Multilateral Development Banks: Carbon Fund Managers, Carbon Buyers or CDM-JI Facilitators?

1
Multilateral Development Banks Carbon Fund
Managers, Carbon Buyers or CDM-JI Facilitators?

• CDM-JI Workshop
• Vancouver
• March 28, 2006
• John Balint, Director

2
MDBs Roles are Evolving

• Multilateral Development Banks have an important,
  if not critical, role in the CDM-JI market.
• The origins of their involvement was as early
  carbon buyers through their carbon funds.
• New roles are being considered, particularly in
  light of the Gleneagles G8 communiqué, urging
  them to establish an investment framework for
  CDM.

3
Multilateral Carbon Funds

• The World Bank now manages numerous buyer funds
  with a variety of investors.
• Other MDBs have been examining their role.
• A study was undertaken by International Financial
  Consulting (of which GCA is a subsidiary) in
  summer 2005 to examine investment options for the
  Government of Canada, focusing primarily on what
  the MDBs were doing in this area, as well as a
  few private funds.
• At the time, two MDB funds were seeking
  additional investment capital the World Banks
  CDCF and the EBRDs MCCF.

4
World Bank Community Development Carbon Fund

• CDCF supports small scale projects in poorer
  regions in order to obtain ERs and promote
  sustainable development
• The fund will consider purchasing VERs in any
  small scale GHG reduction project.
• Minimum contribution to the fund is US1.0
  million.
• Participants are significantly involved in the
  fund governance via annual meetings, approving
  business plans, etc.
• CDCF benefits from the World Banks capacity to
  identify eligible projects, assess risks, and
  negotiate emission reduction purchase agreements
  (ERPAs).
• CDCF also capitalizes indirectly on the World
  Banks preferred creditor status and strategic
  market positioning.

5
EBRD Multilateral Carbon Credit Fund

• Fund development process currently is on hold
  pending further efforts by EBRD to obtain
  commitments from potential investors.
• Fund would acquire ERs originating from projects
  financed or to be financed by EBRD. It would
  purchase CERs and ERUs and facilitate some AAU
  transactions.
• Fund size in the range of 100m (minimum 50m,
  maximum 200m). Participants must be EBRD member
  countries and the minimum initial amount of
  commitment is 2 million.
• Significant participant involvement in fund
  activities, including approval of individual
  carbon credit transactions, and the option of not
  participating in particular ERPAs.
• EBRD would engage one or more arms length fund
  managers to operate the MCCF.

6
Other Multilateral Development Banks
7
Range of Roles of MDBs in Carbon Funds
8
Changing Role for MDBs

• Shift away from fund sponsorship and management
  models and toward more facilitative roles to fill
  niches between beneficiary countries and existing
  market players.
• Mainly a function of timing and market
  development. Increasingly, the private sector is
  stepping up to fill former MDB roles of carbon
  fund manager and ER arranger/advisor, even in
  some developing and transition countries.
• Also a function of the MDBs themselves. Smaller,
  regional MDBs have limited in-house carbon
  finance expertise, and have limited time left
  before the Kyoto compliance period in 2008. As a
  result, they are seeking to define roles which
  preserve their market leadership function while
  complementing existing market expertise and
  capacity.

9
MDBs Evolving Objectives

• To strike the right balance between optimizing
  the objectives and capitalizing on market
  opportunities.
• Many regional MDBs are still in the formative
  stages of defining their carbon finance role and
  activities.
• Requires decisions regarding the MDB support
  mechanisms best suited to achieve different types
  of goals.
• The international carbon fund market is quickly
  becoming more complex in nature and more
  sophisticated in approach.
• Driven by niche opportunities (sector, region,
  etc.) and specific project needs, such as using
  ERs to collateralize up-front financing.

10
MDBs Evolving Objectives

• Objectives which should guide the MDBs carbon
  strategy are

• More focus on beneficiary country needs
• Project Development Costs
• Public and Private Sector Capacity Building
• Maximize ER Potential to CDM-JI Projects
• Maximize Sustainable Development Benefits
• Complement Private Sector Carbon Funds
• Risk Management Programs and Tools

With such a focus, DNAs and host countries stand
to enjoy more benefits in terms of sustainable
development and carbon credit revenues
11
QUESTIONS?

• Thank You

John Balint JBalint_at_g-capitaladvisors.com 1-613-
742-7829