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Integrating GEF & Carbon Finance:A No-Regrets Policy
Robert KellyRegional Technical Advisor,Climate Change Mitigation
robert.kelly@undp.org
Washington D.C., November 15th 2010
2
In 5 years, the CDM has sparked an $8 billion/year market
Compound Monthly Growth Rate = 11%
Approximately 1 billion CERs by 2012
Compound Monthly Growth Rate = 11%
Approximately 1 billion CERs by 2012
Number of Projects in the CDM Pipeline,January 2005 – October 2010
Source: UNEP Risoe (2010)
Jan05
Jun05
Dec05
Jun06
Dec06
Jun07
Dec07
Jun08
Jun09
Dec09
Jun10
Dec08
67 147520
821
1,414
2,041
2,944
3,788
4,475
5,089
5,6886,060
6,767
Oct10
3
The carbon market already dwarfs the GEF
2.0
2.7
0.4 0.3
1.1
0.3
AAUs PrimaryCDM
JI VoluntaryMarket
GEF 5 Total
GEF 5ClimateChange
118.5
EUETS
AllowancesAllowances CreditsCredits GEFGEF
Carbon market in 2009: $144 billion
GEF 5 Climate Change (annualised):$0.3 billion
Carbon market in 2009: $144 billion
GEF 5 Climate Change (annualised):$0.3 billion
Source: World Bank (2010)
US
$ b
illi
on
s
4
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
3 pages of eligibility criteria;40 pages in total
CDM Tool: Calculation of the number of sample plots for measurements within A/R CDM project activities
A typical page…
5
There is plenty of untapped carbon finance potential
The Potential
“There is a large, diversified range of CDM opportunities across Sub-Saharan 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 power-generation capacity, more than twice the region’s current installed capacity.”
- World Bank, 2008
The Reality
25 registered CDM projects (two-thirds in RSA); 2 PoAs
6
Yes, the GEF can play a vital role in laying the groundwork
Fin
anc
ial R
etu
rn
Risk of Investment
Infeasiblemitigation
project
Infeasiblemitigation
project
CDM revenueCDM revenue
Attractivemitigation
project
Attractivemitigation
project
GEF barrier removalGEF barrier removal
7
But the GEF should not stop at the broader enabling environment
The distinction between ‘public goods’ and ‘private goods’ is artificial
oNew methodologiesoFirst-of-a-kind projects (including PoAs)oUnder-developed sectors (e.g. forestry, energy efficiency)oCatalysing national markets (proof-of-principle projects)
GEF financing should be used to support individual carbon finance projects
11
8
But the GEF should not stop at the broader enabling environment
Emissions double-counting is not a show-stopper
oWhy not just create a new GEF accounting category, in addition to direct, indirect and post-project direct reductions, called ‘GEF-catalysed carbon market reductions’?
GEF financing should be used to support individual carbon finance projects
22
9
But the GEF should not stop at the broader enabling environment
GEF needs to stay relevant!
GEF financing should be used to support individual carbon finance projects
33
“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
10
And project-based carbon finance is not the only game in town
Source: Climate Action (2009)
Glo
bal
Em
issi
on
s
Time
Evolving Carbon Finance Instruments
NAMAs+E.g. Renewable Energy Support
Programme
A NAMA to support the implementation of a feed-in tariff could include:
•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
•MRV
E.g. Renewable Energy Support Programme
A NAMA to support the implementation of a feed-in tariff could include:
•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
•MRV
Sound familiar?Sound familiar?
11
Noel SorianoProject-based carbon
finance (CDM/JI)
12
Comparison of GEF and Carbon Finance
Particulars GEF Carbon Finance (CDM)
ObjectiveTransformation of markets towards low carbon development
Provision of financial resources and technology for developing countries; meeting emission reduction targets for developed countries
StrategyHolistic, barrier removal; creation of enabling environments
Project-based; focus on emissions reduction
ModalityProvision of grant for agreed incremental costs
Payment on delivery of certified emissions reduction
Project Types
EE & RE and sustainable transport; barrier removal to facilitate widespread applications of EE, RE and sustainable transport technologies
EE, RE, and sustainable transport projects that results in energy savings and GHG emission reductions; applications for capturing and destroying high GWP industrial gases
GHG emission reduction monitoring
Estimated direct and direct post emission reductions attributable to project; self-reporting
Emission reductions quantified, monitored, verified, and certified
13
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)
14
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 Financial support for feasibility studies and baseline studies/surveys of potential replication projects that intends to access or avail of CDM. Project Preparation FundBaseline studies/surveys
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
15
Examples of Potential GEF Support for Carbon Finance
Relevant GEF CCM Project
ActivityExample 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
16
Examples of Potential GEF Support for Carbon Finance
Relevant GEF CCM Project
ActivityExample Description Suggestion for CF/CDM Support
Establishment of Baseline Data for the Demonstration Project Sites
Several Gathering of baseline data for each demonstration projects as well as establishing operating performance targets for each demonstration.
Apply also to selected potential replication projects intended for CF/CDM, and include this as part of the incremental activities.
Technical Assistance to Potential Replication Projects
Several 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. Include TA in the conduct of EIA, drafting of PDD, and pre-validation
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.
17
Oliver WaissbeinSectoral Approaches &
Unaddressed Sources & Sinks
18
Ideas for GEF Engagement Sectoral Approaches & Unaddressed Sources & Sinks
General Barriers
Data:• Sector baseline surveys
Policy: • Policy formulation
and implementation
Finance:• Financing and incentives for
private sector
MRV:• Design of data collection systems
Project-based (CDM)
ProgrammaticCDM
SectoralApproaches
Trading Schemes
NAMAs
Moving to scale, quantifying and putting a price on carbon
19
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
Ideas for GEF Engagement Sectoral Approaches & Unaddressed Sources & Sinks
UNDP Examples
20
End/Additional Slides
21
Energy Efficient Market Transformation/
Early RetirementCurrent Funding Sources:
• GEF• MLF (pilots)• Innovative financing
mechanisms
Industrial Conversion/Manufacture of ODS-Free,
Low-GWP Appliances
Current Funding Sources:• MLF• CERs (HFC 134a)• VERs (HCFC 141b)
End of Life/ODS Destruction
Current Funding Sources: • VERs • MLF (pilots)• Innovative financing
mechanisms
ODS Life-Cycle
UsagePhase
Waste Management
Replacement of unit
Combining and Sequencing Climate Finance: Life Cycle Management of Refrigerators
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