership Facility
Benoit Bosquet
Senior Natural Resources Management Specialist (LCSEN)
Werner Kornexl
Senior Technical Specialist
Eliza Winters
Senior Environmental Specialist
Carbon Partnership Facility
Johannes Heister
Senior environmental economist, Methodology and Policy Team
Jari Vayrynen
Senior environmental specialist,
Operations
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