Carbon Finance at the World Bank

Workshop on CDM and AfricaJinja, Uganda, 11 November

2005Andrea Pinna

Carbon Fund

Carbon Fund

$$ $$

22 22

Emission ReductionPurchase Agreement

BanksInvestor

DebtEquity

Power Purchase Agreement

$$

Electricity

$$

CarbonCredits

Upfront payment as “Equity”Less than 25% of contract

Collateralization of ERPA

Role of carbon finance in project financing

Key Features of Carbon Finance

• Both public and private capital – new and additional sources for sustainable development financing

• Payment on Delivery – payments are made upon annual independent verification that emissions reductions have occurred. – Unlike most buyers in the market, Participants in Bank Funds

agree to take Kyoto regulatory risk: Hence, our carbon fund contracts are “bankable”, allowing more projects to get financing than if regulatory risk remained open.

• Payment stream is in hard currency, reducing financing risk for foreign lenders

Technology Delta IRR

financial

Hydro, Wind, Geothermal

0.5-2.5%

Crop/Forest Residues

3-7%

Municipal Solid Waste

5-15+%

Carbon economics: Increases in Project Rates of Return as a result of additional revenues from sales of Emissions Reductions (“Carbon”) at $4/tCO2e

• Hydroelectric power offsetting the need for coal- or gas-fired generation

• Extending grid to reach customers currently using diesel or kerosene

• Reducing CO2 and possibly methane (a potent greenhouse gas) by generating energy and bio-fuels from sugar industry by-products -- bagasse and molasses

• Replacing firewood/kerosene/cowdung with biogas from livestock and human wastes

• Extracting methane from landfills or avoiding its generation trough composting organic waste in urban dumpsites

• Extracting methane from disposal of sewage sludge• Capturing N20, a powerful greenhouse gas, from fertilizer

production• Sequestering CO2 by tree planting, small plantations, land

restoration (limited capacity to buy though)

Types of Carbon Projects

Host country and project name ER generation (est.)

Benin Urban Waste Management 350,000

Congo Bateke Agro forestry 1,000,000

East Africa TIST 1,000,000

Ethiopia Addis Ababa Landfill Gas 1,600,000

Ethiopia Humbo Assisted Regeneration 1,000,000

Ghana Takoradi (IFC) 2,250,000

Kenya Greenbelt Movement 790,000

Madagascar Biodiversity Corridor 200,000

Metahara Sugar Cogen and Ethanol 373,000

Niger Acacia Plantation 1,000,000

Nigeria Aba Cogeneration (IFC) 1,200,000

Nigeria Lagos Urban Waste Management 750,000

Nigeria Mayon Turbo Stoves 384,780

Nigeria Transmission/distribution 1,500,000

Sierra Leone Bumbuna Hydro 750,000

South Africa Bethlehem Hydro 275,000

South Africa Buffalo City Urban (IFC) 1,000,000

South Africa Durban Municipal Solid Waste 3,800,000

Tanzania Mtibwa 24MW bagasse Cogen 384,000

Tanzania Waste Water Management  

Uganda Composting (Second Uganda Envt) 900,000

Uganda Kakira Sugar Cogen 439,000

Uganda Kampala Landfill  

Uganda Nile Basin Reforestation 250,000

West Nile Electrification Project 500,000

Zambia Consolidated Farming Limited Bagasse Cogeneration and Ethanol 512,000

The World Bank’s Objectivesin the Carbon Market

• Contribute to Sustainable Development– Support Developing Countries To Maximize Gains

from Carbon Finance – Add Value to CDM Projects

• Catalyze the Carbon Market– Develop new markets and sectors for carbon

finance– Build Capacity in Client Countries– Provide Liquidity to the Market

The World Bank’s Objectivesin the Carbon Market II

Address Market Distortions: • demonstrate credible forestry/agriculture “sinks”

activities• Open Markets for small projects and small

countries

Integrate and strengthen Technical Assistance and Capacity Building: to assist participating countries to access market

World Bank Policy in Carbon Finance

• Pay Market Prices corrected for risk, purchase either VERs or CERs

• Always contribute beyond the purchase of the CDM emission reduction

• While Building Capacity Of Clients Through Support and Training

• Give Full Information – Transparency and Integrity• Bring the Full Instruments of the World Bank Group

to Support Clients

World Bank Carbon Finance Products~$900 million under management

$80 million committed - Italian multi-participant

$220 million – Spanish Government; will be open to private sector

–

Bio Carbon Fund: $51.3 million; multi-shareholder. Still open for subscription until end of August; second tranche in September 05

Community Development Carbon Fund: multi-shareholder. Firsttranche closed at $128.6 million; second tranche to open once Portfolio for first tranche is well developed

Prototype Carbon Fund: $180 million, multi-shareholder

Netherlands JI

Facility

~$40 million. Economies in Transition only (with IFC)

$172 million – single government participant (Dutch Government)

$64million – Danish multi-participant; still open for subscription

Under development: Carbon Fund for Europe

How Carbon Funds Work

Industrialized Governments

and Companies

Developing Countries and Communities

Bank Managed Carbon Fund

Bank Managed Carbon Fund

$$Technology

Finance $$Technology

Finance

CO Equivalent22

Emission Reductions

CO Equivalent22

Emission Reductions

Payment on delivery of emissions reductions, not up-front capital costs

Bagasse1% Energy

Efficiency4%

LULUCF4%

Geothermal1%

Cement Manufacturing

6%

Biomass8%

N20 Removal

7%Coal Mine Methane

11%

Wind6%

Waste Management

37%

Small Hydro15%

PCF TECHNOLOGICAL DISTRIBUTIONACTIVE PCF PORTFOLIO PROJECTS - TOTAL OF APPROX US$176 MILLION

Preparation and review of the Project

Baseline Study and Monitoring Plan

Validation process

Negotiation of Project Agreements

Periodic verification & certification

Construction/Implementation and start up

Project completion

3 months

2 months

2 m

onth

s

3 months

1-3 years

Up

to 2

1 ye

ars

• Project Idea Note• Project Concept Note

• Project Design Document • ER estimates• Monitoring Plan

• Validation by independent Accredited Operation Entity•Submission of new method to CDM Executive Board if needed

• Project Appraisal and related documentation• Term sheet (if needed)• Emission Reduction Purchase Agreement

World Bank/CDM Project Cycle – The Manufacturing Process for Emissions Reductions

• Initial verification report

• Verification and certification• Supervision

Who does what in the CDM project cycle

• Project Design Document > Project Proponent• Project Endorsement / No objection > DNA• Validation of Project Design, Baseline, Monitoring

Methodology > Operational Entity > If Baseline / Monitoring Methodology is new,

Executive Board approves Methodology • Project Approval > DNA

Project assists host country in achieving sustainable development

Project complies with domestic lawsEnvironmental Impact Assessment

• Monitoring and Verification > Operational Entity

Preparation and review of the Project

Baseline Study and Monitoring and Plan (MP)

Validation process

Negotiation of Project Agreements

Periodic verification & certification

Construction and start up

Project completion

3 months

2 months

2 m

onth

s

3 months

1-3 years

Up

to 2

1 ye

ars

Letter of no-objection required before authorization is sought for further work from Fund Management Committee and PCF participants

Letter of Approval required prior to signature of the Emissions Reductions Purchase Agreement

DNA involvement in CDM project cycle

THANK YOU !

www.carbonfinance.org