m o n t r e a l p r o t o c o l m o p - 2 6, 1 7 - 2 1 n o v e m b e r 2 0 1 4, p a r i s 1 teap...

M o n t r e a l P r o t o c o l M O P - 2 6, 1 7 - 2 1 N o v e m b e r 2 0 1 4, P a r i s 1

TEAP XXV/8 Task Force Report

SUPPLEMENT to the Assessment of theSUPPLEMENT to the Assessment of the

Funding Requirement for the Funding Requirement for the

Replenishment of the Multilateral Fund Replenishment of the Multilateral Fund

for the Period 2015-17for the Period 2015-17


Mandate

TEAP was to prepare a supplementary report on a number of issues as listed in the OEWG-34 meeting report

The Replenishment (RTF), XXV/8 Task Force dealt with these requests

Studies were done in the course of August-September

The report was submitted for review by TEAP

The report was submitted to Parties late September 2014

A small Addendum Report was published in October 2014 on the equal distribution of funding

M o n t r e a l P r o t o c o l M O P - 2 6, 1 7 - 2 1 N o v e m b e r 2 0 1 4, P a r i s

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Total funding requirement

The estimated total funding requirement for the triennium 2015-2017 (and subsequent triennia) does not change compared to what was reported in the May 2014 Task Force report:

Total requirement for replenishment of the Multilateral Fund (US$ millions)

2015-2017 2018-2020 2021-2023

Case 1 609.5 550.6 636.5

Case 2 489.7 485.8 636.5


Cases 1 and 2

The phase-out to be addressed in a stage II HCFC Phase-out Management Plan (HPMP) can be defined in two ways

Case 1 “commitment-based” phase-out

the HPMP stage I Agreement for a non-LVC country includes a table defining the level of HCFC phase-out to which that country has committed

Case 1 funding for stage II HPMPs addresses the difference between the total reduction ‘committed to’ in the stage I agreement (in %) and the 35% reduction level for 2020 (all in ODP tonnes)


Cases 1 and 2 (cont’d)

Case 2 “funding-based” phase-out

Total funding in many stage I HPMPs was based on funding assessments for sub-sectoral reductions in consumption that, in total, exceeded the aggregate reductions committed to in the Agreements

Case 2 funding for stage II HPMPs addresses the difference between the total of the forecast reduction (in each sub-sector) on which stage I funding is based and the 35% reduction level for 2020 (all in ODP tonnes)


Cases 1 and 2 (cont’d)

For many non-LVC countries the stage II HPMP consumption to be addressed in Case 2 is significantly lower than that to be addressed in Case 1

-- because additional phase-out occurs in the stage I HPMP

For a few non-LVC countries no additional funding will be needed for the 2020 reduction target, since they are expected to exceed their 2020 reduction target in Stage I

In both Case 1 and Case 2, all other (non-HPMP) funding components including existing funding obligations, LVC requirements, production and supporting activities are identical


Case 1 example

Some selected non-LVC

countries (in descending order of consumption)

Baseline

(ODP tonnes)

Case 1 Reduction

committed in HPMP I

(% baseline)

Case 1 Reduction

to be funded in HPMP II (% baseline)

Case 1 HPMP II

reductions (ODP

tonnes) 1 19269.0 10 25 4817.3 2 1608.2 10 25 402.1 4 1327.3 10 25 331.8 6 927.6 15 20 185.5 8 515.8 15 20 103.2

10 418.6 39 0 0.0 15 400.7 18 17 68.1 19 208.4 10 25 52.1 25 88.8 20 15 13.3 30 73.5 18 17 12.5 39 46.0 35 0 0.0


Case 2 example



Baseline (tonnes)

Case 2 Reductions funded in HPMP I

(% baseline)

Case 2 Reductions

to be funded in HPMP II (% baseline)

Case 2 HPMP II

reductions (ODP

tonnes) 1 19269.0 17.9 17.1 3295.0 2 1608.2 21.3 13.7 220.3 4 1327.3 16.6 18.4 244.2 6 927.6 23.8 11.2 103.9 8 515.8 20.3 14.7 75.8

10 418.6 57.1 0 0.0 15 400.7 26.6 8.4 33.7 19 208.4 43.5 0 0.0 25 88.8 35.8 0 0.0 30 73.5 27.2 7.8 5.7 39 46.0 38.7 0 0.0


Case 1 and 2 comparison



Baseline (tonnes)

Case 1 HPMP II

Reductions (ODP tonnes)

Case 2 HPMP II

reductions (ODP tonnes)

1 19269.0 4817.3 3295.0 2 1608.2 402.1 220.3 4 1327.3 331.8 244.2 6 927.6 185.5 103.9 8 515.8 103.2 75.8

10 418.6 0.0 0.0 15 400.7 68.1 33.7 19 208.4 52.1 0.0 25 88.8 13.3 0.0 30 73.5 12.5 5.7 39 46.0 0.0 0.0


Average

It will be clear why Case 2 funding is lower than Case 1 funding

For Case 1 the average weighted (in % baseline, rounded) is reductions committed reductions to be funded 15% 20%

For Case 2 the average weighted (in % baseline, rounded) is reductions funded reductions to be funded 23% 12%


Disbursement

In the May Report three annual disbursement schedules were considered

40-25-25-10% (1) 50-20-20-10% (2) 30-30-30-10% (3)

This report adds one more schedule, 25-25-25-25% (4) The result of less front loading, from (2) to (3), results in a

reduction of US$ 50 million for the first triennium with an addition of that amount to the next triennium

Schedules (3) and (4) are not consistent with project implementation practices, where procurement needs to take place in the first one or two years


Foam percentage in total

A variation of the foam proportion (from the one used in Task Force calculations) to be addressed in the HPMP stage II will lead to significant differences in funding (in the two next triennia)

For Case 1, based on a 50% foam percentage, a 10% increase (to 60%) results in a decrease of about US$ 53 million, a 10% decrease (to 40%) results in an increase by about US$ 59

million (due to higher cost of RAC projects) For Case 2, based on a 50% foam percentage,

a 10% increase (to 60%) results in a decrease of about US$ 33 million, a 10% decrease (to 40%) results in an increase by about US$ 38

million (due to higher cost of RAC projects)


Avoiding climate impact

The calculation for different foam proportions also results in different climate impacts

Reducing the foam percentage from 60 to 40% results In Case 1, in an increase in the avoidance from 105 to 130 Mt CO2-

eq. In Case 2, in an increase in the avoidance from 69 to 86 Mt CO2-eq. Both have a climate cost effectiveness of about US$ 4.8 per t CO2-

eq. In both cases, this is due to an increase in the proportion of RAC

Further specific numbers given in the report for the avoidance (for 100 and 50% avoidance in RAC), as well as the resulting climate cost effectiveness -- done for various foam Cost Effectiveness (CE) values


The funding profile

Funding equalisation options presented in the May and Supplement report included re-distribution of existing funding commitments

Options for equalisation presented in the Addendum all assume that existing funding commitments are not re-distributed

Key scenarios for the triennia 2015-17 and 2018-20 are: 1. Base case - funding for HPMP II different over the next two triennia

2. Equal distribution of funding for HPMP II over the next two triennia - funding for 2025 commitments deferred until 2021.

3. Equal distribution of funding for HPMP II over the next two triennia plus part of the funding for 2025 commitments included in the second triennium (2018-2020).

4. HPMP II funding and part of the funding for 2025 commitments combined and averaged over the next two triennia.


The funding profile (2)

Scenario 1

Funding requirement 2015-2017 2018-2020 2021-2023 1. Production sector 72.562 65.622 65.622 2. IS, PRP, demos, supporting activities 108.403 113.852 105.220

3a. Existing obligations LVCs and non- LVCs (see Table 6-1)

90.06 15.01 0.30

3b. Pre-blended polyols 4.32 4.32 3c. New commitments LVCs 54.63 3. Subtotal 94.4 19.33 54.93

New commitments non-LVCs 4. Case 1 334.1 180.3 582.3 5. Case 2 214.4 115.5 582.3

6. Total funding requirement Case 1 609.5 379.1 808.1 7. Total funding requirement Case 2 489.7 314.2 808.1



Scenario 3

Funding requirement 2015-2017 2018-2020 2021-2023 1. Production sector 72.562 65.622 65.622 2. IS, PRP, demos, supporting activities 108.403 113.852 105.220

3a. Existing obligations LVCs and non- LVCs (see Table 6-1)

90.6 15.01 0.30

3b. Pre-blended polyols 4.32 4.32 3c. New commitments LVCs 30.35 24.28 3. Subtotal 94.38 49.68 24.58

New commitments non-LVCs 4. Case 1 257.2 257.2 5. Case 2 165.0 165.0 New commitments non-LVCs for 2020 and for non-LVCs and LVCs for a certain part for the 2025 target (funded in 2020)

141.2

441.1




Scenario 4

Funding requirement 2015-2017 2018-2020 2021-2023 1. Production sector 72.562 65.622 65.622

2. IS, PRP, demos, supporting activities 108.403 113.852 105.220

3a. Existing obligations LVCs and non- LVCs (see Table 6-1 in May report)

90.6 15.01 0.30

3b. Pre-blended polyols below (4.32) below (4.32) 3c. New commitments LVCs 30.35 24.28 3. Subtotal 90.6 45.36 24.58

New commitments non-LVCs for 2020 and for non-LVCs and LVCs for a certain part for the 2025 target (funded in 2020)

4. Case 1 332.1 332.1 441.1 5. Case 2 239.9 239.9 441.1


M o n t r e a l P r o t o c o l O E W G - 3 4 m e e t i n g, 1 4 - 1 8 J u l y 2 0 1 4, P a r i s 18


As can be seen in the tables: Scenario 1, the base calculation of funding for Case 1 and 2,

results in a very uneven distribution with a large funding amount remaining in triennium 2021-23

Scenario 2, the equal distribution for HPMP II, while considering part of the funding for 2021-23 in the second triennium only, gives an uneven distribution as well

Scenario 3, distributing the funding equally over the first and second triennium, yields gives a much better outcome

The Task Force therefore confirms its previous recommendation for the funding given in the May report


Total funding requirement

The estimated total funding requirement for the triennium 2015-2017 (and subsequent triennia):

Total requirement for replenishment of the Multilateral Fund (US$ millions)

2015-2017 2018-2020 2021-2023

Case 1 609.5 550.6 636.5

Case 2 489.7 485.8 636.5


Impact of HPMP stage I funding

An in-depth study was performed on the impact of the funding of existing HPMP stage I agreements on the decrease of consumption in selected years (funding for non-LVCs and LVCs)

Given that a number of parameters cannot be estimated, the Task Force is not able to give any quantitative results

Funding will very much depend on consumption levels reported for those years, which are difficult to estimate for the future

It will also much depend on the infrastructure of a country when these HPMP stage I agreements are addressed and executed


Servicing and type of enterprises

Servicing RAC equipment more low GWP technologies may lead to increased funding

requirements, to address safety and health issues the Task Force did not derive recommendations beyond those

under Decision 60/44 Extensive considerations have been given for multinational

and non- eligible enterprises Many multinational operations are taking place in countries that

have already committed to large reductions Non-eligible enterprises may still need to be considered in

future, but it will much depend on the infrastructure of a country when these are to be addressed


High GWP surveys

A cost estimate for conducting surveys of high GWP alternatives to ODS and to prepare projects has been provided

This estimate is based on the levels of funding provided following in Decision 71/42 on the preparation of stage II HPMPs

A total funding allocation of US$ 10.45 million may be required

Such a survey could also address the current consumption of low GWP substances in Article 5 countries


Conversion away from high-GWP

The long-term development in cost effectiveness factors is difficult to forecast

The “usual” cost effectiveness factors are therefore important for the determination of the funding for stage II HPMPs

Avoidance of 50% of high GWP alternatives in RAC would equal to about 95 Mt CO2-eq. in Case 1, about 63 Mt CO2-eq. in Case 2 (climate CE about US$ 5.9 per tonne CO2 (CE of US$ 10.1/kg))

Avoidance of 100% high GWP alternatives in RAC would lead to a climate CE of about US$ 4.8-5.5 per tonne CO2 (depending on the CE of projects, varying from US$ 10.1 to US$ 13.35/kg)


High-GWP substances and alternatives

Production capacity for HFCs is estimated to grow by a factor of two in the next decade, especially in Article 5 countries

This is mainly due to the increase in demand for new equipment, not for the conversion of existing HCFC based production lines

Supporting the maximum possible phase-in of low-GWP alternatives may be the most practicable way forward to limit increases in HFC consumption

Not-in-kind technologies are unlikely to deliver a substantial saving potential in the near term

Different methods to provide heating and cooling (district cooling) may provide additional savings potential


Swing plants

HCFC production in swing plants other than China was about 40,000 tonnes in the year 2012 (which was down from a level of 66,000 tonnes in 2009)

If funding for swing plants was to be based on a level of 50,000 tonnes capacity, at a cost of US$ 1-1.5 per kg, it would add a funding requirement of US$ 9.5-14.5 million per triennium

The total funding for production phase-out --as given in the May report-- would then increase to US$ 82-87 million for the first (2015-2017), and to US$ 75-80 for the second (2017-2020) triennium


Concluding remarks

The most significant impact on the replenishment will be the way Case 1 and Case 2 will be considered for the next two triennia

Any major change in the proportion of foams versus RAC will have an impact on relative funding levels for the next two triennia, but not on the overall funding requirement

All other issues investigated by the Task Force have only minor effects on replenishment levels

There is a need to consider the longer term operation of the Multilateral Fund, and how the Fund actually operates in real terms, including where it

relates to agencies’requirements for disbursement schedules and other parameters


Thank you !

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