Download Financial Engineering for Natural Refrigerants

Steve Gorman
Program Manager
Global Environment Program
Environment Department
The World Bank Group
WORLD BANK’S LENDING PROGRAM

World Bank provided $46.9 billion for 303
projects in developing countries worldwide in
2008;
WORLD BANK GROUP RENEWABLE ENERGY &
ENERGY EFFICIENCY FINANCING FY2004-09
WORLD BANK GROUP LOW-CARBON ENERGY
COMMITMENT IN FY09
Available Resources for Climate Change
Mitigation
(Total Needs est.
$170bn+ / year)
FCPF
$0.2 b
REDD
Carbon Market:
CDM&JI
~ $ 8 billion
for FY09
GEF
$ 0.25 blln
for FY09
$3.4 billion
for FY09
$ 0.25 b
Adaptation
funding
Resources
to address
Climate Change
Adaptation
Fund
$ 0.3-0.5 blln
UNDP
$ 0.09- 0.12 blln
for adaptation
EU
(Total Needs est.
$28-67bn / year)
Both M&A
IFC/MIGA)
GEF
Adaptation
WBG RE &
EE Progam
(IBRD/IDA/
Global Climate
Change Alliance
€ 0. 3 blln
GFDRR
$ 0.07 blln
Bilateral
Donors
$?
FY09 estimates are projections
Private
Donors
$?
?
Climate
Investment
Funds (MDBs)
$6.1 billion
Other MDBs
$3 billion
for FY09
?
MLF $2b since
inception
AVAILABLE SOURCES OF PROJECT-LEVEL
MITIGATION FINANCE

GEF: Global Environment Facility




CIF: New funds, esp. Clean Technology Fund (CTF)



Pledges of $6.1b across all components of CIF
Pledges of $5.2 b especially for CTF
CF: Newly established Carbon Partnership Facility (CPF)



Allocated $2.4b to CC mitigation from 1991-2008
Current GEF-4 Replenishment $1b for CC, $250m per year
GEF-5 Replenishment beyond 2010
Existing funds of $2b for period up to 2012 largely committed
CPF pledges of $200m will open first tranche for operation
World Bank Group’s own resources


FY08 Approvals of $2.7b for renewables and energy efficiency, including GEF, IFC,
MIGA, IBRD, and IDA
Target of $3.3 billion for FY’09 to EE and RE
How to utilize the above for HCFC phase-out and maximize the impact of
the limited resources available?
CAN THE FOUR SOURCES BE COMBINED IN THE
SAME PROJECT?
(+)
C
a
s
h
F
l
o
w
Year
Baseline development project—BAU—no GHG mitigation
(-)
MITIGATION PROJECT: GHG EMISSION
REDUCTION
(+)
C
a
s
h
F
l
o
w
Year
Redesigned project—higher costs & benefits
(-)
GEF/MLF: REMOVE BARRIERS, INNOVATE AND
CONDITION MARKETS
(+)
GEF/MLF
C
a
s
h
F
l
o
w
Year
(-)
ADD CTF: TRANSFORM MARKETS
(+)
C
a
s
h
F
l
o
w
Year
CTF
(-)
ADD CF: ENHANCE REVENUES
(+)
CF
C
a
s
h
F
l
o
w
(-)
Year
CONDITION MARKETS, TRANSFORM MARKETS,
ENHANCE REVENUES
(+)
CF
C
a
s
h
F
l
o
w
GEF/MLF
Year
CTF
(-)
HOW TO WEAVE TOGETHER THE FOUR
SOURCES OF MITIGATION FUNDING?

Each must be used in a manner consistent with its
objectives and approaches





GEF: Focus on barrier removal—source of grant funding
to establish conditions for market sustainability
CTF: Focus on investment support—providing investment
support in form of loans, grants or guarantees
CPF: Performance reward to provide extra revenue to
scale-up carbon-reducing investments
MLF: Identify applications of strategic importance to
phase-out and find intersection with above
May be linked simultaneously in same project
structure or sequentially through a consistent
programmatic approach
INDIA CHILLERS: HOW TO PHASE-OUT 1200
CHILLERS WITH $1M?

MLF provided $1m grant—30 chillers
Total market has 189 ODP t
 Given GWP, equals 378,000 t CO2 eq


GEF provided $6m—185 chillers
Interested in energy savings, 4.8 TWh over 20 years
 Equal to 3.9 m tonnes CO2 eq plus replication


CDM-Spanish carbon fund
Purchase CERs from project—revenues to revolving fund
 Flows of CER’s, 982,000 CER’s valued at $12m


Private investors---$80m to make investment
complete
SYNERGIES CAN LEAD TO GREATER IMPACT:
INDIA CHILLERS
Private Sector
$80 million
CDM
$12 million
GEF
$6 million
MLF
$1
million
Leveraging
enables MLF
Funds to achieve
greater impact
and investment
GEFindirect
8 m tCO2e
GEF-direct
4.6 m tCO2e
CDM
982,000 tCO2e
MLF
95,000
tCO2e
SYNERGIES MAKE IT POSSIBLE TO DESIGN PROJECTS
TO UTILIZE CTF, CPF, GEF & MLF

Objectives are not identical, but overlap can be found



Instruments are compatible with each other—can be used
sequentially or simultaneously



Requires foresight, strategic thinking
Building upon HCFC phaseout for greater EE & GHG reductions
Some complexities do exist





To reduce growth in GHG emissions linked to HCFCs
Condition markets; scale-up markets; enhance revenues
Issues of eligibility
Focus on larger countries
Changing strategy and focus
Sunset clause
Although programmatic approaches can be tailored to all four
instruments, need to focus on problem at hand
INNOVATIVE FINANCIAL ENGINEERING – INTERNATIONAL
FINANCE FACILITY FOR IMMUNISATION (IFFIM)




IFFIm was launched in 2006 thanks to the initiative of the United
Kingdom Government. IFFIm is also supported by France, Italy,
Spain, Sweden, Norway and South Africa who have together
pledged to contribute US$ 5.3 billion to IFFIm over 20 years.
This strong financial base enables IFFIm to have a triple-A rating
from the three major rating agencies.
IFFIm raises finance by issuing bonds in the capital markets and
so converts the long-term government pledges into immediately
available cash resources.
The long-term government pledges will be used to repay the
IFFIm bonds. The World Bank acts as financial adviser and
treasury manager to IFFIm.
POTENTIAL REPLICATION TO SUPPORT NATURAL
REFRIGERANT & EE PROJECTS
Donors
Up to 20-year
Grants
Investors
Capital Market
Funding
International
Facility for
Ozone/Climate
(IFFOC)
Financial
Management
Carbon Revenues
from Compliance and
Voluntary Markets
Country Driven ODS
and Climate
Protection Programs
TOWARD GREATER COOPERATION AND
SYNERGY IN CLIMATE-RELATED FUNDING





Opportunities do exist to utilize multiple sources of
funding in projects that will replace HCFC with the most
optimum ozone and climate friendly technologies
Innovative financial engineering model to monetize
future commitments to support up-front investment exists
and could be applied to future commitments (MLF
contributions) and future revenues (CERs)
Strategic thinking is necessary to piece together puzzle
and maximize global benefits
As much as strategy, patience may be even more
necessary
Cooperation and synergies are necessary to leverage
large impacts and benefits