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Presentation of Josefo Tuyor to the Midanao Conference on Climate Change

Presentation of Josefo Tuyor to the Midanao Conference on Climate Change

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Carbon Finance Carbon Finance Presentation Transcript

  • Introduction to the World Bank Carbon Finance Business Joe B. Tuyor Senior Operations Officer World Bank East Asia and the Pacific Region
  • Projected Impacts of Climate Change Source: Stern Review, 2006
  • Opportunity Costs Mitigation Costs
    • The Costs of doing nothing : the damages from business-as-usual would be equivalent to at least 5 and up to 20% of consumption a year, depending on the types of risks and effects included.
    • The costs of removing most of that risk , getting to 550 ppm or below, are around 1% of GDP per year. The cost could be above or below 1% depending on policies, technological progress and ambitions but would be in this region.
    Source: Stern Review, 2006
  • Global Emissions by Sector Source: Stern Review, 2006
    • 1992 Climate Convention adopted. Objective of stabilizing GHG concentrations at safe levels
    • 1997 Kyoto Protocol adopted
      • 36 Developed Countries and Economies in Transition (namely Canada, Japan, EU15 and economies in transition) agreed in 1997 to :
      • Reduce GHG emissions by 5.2 % below 1990 levels in the commitment period 2008-2012
      • Total demand created for GHG Reductions: ~5 to 5.5 billion
    • 2005 (February) Kyoto enters into force.
    • As of April 2006, 162 states ratified representing 61.6% of developed countries
      • US / Australia will not ratify, but Australia will meet targets
    International Response to Climate Change
  • How can Developed Countries/EITs meet their obligations under Kyoto?
    • Domestic Reductions
    • Carbon Sinks : direct human-induced land use change and forestry activities (limited to ~330 Mt/C02e)
    • International Credits (Kyoto Mechanisms):
      • International Emissions Trading
      • Project –Based: Joint Implementation
      • Project – Based: Clean Development Mechanism
  • Emission Reductions time GHG Reductions How the CDM works (I) Baseline Emissions Project Emissions
  • How the CDM works (II)
    • The World Bank Carbon Finance Program, Family of the Carbon Funds
  • The World Bank’s main Objectives in the Carbon Market
    • Part of the larger global effort to combat climate change
    • Go hand in hand with the Bank’s mission of reducing poverty
    • Contribute to Sustainable Development
    • Catalyze the Carbon Market
      • Address market imbalances (e.g. poor countries, sequestration projects)
      • Support the regulatory framework
      • Expand the capacity of other FDIs through cooperation with other development banks
      • Provide opportunities for ER purchases by private sector
    • Strengthen capacity in developing countries to benefit from the emerging carbon market
  • World Bank Carbon Funds & Facilities
    • Bank start with the first carbon fund , in 1999 (US$ 180 million, Prototype Carbon Fund) to purchase carbon credits.
    • The WB portfolio is about US$ 2 billion
    • 71% ($1.3 billion in East Asia and Pacific Region)
    • The WB purchases carbon emission reductions on behalf of our Fund Participants
    • Focus in on energy efficiency, industrial gas emission reduction, waste management, reforestation
  • How Carbon Funds Work Industrialized Governments and Companies Developing Countries and Communities Bank Managed Carbon Fund $ Technology Finance Payment on delivery of emissions reductions, not up-front capital costs $ Technology Finance CO Equivalent 2 Emission Reductions CO Equivalent 2 Emission Reductions
    • Basic Elements of Carbon Finance and Carbon Economics
  • Banks Investor Debt Equity Waste Management Agreement $$ Service $$ Carbon Credits Role of carbon finance in project financing Carbon Fund $ $ 2 2 Emission Reduction Purchase Agreement Upfront payment as “Equity” Less than 25% of contract Collateralization of ERPA
  • Key Features of Carbon Finance
    • Both public and private capital – new and additional sources for sustainable development financing
    • Payment on Delivery – payments are made upon annual independent verification that emissions reductions have occurred.
      • Unlike most buyers in the market, Participants in Bank Funds agree to take Kyoto regulatory risk: Hence, our carbon fund contracts are “bankable”, allowing more projects to get financing than if regulatory risk remained open.
    • Payment stream is in hard currency , reducing financing risk for foreign lenders
  • Carbon Economics SUMMARY SENSITIVITY ANALYSIS Incremental IRR Results – Contributions of Carbon Finance
    • Project Cycle
  • Preparation and review of the Project Project Design Document Validation process Negotiation of Project Agreements Periodic verification & certification Construction/Implementation and start up Project completion 3 months 2 months 2 months 3 months 1-3 years Up to 21 years
    • Project Idea Note
    • Carbon Finance Document
    • Letter of Endorsement from Host Country
    • Baseline Study
    • ER estimates
    • Monitoring Plan
    • Validation by independent Accredited Operation Entity
    • Submission of new method to CDM EB if needed
    • Project Appraisal and related documentation
    • Letter of Approval from Host Country
    • Emission Reduction Purchase Agreement
    • Project registration
    World Bank/CDM Project Cycle – The Manufacturing Process for Emissions Reductions
    • Initial verification report
    • Verification and certification
    • Supervision
  • Philippine Projects supported by the World Bank Carbon Finance Facilities
    • Northwind Wind Power Project – ERPA signed December 2004
    • Nasulo Geothermal Project – ERPA signed December 2005
    • Laguna de Bay Solid Waste Management – ERPA signed June 30, 2006
    • Laguna de Bay Reforestation – ERPA signed June 30, 2006
    • Northern Negros Geothermal Project – ERPA signed February 2007
    • Ethanol Plant Wastewater Treatment Project – ERPA signed on January 14, 2009
  • Pipeline WB Carbon Finance Projects in the Philippines
    • EDSA Bus Dispatch and Tracking System Project
    • Methane Capture from Pig Waste and Landfills
  • Other potential Projects
    • Wastewater treatment : anaerobic system/
    • methane capture, biogas
    • Landfills : waste to energy, gas flaring
    • Community Projects : composting, reforestation, agro-forestry
    • Renewable energy : cogen, wind, geothermal, hydro, biomass
    • energy efficiency, fuel switch
    • Industrial processes that produce and reduce N20
  • A Sample of an Institutional Arrangement for A Carbon Finance Program in Laguna de Bay Laguna Lake Development Authority Private Sector LGU 2 LGU 1 SUB-ERPA ERPA Piggery owner
  • Carbon Finance Program in Mindanao???
    • Need a MANAGING ENTITY/PMO
    • Sizable number of projects under the program to generate high volume of emission reduction (ERs)
    • Carbon finance will not finance the project; it will only purchase the ERs
    • One program to adopt one methodology approved by the UNFCCC EB
    • Thank you!!!
    • For more information, visit our website:
    • www.carbonfinance.org