The document discusses the World Bank's strategic framework for addressing climate change and development. It aims to enable the WBG to support sustainable development and poverty reduction as climate risks and opportunities arise. Key principles include working in partnerships guided by the UNFCCC process and taking country-led, tailored approaches. The WBG will provide knowledge, mobilize resources, and support regional and country climate strategies and plans through financing climate change mitigation and adaptation. Carbon markets can play a central role in mobilizing private sector finance for low carbon investments in developing countries.

1. Climate change as a development challengeJariVayrynen, Sr. Environmental Specialist, World BankMeeting the challenge is not a choice between growth and climate change…a climate smart world is within reach if we act now, act together and act differently…… and build on new finance, technology and capacity at scale.

2. WB Strategic Framework for Climate Chance and DevelopmentObjectives:Enable WBG to effectively support sustainable development and poverty reduction, as climate risks and climate-related economic opportunities arise

3. Facilitate global action and interactions among all countriesKey principles:Working in partnerships guided by UNFCCC process

4. Country-led, country-driven, “no regrets” actions

5. Approach tailored to specific needs of diverse clientsKnowledge &CapacityBottom Up MomentumMDB & UNPartnershipsResource MobilizationClimate Investment FundsRegional / Country Strategies

6. Financing Climate Change MitigationScale of financing needs for mitigation estimated by UNFCCC at $200 billion annuallyConcessional resources are very limited for low carbon investments in developing countries and transition economiesMobilizing private sector finance is crucialMarket mechanisms can play a central role

7. Finance scaled-up demonstration, deployment, and transfer of low carbon technologiesCountry Investment Plans:Support country development strategies

8. Leverage financial products of International Financial Institutions

9. Stimulate private sector engagementClean Technology Fund (CTF)± $5 billionTargeted programs with dedicated funding to pilot new approaches with potential for scaling upPilot Program for Climate Resilience: Mainstream climate resilience into core development planning

10. Forest Investment Program: Reduce emissions from deforestation and forest degradation

11. Scaling Up Renewable Energy in Low Income CountriesStrategic Climate Fund (SCF)±$1 billion

12. Investmentplans endorsed with a total funding envelope of US$1.85 billionAverage leverage US$ 1 to 10 Pledges (+/-) US$5 billionEnergy Efficiency - Replacing inefficient lighting and appliances; expectedemissions reductions of 4 million tons of CO2 per yearUrban Transport - 20 bus rapid transit corridors with low-carbon bus technologiesRenewable Energy Proposed CTF » $500 million leverages » $6.2 billionMexicoTurkeyRenewable Energy - Implementing "intelligent" grid management and control systems to support large-scale integration of wind power Renewable Energy and Energy Efficiency - Promoting private sector development through credit lines to local development banks Proposed CTF » $250 million leverages » 2.1 billion Wind Power - From <1,000 MW to 2,500 MW of electricity from wind Urban Transport - Six bus rapid transit corridors and five light rail route Proposed CTF » $300 million leverages » $1.9 billionEgypt

13. 6World Bank Carbon Market initiativesWorld Kyoto Funds under implementation reaching over $2 billion in funding and about 130 ER purchase agreements signedProgress with new facilities:Exploring possibilities for further engagementCarbon in Agriculture sector

14. Carbon Capture and Storage (CCS) Forest Carbon Partnership Facility (FCPF) Operational since June 2008 - current donor pledges at $107 million37 Developing Country ParticipantsCarbon Asset Development Fund (CADF) operational at €7 millionCarbon Fund currently €100 million (minimumtarget €200 million)Carbon Partnership Facility (CPF)

15. How do carbon markets work?What is the underlying principle?Cost-effectiveness: a ton of CO2 emitted anywhere in the world has exactly the same impact on climate change and should therefore be reduced/ mitigated where the cost of doing so is lowest.Units = tons of carbon dioxide (or equivalent) allocated as part of an emission cap or “reduced” by a project or program activity. These units are labeled based on the market segment in which they are traded : AAUs, CERs, ERUs, EUAs, VERs, etc.What is traded?Lowers compliance costs for meeting emission reduction obligations; ;

16. Catalyzes financial and technology flows to developing countries to facilitate low-carbon growth;

17. Creates a global and long-term price signal to lower carbon intensity.What are the benefits?Significant new investments and financial flows

18. Application of new technologies and financial instruments to reduce emissions at lower costs; and

19. Transition to a lower carbon economy better tuned to cope with future resource and environmental constraints. Why should this be of interest?

20. Kyoto Protocol-based carbon markets“Business as-usual” projected emissions by 2008Project-based Offsets (CDM/JI)Projected emissions increase between 1990 and 2008-2012Sources of reductionCDM: Offsets obtained from a non-Annex I countryJI: Offsets obtained from another Annex-I country;Allowances from IETDomestic actions1990 BaselineIET: Kyoto allowances obtained from another Annex-I countryBaseline emissionsKyoto targetKyoto allowed emissionsA significant amount of the reduction must be achieved through domestic measures19902008-12Beyond domestic actions to reduce emissions, a country can use trading to purchase reductions in another country to achieve compliance with its Kyoto obligations.Examples of trading options include:Buying emissions ALLOWANCES (called AAUs) from other countries with commitments which are below their Kyoto cap (International Emissions Trading)

21. Purchasing carbon OFFSETS from projects which reduce emissions

22. In developing countries (Clean Development Mechanism – CDM)

23. In economies in transition (Joint Implementation – JI)3

24. Purchase of ERsEmissionReduction Units (ERUs)ERUBaseline emissionsProject emissions Baseline Scenario ProjectScenarioHow does Joint Implementation (JI) work?Industrialized country with an emissions capDomestic actionPurchase of allowances$Emissions target$Project benefits from increased cash flow

25. EU Emission Trading Scheme91,910Carbon Market Values in 2008 (in M US$)Project-Based TransactionsAllowance MarketsAssigned Amount Units210JI300SecondaryCDMCDM6,50026,300

26. World Bank Carbon Finance Projects in BulgariaJoint Implementation projects:Sofia District HeatingPernik District HeatingSvilosa Biomass Green Investment Scheme (GIS)–options studyGIS is a system where revenues from AAU trades are reinvested in environmental projectsTo our knowledge Bulgarian Government has not yet concluded any GIS transactions11

27. 12ConclusionsClimate change is fundamentally a development issue, not only an environmental issueHuge financing needsCarbon markets will continue to be play a major role in catalyzing low carbon investments in developing countries and transition economiesThe World Bank, through a range of financial instruments and capacity building activities, is deeply engaged in this effort

28. Thank You.JariVayrynenjvayrynen@worldbank.orgPlease visit us online atwww.carbonfinance.org