Download Co-Financing Options

Co-Financing Options:
Support for HCFC
Phase-out
The World Bank Group
Montreal Protocol Operations
4-7 October, 2011
Regional Meeting of the Latin American and Caribbean
Ozone Network
Port of Spain, Trinidad
Drivers for Funding Scale-up
Environmental Objectives
• Achieve ozone objectives through 2040
• Maximize climate benefits
Funding Considerations


Adequacy of MLF funding available as a whole to meet
incremental costs
Potential to mobilize non-MLF resources for co-benefits
ee gains
Options
1.
2.
Co-financing approaches that can leverage funding through
market mechanisms
Co-financing options possible through Multilateral
Development Bank lending instruments and
mechanisms
Why Co-financing Matters
The MLF Context
Positive impact
on environment
Projects
MLF
Donors
Additionality
 Projects that bundle ozone and climate co-benefits can
generate significant global environmental benefits through
 phase-out of HCFCs +
 reduction in CO2 through adoption of more energy
efficient technologies
Scaling-up funds can be used to meet
demonstrated demands in HCFC management
strategies
3
Tapping into the Markets
• The use of market mechanisms can increase and accelerate
funding by tapping into carbon assets
• Future carbon assets generated by projects through ee
gains can be monetized and channeled back into projects to
improve the overall funding window
• Potential carbon assets are new and additional to MLF funding
• Depending on the modality, additional upfront funding/project
finance can be made available
• Financial viability of projects improve with inflow of additional funds
Enhanced positive
impact
on environment
Projects
Carbon
Assets
MLF
Donors
+
MARKET
4
Blending with Other Finance Instruments
Blending with MDB lending instruments can also
increase and accelerate access to funding by
identifying synergies with strategic national or
sectoral development goals supported by various
types of loans
Projects
Enhanced positive
impact
on environment
+
MLF
Donors
Fully or partially blended
Relevant, sector
specific loans
LOANS
5
Co-financing:
Options and Mechanisms
Grant Funding
• GEF
Market-based
funding
• Carbon
Finance
• VCS
Other Finance
Instruments
• CIFs
• Development
lending
Grant Funding
Global Environment Facility (GEF)
• Climate Change Strategy for GEF 5
• OBJ 2 - Promote market transformation for energy
efficiency in industry and the building sector
• barrier removal—source of grant funding to establish
conditions for market sustainability
• OBJ 6 - Support enabling activities and capacity building
Market-Based Funding : Carbon Finance
World Bank Carbon Finance Unit (CFU)



Funds contributed by governments and companies in OECD countries are
used to purchase project-based GHG emission reductions in developing
countries and CEITs
Emission reductions are purchased through one of 10 carbon funds on
behalf of the contributor, and within the framework of the Kyoto Protocol's
Clean Development Mechanism (CDM) or Joint Implementation (JI)
Not loans or grant resources to projects : contracts to purchase emission
reductions similar to a commercial transaction
◦
◦


Emissions reductions are paid for annually or periodically, once verified by a third party
auditor
The selling of emission reductions can increase the bankability of projects by adding an
additional revenue stream in hard currency, which in turn, can provide a means of leveraging
new private and public investment into projects that reduce GHG emissions
Over 60 private companies and over a dozen governments have invested
more than $2 billion in World Bank managed carbon funds
The Bank's carbon finance operations have demonstrated numerous
opportunities for collaborating across sectors, and have served as a catalyst
in bringing climate issues to bear in projects relating to inter alia, energy
efficiency and waste management
Market-Based Funding : Carbon Finance
Voluntary Carbon Market
Dec. XX/7 - study on the size and scope of existing ODS banks and the costs and benefits of taking
action on different categories of banks relative to the ozone layer and climate change

Verified Carbon Standard (VCS) : quality assurance standard that projects can use to
quantify GHG emissions, ensure they meet accepted quality standards and are
independently verified, and issue credits in voluntary markets
◦ approved a new methodology to quantify greenhouse gas emission reductions
from activities that recover and destroy ozone-depleting substances (ODS)
◦

http://www.v-c-s.org/methodologies/VM0016
Climate Action Reserve (CAR) : addresses the US carbon market by establishing
regulatory-quality standards for the development, quantification and verification of
GHG emissions reduction projects in North America
◦ issue carbon offset credits known as Climate Reserve Tonnes (CRT) generated
from such projects
◦ 2 protocols: United States Ozone Depleting Substances (ODS) Project Protocol
and an Imported Ozone Depleting Substances Project Protocol
◦ provide a standardized approach for quantifying and monitoring the GHG
reductions from projects that destroy domestic or imported ODS with high
global warming potentials that would have otherwise been vented
◦
http://www.climateactionreserve.org/how/
Other Finance Instruments: Climate Specific
CLIMATE INVESTMENT FUNDS (CIFs)
A World Bank partnership with the multilateral development banks that provides
financing instruments designed to support low-carbon and climate-resilient
development through scaled-up financing
Clean Technology Fund (CTF)
Promotes scaled-up financing for demonstration,
deployment and transfer of low-carbon technologies with
significant potential for long-term greenhouse gas emissions
savings
• Energy Efficiency - CTF promotes programs in support of buildings,
industry, and agriculture
• Eligibility – ODA eligible + have an active MDB Country program
• Mexico – 50 US $M (September 2010) - Efficient Lighting and
Appliances Project
Other
Finance
Instruments:
Climate Specific
Lending
Flows:
Climate Specific
Strategic Climate Fund (SCF)
An overarching framework to support 3 targeted programs
with dedicated funding to pilot new approaches with
potential for scaled-up, transformational action aimed at a
specific climate change challenge or sectoral response
• Pilot Program for Climate Resilience (PPCR) – objective is to pilot and
demonstrate ways to integrate climate risk and resilience into core
development planning, while complementing other ongoing activities
• Supports two types of investments
1) Funding for technical assistance to enable developing countries to build
upon existing national work to integrate climate resilience into national
and sectoral development plans
2) Funding public and private sector investments indentified in national or
sectoral development plans or strategies addressing climate resilience
• One regional program focused on the Caribbean: Dominica, Grenada,
Haiti, Jamaica, Saint Lucia, Saint Vincent and the Grenadines
Other Finance Instruments : Development Focused
The World Bank Group includes 2 unique development programs
that provide access to loans:
 The International Development Association (IDA) : focuses on the
world's poorest countries
 The International Bank for Reconstruction and Development (IBRD) :
aims to reduce poverty in middle-income and creditworthy poorer
countries
The International Development Association (IDA)

One of the world’s largest sources of aid, IDA provides support for health and
education, infrastructure and agriculture, and economic and institutional
development to the 79 least developed countries

Established in 1960, aims to reduce poverty by providing interest-free credits
and grants for programs that boost economic growth, reduce inequalities and
improve people’s living conditions

It is the single largest source of donor funds for basic social services in the
poorest countries
Other Finance Instruments : Development Focused
• IDA lends money (known as credits) on concessional terms. What
does this mean?
1. IDA credits have zero or very low interest charges
2. repayments are stretched over 25 to 40 years, including a 5 to 10-year
grace period
3. select countries receive IDA grants
• Protecting National and Global Resources
• IDA has provided about US$5.2 billion in environmental and natural
resources projects over the past decade
• Support provided has helped mitigate air pollution in urban and
industrial areas, provide cleaner and more reliable supplies of water,
make land management more sustainable, and deal with climate change,
protect biodiversity and build environmental institutions
[e.g. disaster mitigation and management in Haiti]
• IDA Eligible Countries (defined by GDP):
Bolivia
Grenada
Nicaragua
Dominica
Guyana
St. Lucia
Honduras
Haiti
St. Vincent and the Grenadines
Other Finance Instruments : Development Focused
The International Bank for Reconstruction and
Development (IBRD)

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Aims to reduce poverty in middle-income and creditworthy poorer
countries by promoting sustainable development through loans,
guarantees, risk management products, and analytical and advisory
services.
IBRD borrowers include countries at widely different stages of
development, from emerging markets, such as Mexico, to countries
struggling to find a foothold in the global economy.
Established in 1944 as the original institution of the World Bank
Group, IBRD is structured like a cooperative that is owned and
operated for the benefit of its 187 member countries.
IBRD raises most of its funds on the world’s financial markets. The
income that IBRD has generated over the years has allowed it to fund
development activities as well as to ensure the financial strength that
enables it to borrow at low cost and offer clients good borrowing
terms.
Other Finance Instruments : Development Focused
IBRD ~ Toward the Future

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The demand for policy, knowledge and financing support
in low carbon growth and climate resilience is growing
steadily.
IBRD resources can be expected to be called to support
transformational programs with lower emissions
catalyzed by dedicated climate resources.
IBRD capital is also expected to be in greater demand for
guarantees and insurance products to attract private
sector investments in new technologies and in climatevulnerable areas.
Contributions to existing and emerging climate funds are
expected to leverage considerable underlying financing
from public and private sources
EE/RE Financing at the World Bank
1,771
US $
Millions
World Bank Group Financing for Energy Efficiency & Renewable Energy |
Figures in $US Millions (fiscal year 2010)
World Bank Lending Instruments and Approaches
World Bank investment lending finances goods, works, and
services in support of specific economic and social
development objectives in a broad range of sectors


Specific Investment Loan (SIL) - supports the creation,
rehabilitation, and maintenance of economic, social, and
institutional infrastructure
◦ SILs may also finance consultant services and management and
training programs
When are SILs used?
◦ SILs are flexible lending instruments, appropriate for a broad
range of projects
◦ SILs help to ensure the technical, financial, economic,
environmental, and institutional viability of a specific
investment. They also support the reform of policies that affect
the productivity of the investment.
Co-financing in Practice
WB GEF Portfolio: Blending with Lending
 As an Implementing Agency of the GEF, the
Bank views blending/integrating projects with
loans as one good way to achieve the leveraging
requirements of the GEF
 Of projects under implementation in FY11,
44% were blended with IBRD or IDA loans
◦ The bulk are in the biodiversity and climate
change focal areas
◦ POPs – a recently endorsed PIF for a POPs FSP
in Vietnam will blend with an IDA loan of US
$150 M in the health sector
Energy Security
• Mexico is Latin America’s largest energy consumer
• strategic importance to the economy and is a driver of economic
growth, productivity and competitiveness
• Energy efficiency and diversification
• long-term sustainability of the Mexican energy matrix
Climate Change mitigation
• Mexico is a major contributor to greenhouse gas emissions
• 12th in the world in terms of total GHG emissions
• 2nd largest emitter in Latin America.
• The energy sector accounts for >60% of total CO2e emissions
EE Residential Sector
• 2008 - residential sector = 26 % of total electricity use in Mexico
• PRONASE (Energy Efficiency Program 2009-2012)
• opportunities to achieve optimal use of energy and generate substantial
energy savings in the medium and long term, including lighting and
household equipment
Scrapping
Centers
IBRD
Retail Stores
Government of Mexico
(SENER, via an operator)
CTF
National
Development
Bank
GEF
Guarantee Facility
Repayment
via
Electricity
Bills
Eligible Consumers
$$$ IBRD,
CTF, GEF
$$$ Carbon
4 sources of financing
Finance
Filling the Gap : Voluntary Carbon Markets
CFC-12 will be captured from old appliances and properly collected and recycled
or stored at qualified scrapping centers.
Non-recyclable CFC-12 should be properly destroyed
With Montreal Protocol MLF resources, the project will support the development
of a project document for submission to the voluntary carbon markets to finance
the destruction of CFCs.
Useful Resources
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Climate Investment Funds
◦ http://www.climateinvestmentfunds.org/cif/
IBRD
◦ http://web.worldbank.org/WBSITE/EXTERNAL/EXTABOUTUS/EX
TIBRD/0,,menuPK:3046081~pagePK:64168427~piPK:64168435~
theSitePK:3046012,00.html
IDA
◦ http://www.worldbank.org/ida/
Climate Finance Options (WB/UNDP partnership)
◦ Funding sources/results of projects on the ground
◦ http://www.climatefinanceoptions.org/cfo/index.php
Thank You
Montreal Protocol Operations
Environment Department
The World Bank