world bank carbon finance and emerging strategy public side event, cop8, new dehli, october 24 th,...
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World Bank Carbon Finance and
Emerging StrategyPublic Side Event, CoP8, New
Dehli,October 24th, 2002
26 transactions at advanced stage
Technology distribution of planned projects
Preparation and review of the Project
Baseline Study and Monitoring and Verification Plan (MVP)
Validation process
Project Appraisal and Negotiation
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
• Upstream Due Diligence, carbon risk assessment and documentation: $ 40K
• Baseline : $20 K• Monitoring Plan: $20K
• Contract, Processing •and documentation: $30k
• Consultation and Project Appraisal: $105K• Negotiations and Legal documentation: $50K
Carbon Asset Creation and Maintenance Manufacturing Process and Costs
Total through Negotiations• All expenses: $265 K
• Initial verification at start-up: $25K
• Verification: $10-25 K• Supervision: $10-20K
Sustainable Development Deep Green Carbon
• Feasible to cost-effectively create and certify local environmental and community development benefits with emissions reductions:
• Examples from PCF:– Colombia Jepirachi Wind Power Plant (19MW) providing:
• potable water,• electricity for schools/clinics and• small fishing port for local indigenous peoples;
– Plantar Project in Brazil (23,400ha fuelwood plantation):
• Worker health improvement• ABRINQ certification of no child labor or exploitation• Biodiversity benefits• FSC certification of improved forest management
Findings/Confirmations1.CDM/JI Carbon Asset Creation is
complex and difficult with long lead times for projects and ER delivery
2.Regulatory uncertainty remains post-Marrakesh
3. First real carbon purchase deal is key to Private Sector and Govt. capacity building
4.Minimal direct private investment in CDM/JI
5.Small projects/small countries lose out
The Carbon Market
Summary of carbon markets currently in operation
Project-based Emission Reduction purchases
Allowance Trading
Within National trading systems
Intra-Firm tradingRetail
UK
DK
Shell
BP
“Pre-Compliance”
From voluntary
To Kyoto Pre-Compliance
Major Market Findings• 2002 is most active year. Prices ranged from
$1 (project-based) to $17 (UK allowance)
• Market Activity since 1996
•Total Trades, all vintages = 200 MtCO2e
•157 MtCO2e 1996 to 2002
•Expected 2002 contract volumes = 60-67 MtCo2e
•OR over 5 times 2001 volume of 12 MtCo2e
•2002 volumes would be ~1/3 of all estimated market volume since 1996.
• private sector bought most of ERs traded within OECD countries.
Market Volume has increased
Source: Authors’ own calculation, as above, volume projection by PointCarbon
0
10
20
30
40
50
60
70
80
1996 1997 1998 1999 2000 2001 2002(to date)
2002(Proj.)
Est
imat
ed v
olu
mes
tra
nsa
cted
(M
tCO
2e)
ER TransactionNational MarketsPoint Carbon 02 proj.
Market Finding #1: Carbon Market is firming
up• Diversity of Buyers
– European and Japanese buyers join in 2002 what has been a predominantly North American buyers market
– Public buyers now dominate CDM/JI transactions
• Diversity of Contract Types
– Transition switch from call options to more balanced option, spot and forward market in 2002
• Emergence of Small Secondary Market Transaction Volume
– Some companies experiment with liquidating small quantities of reductions from their portfolio; demonstrate possible emergence of secondary market
• Emergence of Small Retail Market for High Quality Tons
Number of trades has increased
Source: Authors’ own calculation, based on transaction database assembled with Natsource, Co2e.com and PointCarbon
0
10
20
30
40
50
60
70
80
90
100
1996 1997 1998 1999 2000 2001 2002(to date)
Nb
of
Tran
sact
ion
s
National Markets
ER Transaction
Buyers are more diverse
Source: Authors’ own calculation, based on transaction database assembled with Natsource, Co2e.com and PointCarbon
1996-2000 2001-2002
Canada
USA
Netherlands
Other WEU
Japan PCF
Australia
Canada
USA
Other WEU
Japan
Australia
PCF
Netherlands
Balance in Asset Classes Emerging
Source: Authors’ own calculation, based on transaction database assembled with Natsource, Co2e.com and PointCarbon
0%
10%
20%
30%
40%
50%
60%
70%
Fuel-Switching EnergyEfficiency
Renewables Industrial Transportation LFG LULUCF GeologicalSequestration
1996-2000
2001-2002
Market Finding #2: Limited Number of
JI/CDM Transactions • Only 43% of all carbon transactions in the
past 2 years have been made in CDM/JI• Only 13% of the private sector’s purchases
in 2001-2002 were in CDM (2002=16%)• Most 2002 CDM/JI transactions were
Dutch and PCF• African countries, smaller countries and
small-scale projects were largely bypassed by carbon finance in 2002, as in the past
Market Drivers Near Term
• Kyoto Protocol Entry into force to drive sharp increases in carbon transactions in OECD, including in US
• Non-Kyoto Regimes emerging rapidly: mostly voluntary and regiponal/state level such as in US
• EU decision on Emissions Trading in December
0
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18
Annex II JI Countries CDM Countries
Vo
lum
e o
f E
R P
roje
cts
(MtC
o2e
)
Carbon Finance flows 2001-2002
Source: Authors’ own calculation, based on transaction database assembled with Natsource, Co2e.com and PointCarbon
USA
Canada
Australia
Latin America
AsiaAfrica
Who’s buying where? (2001-2002)
Source: Authors’ own calculation, based on transaction database assembled with Natsource, Co2e.com and PointCarbon
0
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4
6
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20
Annex II JI CDM
Vo
lum
e (M
tCo
2e)
Private
Private/Public partnerships
Public
In 2001-2002, private companies acting alone have purchased only 13% of their reductions in developing countries.
Factors constraining private capital flows to
JI/CDM
– Linked to overall decline in foreign direct investment
– Higher risks perceived in macro-economic climate in many developing countries
– Long lead-time to prepare projects– Transaction Costs perceived to be higher
Public-Private Initiatives: Example of the World
Bank – Focused on its role to help alleviate poverty and encourage
sustainable development in its client countries. Sees potential opportunity to help mobilize and direct private capital to key sectors and projects that promote sustainable development and benefit communities in client countries
– Strategy to “crowd in” private sector• Mobilization of new public-private funds that help to reduce risks of
operating in developing countries and transition economies, e.g. Prototype Carbon Fund, Community Development Carbon Fund (See http://www.carbonfinance.org)
• Partnerships to reduce transaction costs of doing JI and CDM projects benefiting its client countries, e.g. Infrastructure Development Finance Corporation (India), Development Bank of Southern Africa
Annex:
Methodology for Study
Overcoming Data Limitations
• Our study is based on public and generic confidential transaction data provided to the PCFplus Research program by Natsource LLC, CO2e.com LLC and Point Carbon. We also interviewed international companies active in this market and obtained data that has been aggregated for this study.
• We merged data obtained from various sources and corrected for double-counting. The data has been standardized and analyzed to reflect transacted vintages until 2012.
• Our coverage, although extensive, is likely still incomplete. Some transactions, for example, are likely confidential, and others difficult to verify. As a result, we may have underestimated the size of the market.