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World Bank Carbon Finance Experience, Strategy and New Funds

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Workshop How to develop CDM projects in Central America, March 27-28, 2003 ... Plantar Project in Brazil (23,400ha fuelwood plantation) also certifies: ... – PowerPoint PPT presentation

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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

2
Nature of Carbon Finance Projects
Banks
Investor
Debt
Equity
Promote Sustainable development
Power Purchase Agreement


Main Product e.g electricity
Carbon Credits
3
Bank 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

4
PCF 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
5
Banks 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
  •  

6
Unbundled 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.

7
Most 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

8
Carbon 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
9
Certifying 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

10
Carbon 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
  • All expenses 265 K

11
Impact of Carbon Finance on FIRR (3/tCO2e)
12
Sample of Prices in PCF Deals
13
World 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.

16
Benchmarking 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

17
Carbon 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

18
Market 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

19
Benefits 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
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