Download UNDP`s - Global Environment Facility

Stock-taking on GEF
Engagement in Carbon Markets
UNDP MDG Carbon (Part I)
Marcel Alers, PTA, Climate Change Mitigation
GEF Case Studies / Removing
Barriers (Part II)
John O’Brien, RTA, Climate Change Mitigation
Meeting on GEF-5 and Carbon Finance
Washington DC,
15 November 2010
0
UNDP and Climate Finance
GEF Unit
Climate Change
MDG
Carbon
Portfolio of climate change mitigation
[and adaptation] projects
Capacity building, technical assistance and
commercialization of carbon projects
UN
REDD
Montreal Protocol
Unit
Avoided deforestation pilots
and support to international dialogue
Portfolio of ozone depleting substance
projects with large climate benefits
Combining and Sequencing Climate Finance
Additional platforms include: Territorial Approach, Community Based Adaptation,
Green Commodities Facility, & others
1
Today’s UNDP Team
GEF Unit
Climate Change
MDG
Carbon
Marcel Alers
Principal Technical Advisor,
Climate Change Mitigation
Robert Kelly
UNDP GEF, Arab States
Oliver Waissbein
MDG Carbon, Finance & Legal
John O’Brien
UNDP GEF, Europe and CIS
Noel Soriano
UNDP GEF, Asia Pacific
2
MDG Carbon
Mission
Mission:
• Create market-enabled environments
• Develop proof-of-concept, demonstration carbon finance
activities
3 core objectives:
• Access. Expanding to under-represented developing countries
• MDGs. Promoting sustainable development outcomes
• Scale. Promoting replication and solutions at scale
3
MDG Carbon
Focus Areas and Activities
Market Enabling
Grant Based Model
Project Development
Cost-Recovery Model
Activity Pillar I
Activity Pillar II
Activity Pillar III
Activity Pillar IV
Policy
Dialogue
Capacity
Building
New
Meths &
Instruments
Project
Development
Activities
Thematic Area I: Project-Based Carbon Finance (CDM/JI)
GEF-5
Climate
Change
Thematic Area II: Sectoral Crediting & Trading Mechanisms
Thematic Area III: Unaddressed Sources & Sinks of GHGs
4
MDG Carbon:
3 Thematic Areas
Synergies / Linkages
Thematic Area I:
Project-Based
Carbon Finance
(CDM/JI)
Thematic Area II:
Sectoral Crediting &
Trading Mechanisms
Thematic Area III:
Unaddressed Sources
& Sinks of GHGs
•
•
•
•
Discrete project activities
Addressing existing imbalances in CDM/JI
Well suited to LDCs
Opportunity to develop programmatic approaches
•
Emerging modality for carbon finance at scale,
addressing entire national sectors (cement, buildings)
Forerunner to domestic market mechanisms
Well suited to MICs and EITs
•
•
•
•
•
Sources and sinks of emissions currently not covered
by international agreements
Examples: ozone depleting substances, peatlands
Voluntary carbon markets as a stepping stone
5
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
6
Part II
Case Studies
Removing Barriers to enable private sector
carbon markets to work properly
John O’Brien
John O’Brien, Regional Technical Advisor
Climate Change Mitigation
[email protected]
Washington D.C., November 15th 2010
7
Carbon Market has grown and grown but has it been a success?
1. Why the private sector carbon market has not fully
worked over the period 2003-2010
2. What are the barriers to a full functioning private sector
carbon market
3. Case Studies – Kyrgyzstan Small Hydro & Other
4. Concluding Thoughts
8
Only FOUR countries make up 70% of the private sector carbon market!
Location of CDM Projects
• 4 countries (China, India, Brazil and
South Korea) account for 70% of CDM
projects and 80% of CERs through to
2012
• 50% of all issued CERs are from 50
projects (over 2000 projects registered to
date)
• Sub-Saharan Africa accounts for 2% of
registered projects and 5% of CERs
through to 2012
• Africa has largely been forgotten by the
CDM
Ex: Geographical imbalance in the CDM
9
The CDM was supposed to stimulate billions of dollars of investment in
emission reduction projects – What happened in reality?
GHG
HFC23
N2O
Project Sector
HFC22 Production
Nitric & Adipic Acid
Production
CH4
Landfills, Coal-mines,
Gas Networks, Biogas
SF6
Magnesium Production
CO2
These CDM Projects have
quick pay-back periods:
Normally 3 years or less
Carbon pays for
50% to 100% of project cost!
Typically high IRR
Renewable Energy
Typically longer payback periods:
5 years and greater
Forestry
Energy-efficiency
Larger upfront capital
requirements
10
Despite high potential carbon finance for EE has not taken off …
11
A number of barriers have stopped carbon market from really flourishing …
Barrier
Barrier Explained …
Awareness Barriers
Lack of awareness of the benefits of carbon
finance at local/sub-regional level. Not well
understood. 2/3 of countries with less than 10
CDM projects.
Policy Barriers
Lack of Government Policies to favor CDM or JI –
or to attract investment in general. Policies need
to create a favorable investment environment.
Regulatory Barriers
Lack of Approval Mechanisms – DNA not always
established or effective. Approvals take time.
(Government approval and CDM EB approval)
Opportunity Cost Barriers
Carbon Finance is only a small part of project
revenues in most co2 reduction type projects.
Senior management needs to focus on other
issues, not on generating CERs/ERUs.
1212
A number of barriers have stopped carbon market from really flourishing … (Part 2)
Barrier
Barrier Explained …
Risk Guarantee
Risk guarantee insurance is either very difficult or
very expensive to obtain.
Transaction Cost Barriers
Transaction costs in the carbon market are too
high. It simply should not cost $150-200,000 usd
plus to develop and register one single project.
Financial Barriers
Carbon Market was lots of trading and little
financing. With few exceptions, an ERPA does
not provide sufficient collateral to obtain a bank
guarantee - debt markets look for traditional
guarantees. Equity wants a higher return to
compensate for the higher level of risk.
Uncertainty Barriers
Would you invest your money in a carbon finance
project in 2010 when there is so much uncertainty
surrounding the future of the carbon market post2012.
1313
UNDP Barrier Removal Activites to Overcome Carbon Market Barriers in Europe & CIS
region incl. Central Asia fall into two categories …
Project Development
Market Enabling
 Kazakhstan – Roundtable on Kyoto & 1 day
Training seminar to Kaztransgaz (GEF EE lighting
and EE buildings project and wind project)
 Ukraine - Lugansk Landfill Gas – Methane Capture
Project
 Uzbekistan - Gas Recovery from Pipeline Project
with UzTransGaz
 Kyrgystan – Discussions on carbon finance
opportunities and elaboration of project ideas (GEF
EE Buildings & Small Hydro)
 Kyrgyzstan - Small Hydro Project
(pending due to political reasons)
 Tajikstan – Roundtable on carbon finance
opportunities and identification of possible projects
(GEF Renewable Energy project)
New CDM Project Ideas
 Programmatic CDM for Small Hydro in Georgia
(GEF Renewable Energy project)
 Turkmenistan – Discussions on carbon finance
opportunities and elaboration of project ideas (GEF
EE Buildings)
 Programmatic JI : EE Lighting in the Russian
Federation (3 x GEF EE Projects (new))
 Uzbekistan – Assistance with establishing the DNA
and elaboration of project ideas (GEF EE Buildings)
 PoA EE Buildings (Uzbekistan & Kyrgzstan)
UNDP employed a Full-Time carbon
specialist for Central Asia for 2 years
1414
Lessons Learned by UNDP in developing Carbon Finance projects
 Project Development (CDM, JI) moves much slower than you might expect as
many projects face unexpected problems and delays;
 The actual number of emission reductions achieved by projects can often by
much less than originally estimated - strong due diligence is critical;
 New types of staff with experience in carbon finance are required in UNDP
(typical grant model that UNDP is used to does not apply to carbon finance – cost
recovery model is more service oriented);
 It is critical to select project partners very carefully (i.e – no large multi-national
companies but also no ‘one man and a dog’ companies);
 UNDP should work in countries where the private sector carbon market does not
work and with project types that are not widely implemented in these countries;
(i.e – no 51st landfill gas project in Brazil or 60th wind project in China)
1515
Capacity Building
Business
Plans
Where is the overlap?
Feasibility
Studies
Projects
Finance - Debt
Awareness
Carbon Finance
Carbon Finance
Project Development
Market Enabling
Finance - Equity
Policies
What
goes
here?
Finance –
Revolving Fund
Regulations
GEF
Removing Barriers to
Energy-Efficiency,
Renewable Energy,
Sustainable Transport
LULUCF
Legislation
Opportunity
Cost
New Approaches
- PoA
- NAMAs
- Sectoral Trading
- REDD
Financing – ERPA
prepayment
Financing – Risk
Guarantee
Studies & Reports
on carbon finance
16
Conclusion : Now is an ideal time to get
involved in the post-2012 carbon markets
Thank You!
17