Title: World Bank Carbon Finance Experience, Strategy and New Funds
1 World Bank Carbon Finance Experience, Strategy
and New Funds
- Workshop How to develop CDM projects in Central
America, - March 27-28, 2003
- Rodrigo Chaparro
2Nature of Carbon Finance Projects
Banks
Investor
Debt
Equity
Promote Sustainable development
Power Purchase Agreement
Main Product e.g electricity
Carbon Credits
3Bank Carbon Finance BusinessFamily of Products
- PCF as flagship 180 million
- Netherlands Clean Development Facility CDM
only, 30 million/year over 2002-2005 - Community Development Carbon Fund (CDCF) to
start May/June 2003 at 40-50 million - BioCarbon Fund (BioCF) to start by Sept 2003 at
30-40 million - Climate Neutral Bank starting March 12th
4PCF Shareholders (180 million)
Public Sector (6) Governments of Netherlands,
Finland, Sweden, Norway, Canada, and Japan Bank
for International Cooperation Private Sector
(17) RWE - Germany, Gaz de France, Tokyo Electric
Power, Deutsche Bank, Chubu Electric, Chugoku
Electric, Kyushu Electric, Shikoku Electric,
Tohoku Electric, Mitsui, Mitsubishi, Electrabel,
NorskHydro- Norway, Statoil -Norway, BP, Fortum,
RaboBank, NL
5Banks Carbon Finance Business at a Glance
- Value of Emissions Reductions Purchase
Agreements (ERPAs) negotiated 15, 38m - Number and value of approved PCF projects 28,
119.2m - Number and value of NDCF projects 13, US
157.1m - Total estimated investment in 30 approved
projects US 1.081 billion -
6Unbundled Services in Carbon Finance
- Training and Knowledge Management World Bank
Institute (governments, private sector, Bank
Group staff) 1500 training days in FY03 - Help desk, briefings, targeted awareness-raising
- Internships and Fellowships PCF and shareholder
privelages (20 to date) - Staff Exchange Program in CF 6 on strength
- Institutional Strengthening CF-Assist, PCF,
CDCF - Research and Policy Analysis Market
intelligence, technical benchmarking, baseline
and monitoring methods, policy research.
7Most Important Findings
- Regulatory uncertainty remains post-Marrakesh
- CDM Executive Board still to review and approve
methods for carbon asset creation - No Entry into Force of Kyoto Protocol
- CDM/JI Carbon Asset Creation remains complex and
lengthy lead times of 3-7 years for project
design through delivery of first ERs. - Private Sector is not buying directly in CDM/JI
on a significant scale - Capacity Building is Urgent
- first carbon purchase in each country and sector
is key to build awareness - Carbon finance and TA for capacity building must
go hand in hand to support carbon market
development - Small projects and hence smaller countries and
poorer communities will lose out unless risks and
costs are managed by intermediaries, despite
streamlining - LULUCF Sink Assets are high value to
sustainable development but poorly understood and
at risk as an asset class
8Carbon Finance flows 2001-2002
Australia
Canada
Asia
Africa
USA
Latin America
Source Authors own calculation, based on
transaction database assembled with Natsource,
Co2e.com and PointCarbon
9Certifying Sustainable Development Outcomes
- Bank has shown that it is feasible and cost
effective to create and certify local
environmental and community development benefits
along with carbon - Examples from PCF
- Colombia Jepirachi Wind Power Plant (19MW) also
certifies - potable water,
- electricity for schools/clinics and
- small fishing port for local indigenous peoples
- Plantar Project in Brazil (23,400ha fuelwood
plantation) also certifies - Worker health improvement
- ABRINQ certification of no child labor or
exploitation - Biodiversity benefits
- FSC certification of improved forest management
10Carbon Asset Creation and Maintenance
Manufacturing Process and Costs based on Bank
experience
Preparation and review of the Project
Project completion
- Upstream Due Diligence, carbon risk assessment
and documentation 40K
3 months
Baseline Study and Monitoring and Verification
Plan (MVP)
Up to 21 years
- Baseline 20 K
- Monitoring Plan 20K
Periodic verification certification
2 months
- Verification 10-25 K
- Supervision 10-20K
Validation process
1-3 years
2 months
- Contract, Processing
- and documentation 30k
3 months
Project Appraisal and Negotiation
Construction and start up
- Initial verification at start-up 25K
- Consultation and Project Appraisal 105K
- Negotiations and Legal documentation 50K
Total through Negotiations
11Impact of Carbon Finance on FIRR (3/tCO2e)
12Sample of Prices in PCF Deals
13World Bank Carbon Finance StrategyCarbon
Finance Beyond PCF
- Expand Carbon Market Development
- Provide First-of-a-kind opportunities Introduce
more countries and companies to carbon market - Benchmark carbon asset creation and Crowd-In
private sector Increase certainty and lower
entry barriers - Expand access to CDM/JI assets in early market
Bank intermediation is critical to expand supply - Strengthen TA/Capacity Building
- Demonstrate credible forestry/agriculture sinks
activities - Open Markets for small projects and small
countries - Build Credibility in AAU Market Greening of AAUs
14- Small projects are burdened by high transaction
costs - Small and poorer countries will miss out on
private sector carbon finance - Need special efforts to
- mitigate risk, bundle small transactions
- standardize both CDM/JI requirements and business
procedures
15- Carbon Sequestration has important rural
development, poverty alleviation, sustainable
natural resource management and global
environment implications - PCF carbon sinks projects demonstrate how to
create and certify biodiversity improvements and
contributions to rural welfare, but PCF can only
do 3-4 projects - Need dedicated fund to demonstrate and benchmark
carbon sinks assets in support of sustainable
agriculture and forestry, watershed management
and biodiversity conservation.
16Benchmarking and Securing Supply of High Quality
ERs includes.
- Reducing Risk and Uncertainty in Supply
Preparing Standardized baselines/monitoring plans
for replicable carbon projects which lower risk
in carbon asset creation for host countries and
buyers - Greening Hot Air helping transition economies
market their assigned amount units by helping
design investment programs which utilize revenues
from AAU sale to invest in clean technology to
create actual emissions reductions
17Carbon Finance Strategy Summary
- Respond to Host Country demand for carbon finance
- Extend carbon finance to the smaller, poorer
countries and rural communities - Demonstrate carbon finance for carbon sinks
- Strengthen and expand capacity building for
mitigation and adaptation - Explore practical arrangements for greening
AAUs - FY03 business plan targets
- negotiated ERPAs, 155m (PCF on track NCDF
ahead) - cumulative approved projects for negotiation,
250m
18Market Development Initiatives
- Intermediation Agreements India (IDFC), Brazil
(A2R), South Africa (DBSA).. - Project financing (debt, equity, mezzanine)
European Banks, . - Insurance and risk management products covering
risk in carbon currency, country risk management,
guarantee facilities
19Benefits to New Funds Participants
- High quality ERs for compliance and trading
- Cheaper expertise of established carbon finance
team at incremental cost - Risk mitigation via diversification, hedge future
costs - Knowledge of carbon asset creation, market
intelligence internships, training, advice - Marketing Corporate social responsibility
- Origination Options Bring projects to fund
- Parallel Purchase Access to additional CO2e to
grow carbon portfolios at low risk and effort