The World Bank Climate Change Program:

Recent Initiatives and Developments

WB Office BangkokDecember 14, 2007

Mitigation Background - What is needed now?

As we enter post-Bali phase of climate change challenges, urgent need to take action and scale up mitigation efforts. Support long-term investments for transition to low-carbon

economy; integrate carbon finance into public and private investment decisions

Shift away from a project-by-project approach to systematic programs of investments in a strategic way

Establish a long-term regulatory framework that provides certainty of a carbon price signal

Provide incentives for development of low-carbon technology

Create incentives for avoiding deforestation

The Carbon Partnership Facility

The Carbon Partnership Facility: main focus

Align itself with the Regions’ long-term strategies of assistance to the Bank’s client countries

Integrate carbon finance as an instrument to support the Bank’s operational programs.

Focus on mitigation opportunities in multiple sectors with long-term, large-scale impact on emission trajectories at the country level. All countries are targeted.

Mainly focus on the regulatory period beyond 2012, or the end of the Kyoto Protocol’s first commitment period. Flexible with regards to climate policy regime.

Start now, before long-term investments (e.g., power development, transport systems) have locked in future emissions.

Promote technology and leverage finance for low-carbon investments.

CPF - Buyers and Sellers in a Partnership

SELLERS(governments, companies)

Minimum ER contribution

Willingness to develop and

implement specified emission reduction programs and sell

ERs

BUYERS(governments, companies)

Minimum financial contributions

Willingness to purchase emission reductions when

generated over the long term

(Can focus on specific

programs, countries, …)

Supported by

Carbon Asset Development Fund (CADF)

What would “scaling up” entail?

Support national, sub-national (e.g., provincial level, large cities) or sectoral low-carbon development strategies.

Move from custom-made mitigation projects to programs of low-carbon investments.

Aggregate small sources of emissions in mitigation programs, such as end-use energy efficiency through demand-side management.

Develop simpler, standardized, and more cost-effective methodological approaches and administrative procedures, e.g., programmatic, sectoral, cross-sectoral, wholesale.

Eliminate regulatory impediments and improve enabling environment for low-carbon development.

Broaden scope of carbon finance by opening up new opportunities, e.g., carbon capture and storage.

What types of programs would it support?

Renewable energy Fuel substitution to lower or zero carbon fuels Supply-side energy efficiency, process energy improvement,

and demand-side management: New power generation using advanced technologies Rehabilitation of old, inefficient power plants Industrial process efficiency Lighting efficiency Transport systems

Waste management systems Gas flaring and leak reduction Carbon sequestration and storage

CPF: Basic portfolio and “opt-in” to Special Windows

Energy Generation

Energy Efficiency

Waste Management

Oil and Gas

Transport

Buyer 1

Commits to purchase from all of the basic portfolio

Basic portfolio• established when Facility becomes operational• all Buyers participate in them• Consultative groups of buyers and sellers may be establishedto advice the Bank

Buyer 2

Special Windows• proposed by Trustee during operational phase as neededand based on buyer interest• Buyer Participants opt-in to the Tailored Windows

CCS?

Forestry?

Buyer provides an additional $ contribution if wants to participate

Voluntary market?

Carbon Asset Development Fund

New feature compared to existing WB funds Benefits Sellers and host country entities by

providing resources for: ER program development Carbon related feasibility studies Methodology work Enabling environment

Benefits Buyers by enhancing the quality and timeliness of the ER Programs

Funded by fees from Buyers (upfront and annually over time)

and Sellers (ERPA payment deductions) Donor contributions

Minimum participation levels

Sellers: commitment to develop one or more Programs for the

Facility and to sell ERs to the Carbon Fund Further criteria to be established based on consultations

Buyers: €[70] million for governments €[35] million for private sector promissory note or pre-payment; cash drawn down over

time if participates in Special Window, an additional

contribution Donors to the CADF: minimum of €2 million

Methodologies

May use CDM/JI methodologies, CDM Program of Activities approach

Other programmatic/sectoral approaches would be explored, e.g., A common baseline for, e.g., power or a product,

expressed as a carbon intensity/emission per unit of production

“Deemed savings” approach (pre-determined emission credit per activity) in lieu of tracking over time

Agreed “automatic” eligibility of certain technologies/ activities to claim credits (in a country and timeframe)

Standardization, benchmarks

Pricing approach Objective to agree to an approach that is transparent,

coherent, and able to adjust to changing market conditions Needs to reflect the transaction risk profile, e.g.,

asset type and market segment length of the contract risk sharing between the Sellers and Buyers

It may use, as appropriate: both fixed and variable pricing elements indexation and inflation/currency devaluation-based corrections

Such an approach would imply that some ERPAs defined in fixed € terms rather than fixed volume delivered ER volume becomes the variable

The pricing approach will be developed in consultation with the Participants and approved by the Partnership Committee

What is an ER Program? A series of the same and/or associated activities for

which a common approach can be developed Involves scale-up through replication and “mass-

production” May include multiple entities undertaking the

investments, and involve one or several ERPAs May be undertaken through a program implementing

agent Would support sectoral strategies and transformation May include elements that help create or improve the

enabling environment, and assist with technology dissemination

Examples from China:I. Biogas programRationale for engagementMin. of Agri. is targeting an increase of household bio-digester installation by 18 million units by 2010 and 20 million by 2015 (China Biogas program).

Existing Bank Dialogue Already five provinces in the Bank’s China eco-farming project, targeting installation of over 580,000 bio-digesters. Pilot project (Hubei) well advanced in CDM validation process and will establish a standardized procedure for quick replication.

Potential Scope for pilot and scale-up, including Household Bio-digester Program, Large-scale farm biogas program, Biomass gasification Program to all five provinces.

Danish Energy Authority/Foreign Ministry keen on associated TA support

II. Provincial EE programRationale for engagementProvinces are allocated 20% of national Energy Intensity Reduction target and have to achieve this via concrete regulations, policies and programs.

Existing Bank dialogueBank in discussions with 3-4 provinces (highest energy consumers) on a package including loans, CF, TA to support their EE programs.

Potential areas of engagement green lighting, public building retrofitting, building codes, Labeling, mandated

higher energy performance standards for household Electric appliances Conversion of existing power plant to CHP to supply heat to new primary

district heating systems Key industrial companies to undertake process integration and optimization

(steel, oil refinery, ammonia) Government procurement program to make procurement decision based on

life-time cost (more energy efficient) rather than least upfront cost

Carbon Bundling Arrangement: Can be bundled through FI involved in financing program, or other coordinating entity to blend government subsidy with CF and commercial loans

Shandong wants Bank to provide TA to establish a CDM center for this.

What’s different from current carbon finance operations?

Firmly anchored and “driven” by CAS/CPF, Region and client priorities

More transactions based on Bank lending and other operations

Sellers have more say in governance, pipeline development, pricing and other contract terms

Counterparts on seller side more likely to be in the public sector than in current CF

Project development/preparation TA facility (Carbon Asset Development Fund)

Business implications

Targets: CPF operational April/May 2008 Capitalize at a rate of $1bn/year over FY09-FY13

Each $1bn would support 10-20 major programs*

Pilot program development in FY08 Scale up in operations from FY09 onwards,

with roughly 1-4 programs/Region/year*

* assuming 5m tons/program and $10-$20/ton of emission reduction

FCPF Forest Carbon Partnership Facility

Piloting a System of Positive Incentives for Reducing

Emissions from Deforestation and Degradation

Context

“Avoided deforestation” excluded from the Clean Development Mechanism

World Bank CF experience in forestry sector: BioCarbon Fund: LULUCF pioneer since 2004,

including W2 for avoided deforestation at project level Request from G8 Heiligendamm Communiqué

to design forest carbon partnership 26 IBRD and IDA countries have already expressed

interest in participating Extensive consultations over the past year+

with donors, international organizations, NGOs, private sector Australia and Japan have made public

announcements of financing; at least 5 other donors have indicated financing will be likely

Context

0

200

400

600

800

1,000

2007 2008 2009 2010 2011 2012 2013 2014

millio

n $

Readiness Pilots Incentive System

Proposed ResponsePrepare for a system of positive incentives post-2012 that includes REDD through

o Capacity building: readiness for a future systemo Pilot performance-based payments

Readiness: $100 m

Pilots: $200 m

> $1 b

Proposed response: FCPF main focus

Characteristics of the Facility

South-North Partnership Both sellers and buyers will be represented in the

governance structure NGOs, Int’l orgs., Indigenous Peoples groups and non-

contributing private sector will have observer status Not pre-empt negotiations

Close cooperation with parties and UNFCCC secretariat Learning by doing

Pilot different approaches Test different implementation strategies

Include all actors and stakeholders Seek guidance from private investors Reach out directly to the drivers of deforestation during

implementation

Features of the Facility

Eligibility of countries

Subtropics LimitSubtropics Limit

Subtropics LimitSubtropics Limit

Expressions of Interest Received

Argentina Indonesia Bolivia Kenya Cameroon Laos Central African Republic Liberia Colombia Mexico Costa Rica Nicaragua Democratic Republic of Congo Pakistan Ecuador Panama El Salvador Papua New Guinea Gabon Paraguay Ghana Peru Guatemala Republic of Congo Guyana Vanuatu

Expressions of interest received ($165 m. committed)

Two mechanisms

Readiness

READINESS FUND

Capacity building

Carbon Finance

CARBONFUND

Purchase of Emission

Reductions

Readiness Mechanism

Build the capacity of countries to access a future system of incentives

Components (“Readiness Package”): Reference scenario

Historical emissions + Future emissions?

Emission reduction strategy Monitoring system

Target: $100 million ~ 20 countries Competitive selection + balance

Carbon Finance Mechanism

Pilot carbon finance transactions for “ready” countries before post-2012 regime is in place

Target: $200 million

~ 5 countries

Competitive selection + balance

Expressions of Interest Received

Next steps for both facilities

Forest Carbon Partnership Facility

November (8 – 9) 2007: Additional consultations with NGOs and International organizations

November (12 - 13) 2007: Final Consultation Round on the Term Sheet and Information Memorandum (potential donors, sellers and buyers)

December 2007: Launch at CoP13 (Bali)

March/April 2008: FCPF declared operational

Carbon Partnership Facility

December 2007: Announcement at CoP13 (Bali)

January – March 2008: Joint consultative meetings with potential buyer and seller participants to finalize detailed design and governance of CPF; release of Information Memorandum

Spring 2008: CPF could start operations, if $500 million in purchase commitments has been reached by then.

Expressions of Interest Received

Key contact persons

Forest Carbon Partnership Facility

Benoit Bosquet

Senior Natural Resources Management Specialist (LCSEN)

Werner Kornexl

Senior Technical Specialist

Eliza Winters

Senior Environmental Specialist

Carbon Partnership Facility

Johannes Heister

Senior environmental economist, Methodology and Policy Team

Jari Vayrynen

Senior environmental specialist,

Operations