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Integrating GEF & Carbon Finance:
A No-Regrets Policy
Robert Kelly
Regional Technical Advisor,
Climate Change Mitigation
[email protected]
Washington D.C., November 15th 2010
In 5 years, the CDM has sparked an $8 billion/year market
Number of Projects in the CDM Pipeline,
January 2005 – October 2010
6,767
6,060
5,688
5,089
Compound Monthly
Growth Rate = 11%
4,475
3,788
Approximately 1 billion
CERs by 2012
2,944
2,041
1,414
821
520
67
Jan
05
147
Jun
05
Dec
05
Source: UNEP Risoe (2010)
Jun
06
Dec
06
Jun
07
Dec
07
Jun
08
Dec
08
Jun
09
Dec
09
Jun
10
Oct
10
1
The carbon market already dwarfs the GEF
118.5
Carbon market in 2009:
$144 billion
US$ billions
2.7
GEF 5 Climate Change
(annualised):
$0.3 billion
2.0
1.1
EU
ETS
AAUs
Allowances
Source: World Bank (2010)
Primary
CDM
0.4
0.3
JI
Voluntary
Market
Credits
0.3
GEF 5
Total
GEF 5
Climate
Change
GEF
2
But carbon finance is not easy
ACM0003: Emissions reduction through
partial substitution of fossil fuels with
alternative fuels or less carbon intensive
fuels in cement manufacture
CDM Tool: Calculation of the number
of sample plots for measurements
within A/R CDM project activities
3 pages of eligibility criteria;
40 pages in total
A typical page…
3
There is plenty of untapped carbon finance potential
The Potential
The Reality
“There is a large, diversified range of
CDM opportunities across SubSaharan Africa’s energy sector…a
technical potential of more than
3,200 clean energy projects,
including 361 Programs of Activities.
If fully implemented, this technical
potential could provide more than
170 GW of additional powergeneration capacity, more than twice
the region’s current installed
capacity.”
- World Bank, 2008
25 registered CDM projects
(two-thirds in RSA); 2 PoAs
4
Financial Return
Yes, the GEF can play a vital role in laying the groundwork
Attractive
mitigation
project
Infeasible
mitigation
project
CDM revenue
Risk of Investment
GEF barrier removal
5
But the GEF should not stop at the broader enabling environment
GEF financing should be used to support
individual carbon finance projects
1
The distinction between ‘public goods’ and ‘private goods’ is
artificial
o New methodologies
o First-of-a-kind projects (including PoAs)
o Under-developed sectors (e.g. forestry, energy efficiency)
o Catalysing national markets (proof-of-principle projects)
6
But the GEF should not stop at the broader enabling environment
GEF financing should be used to support
individual carbon finance projects
2
Emissions double-counting is not a show-stopper
o Why not just create a new GEF accounting category, in
addition to direct, indirect and post-project direct
reductions, called ‘GEF-catalysed carbon market
reductions’?
7
But the GEF should not stop at the broader enabling environment
GEF financing should be used to support
individual carbon finance projects
3
GEF needs to stay relevant!
“Mobilising $100 billion/year by 2020 is
feasible but challenging…Funding will
need to come from a wide variety of
sources…Instruments based on carbon
pricing are particularly attractive
because they both raise revenue and
provide incentives for mitigation
actions”
- Secretary General’s High Level
Advisory Group on Climate Change
Financing
Mediterranean Solar Plan
8
And project-based carbon finance is not the only game in town
Evolving Carbon Finance
Instruments
+
NAMAs
E.g. Renewable Energy Support
Programme
A NAMA to support the
implementation of a feed-in tariff
could include:
Global Emissions
• Covering the incremental cost
of renewable generation
• Capacity building to expand
technical & regulatory expertise
• Establishment of institutions to
operate the system
• Investing in enhanced grid
capacity
Time
• MRV
Sound familiar?
Source: Climate Action (2009)
9
Noel Soriano
Project-based carbon
finance (CDM/JI)
10
Comparison of GEF and Carbon Finance
Particulars
GEF
Carbon Finance (CDM)
Objective
Transformation of markets towards
low carbon development
Provision of financial resources and
technology for developing countries; meeting
emission reduction targets for developed
countries
Strategy
Holistic, barrier removal; creation of
enabling environments
Project-based; focus on emissions reduction
Provision of grant for agreed
incremental costs
EE & RE and sustainable transport;
barrier removal to facilitate
widespread applications of EE, RE
and sustainable transport
technologies
Payment on delivery of certified emissions
reduction
EE, RE, and sustainable transport projects
that results in energy savings and GHG
emission reductions; applications for
capturing and destroying high GWP industrial
gases
Estimated direct and direct post
emission reductions attributable to
project; self-reporting
Emission reductions quantified, monitored,
verified, and certified
Modality
Project
Types
GHG
emission
reduction
monitoring
11
Some Developing Countries
are not Benefitting from Carbon Finance
• No established DNA in some countries, and where there is one,
inadequate capacity to perform roles of DNA.
• Lack of technical capacity to develop and prepare CF projects,
let alone GEF projects
• High transaction costs for CDM projects, which are being
repaid from CER revenues
(PIN/PDD development; DOE validation & verification;
Registration; Monitoring cost, etc)
• High risks for projects particularly those that have high
development dividends in least develop countries
(Uncertain feasibility, due to non-availability of baseline data,
no established and approved methodologies, etc)
12
Potential GEF Support for Carbon Finance in CCM Projects
Carbon Finance
Requirements
Potential GEF Assistance
Institutional (Public Goods)
Creation and operation of
DNAs
Supplementary TA for institutional capacity development for relevant government institutions,
particularly the DNA, in the evaluation of suitable projects/initiatives on EE, RE & ST technology
applications that leads to GHG emission reduction.
Capacity building
Supplementary TA on capacity building for the private sector in accessing financing for EE, RE
and ST projects from various funding sources including CF
Project
Feasibility Studies
Baseline studies/surveys
Financial support for feasibility studies and baseline studies/surveys of potential replication
projects that intends to access or avail of CDM. Project Preparation Fund
Basic engineering design
Technical assistance (during GEF project implementation) for the basic engineering design of
feasible replication projects that can be potential CF/CDM projects
Development of new
methodologies
As follow-up for removing technical barriers to EE/RE/ST technologies, support the development
of new methodologies for projects that have potentially high GHG emission reduction dividends
Environmental Impact
Assessments/Studies
Technical assistance (during GEF project implementation) for the EIA/EIS of selected feasible
replication projects that can be potential CF/CDM projects
PIN/PDD development
Technical assistance (during GEF project implementation) for the PIN/PDD development of
feasible replication projects that can be potential CF/CDM projects
Validation, verification and
certification
Allow inclusion in the GEF CCM project financial plan at least the validation cost of selected
replication projects that will be assisted under the GEF CCM project
13
Examples of Potential GEF Support for Carbon Finance
Relevant GEF
CCM Project
Activity
Example
Description
Suggestion for CF/CDM Support
Project Preparation
Fund
PHI: CBRED
As part of the financial barrier removal
activities, PPF was established to allow
project preparation (including arrangement
of financing and power purchase
agreements (PPA)) for a selection of
"delivery mechanism" demonstration
projects slated for development.
Selected potential CF/CDM projects can
be included as eligible users of the Fund.
Detailed Feasibility
Studies of
Demonstration Sites
Several
Detailed technical design and engineering,
cost calculation, design of ownership and
management models, cost-benefit analysis,
design of operation and maintenance
concept, and assessment of financing
aspects
Apply also to selected potential replication
projects intended for CF/CDM, and include
this as part of the incremental activities.
Specific
Demonstration
Project
Implementation
Requirements
Several
Performance of activities to meet certain
requirements required to facilitate the
smooth and effective implementation of the
demonstration projects.
Apply also to selected potential replication
projects intended for CF/CDM, and include
this as part of the incremental activities.
Include development of new
methodologies and PIN development
14
Examples of Potential GEF Support for Carbon Finance
Relevant GEF
CCM Project
Activity
Example
Description
Suggestion for CF/CDM Support
Establishment of
Several
Baseline Data for the
Demonstration
Project Sites
Technical Assistance Several
to Potential
Replication Projects
Gathering of baseline data for each
demonstration projects as well as
establishing operating performance targets
for each demonstration.
As part of the follow-up work on promoting
proof-of-concept through the
demonstrations, technical assistance is
provided to selected project developers
interested in investing on the replication of
the demonstrations.
Apply also to selected potential replication
projects intended for CF/CDM, and include
this as part of the incremental activities.
Technical Assistance
for the Financing of
Demonstration
Projects
Selected
Provision of assistance in the processing of
applications for securing from banks/FIs
financing of the operation and maintenance
of demonstration projects
Apply also to selected potential replication
projects intended for CF/CDM, and include
this as part of the incremental activities.
Monitoring &
Evaluation
All CCM
projects with
demos
Design of the M&E scheme for
demonstrations
Apply also to selected potential replication
projects intended for CF/CDM, and include
this as part of the incremental activities.
Apply also to selected potential replication
projects intended for CF/CDM, and include
this as part of the incremental activities.
Include TA in the conduct of EIA, drafting
of PDD, and pre-validation
15
Oliver Waissbein
Sectoral Approaches &
Unaddressed Sources & Sinks
16
Ideas for GEF Engagement
Sectoral Approaches & Unaddressed Sources & Sinks
Moving to scale, quantifying and putting a price on carbon
Project-based
(CDM)
Programmatic
CDM
Sectoral
Approaches
Trading
Schemes
NAMAs
General Barriers
Data:
• Sector baseline surveys
Policy:
• Policy formulation
and implementation
Finance:
• Financing and incentives for
private sector
MRV:
• Design of data collection systems
17
Ideas for GEF Engagement
Sectoral Approaches & Unaddressed Sources & Sinks
UNDP Examples
1. Sectoral approaches
• Joint UNDP/Deutsche Bank report on GET-FiT.
Feed-in Tariffs for Renewable Energy
• Possible fund to finance premium
• Possible links to CDM, sectoral and NAMAs
2. Emission Trading
• Domestic or regional schemes
3. Climate impact of ozone depleting substances
• Transition from voluntary to compliance carbon
markets
18
End/
Additional Slides
19
Combining and Sequencing Climate Finance:
Life Cycle Management of Refrigerators
Energy Efficient
Market Transformation/
Early Retirement
Current Funding Sources:
• GEF
• MLF (pilots)
• Innovative financing
mechanisms
Usage
Phase
ODS
Life-Cycle
End of Life/
ODS Destruction
Industrial Conversion/
Manufacture of ODS-Free,
Low-GWP Appliances
•
•
•
Current Funding Sources:
MLF
CERs (HFC 134a)
VERs (HCFC 141b)
Waste
Management
Replacement
of unit
Current Funding Sources:
• VERs
• MLF (pilots)
• Innovative financing
mechanisms
20