world bank carbon finance: making markets for carbon regional scientific workshop: land management...

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World Bank Carbon Finance: Making Markets for Carbon Regional Scientific Workshop: Land Management for Carbon Sequestration in West Africa Bamako, Mali February 26-27, 2004 www.carbonfinance. org

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World Bank Carbon Finance:

Making Markets for Carbon

Regional Scientific Workshop: Land Management for Carbon Sequestration in West Africa

Bamako, MaliFebruary 26-27, 2004

www.carbonfinance.org

The Bank’s Mission and Climate Change

Bank’s Mission:

Poverty reduction and sustainable development

Heavy Engagement in Climate Change because: Accept IPCC predictions on trends and impacts Poor countries will be worse off and poorest people have

the least capacity to adapt, especially the rural poor

Private Capital and Technology Transfer: Kyoto’s flexible mechanisms and lower marginal cost of

abatement provide unprecedented incentives for private investment in clean technology, agriculture and forestry in developing and transition economies

World BankCarbon Finance Vehicles

                                             

  

BioCarbon Fund

Netherlands CDM Facility

Italian Carbon Fund

How the Funds Work

Industrialized Countries

and Companies

Host Countries

and Communities

$ Finance $Technology

Finance

CO Equivalent2

Emission Reductions

PCF

Other project fundingPayment on

delivery

Source: PCF calculations, based on database assembled with Natsource,Co2e.com and PointCarbon

0

10

20

30

40

50

60

70

1996 1997 1998 1999 2000 2001 2002(est.)

Est

imat

ed v

olu

mes

tra

nsa

cted

(M

tCO

2e)

Vintages up to 2012 only

Carbon Trades: estimated quanitity

Buyers are becoming 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

Market Intelligence:“Few Countries Benefiting, Little Private Sector Buying”

Market: cumulative 200 million tonnes CO2 traded ($500 million) since 1996

Five-fold increase between 2001 and 2002

But … Only 43% of all carbon transactions made in CDM/JI (2001-

2002), dominated by Dutch and PCF

Only 13% of the private sector’s purchases were in CDM (2001-2002)

African countries, smaller countries and small-scale projects are largely bypassed

CDM as a Source of Compliance Assets CDM/JI will fall far short of the 2 billion ton

plus cumulative “compliance gap”

Even at 50% compounded per year in CDM activity, CDM is unlikely to deliver more than 350 million tons ERs before 2012

Aggressive Chinese CDM participation may increase this by 150-250 tons CO2e million maximum

CF

Carbon Finance Products of the World Bank

New FundsDevelopment

BioCarbon Fund

CF

Carbon Carbon

Finance Finance

Products Products

of the of the

World World

BankBank

Summary

CF to small projects in small CDM countries, poor areas

Generate high value ERs “Development + Carbon” ($3 to $6)

Catalyze private capital to alleviate poverty

Local intermediaries Highly replicable

Community Development Community Development Carbon Fund (CDCF)Carbon Fund (CDCF)

BioCarbon FundBioCarbon Fund

Extend CF to agricultural, forestry sectors

Generate cost-effective ERs from sequestration and conservation ($3 to $4)

Support projects that conserve biodiversity, combat desertification, alleviate poverty, explore adaptation options

CDM and JI

Learn by doing prototype

CF

Carbon Carbon

Finance Finance

Products Products

of the of the

World World

BankBank

Who is contributing (investing)?

Committed contributions

Canada, Italy & Netherlands; others expected

Seven companies so far, mostly Japanese, but North American and European companies expected

Community Development Community Development Carbon Fund (CDCF)Carbon Fund (CDCF)

BioCarbon FundBioCarbon Fund

Level of Interest stage only

Canada, Italy

Japanese & European “finance” companies

Japanese energy companies

Major NGOs

CF

Carbon Carbon

Finance Finance

Products Products

of the of the

World World

BankBank

Benefits

Private capital flows for projects that help reduce poverty

Investment in cleaner technologies and best practices

Ongoing partnerships Capacity building for communities and

intermediaries

Host Countries and ProjectsHost Countries and Projects

CF

Carbon Carbon

Finance Finance

Products Products

of the of the

World World

BankBank

Benefits

Acquire high value ERs for compliance, trading, insurance

Cheaper transaction costs: expertise of World Bank carbon finance team

Risk mitigation via diversification, hedge future costs

Knowledge of carbon asset creation, market intelligence:

internships, training, advice

Demonstrate social responsibility

Access to additional CO2e in each deal

Leverage private investment for sustainable development

Influence future regulations

Participants Participants (Companies & Governments)(Companies & Governments)

CF

Carbon Carbon

Finance Finance

Products Products

of the of the

World World

BankBank

BioCarbon Fund

Harnessing the carbon market to sustain ecosystems and alleviate poverty

CF

Carbon Carbon

Finance Finance

Products Products

of the of the

World World

BankBank

BioCarbon Fund Rationale Demonstrate technical and policy issues of Land use, land-

use change and forestry (LULUCF) activities: learn by doing prototype

Extend carbon finance to agriculture and forestry sectors – particularly in countries with limited opportunities for energy projects

Multiple goals: Atmospheric benefit, local environmental benefits, social benefits and, where possible, explore adaptation options

Meet demand for cost-effective ERs from mandatory and voluntary markets (buy at $3-4/ton/CO2e)

CDM and JI

CF

Carbon Carbon

Finance Finance

Products Products

of the of the

World World

BankBank

Triple Goals of the BioCarbonFund

CF

Carbon Carbon

Finance Finance

Products Products

of the of the

World World

BankBank

AtmosphericAtmospheric benefit

The project must contribute to reducing GHG in atmosphere

Strict additionality test

CF

Carbon Carbon

Finance Finance

Products Products

of the of the

World World

BankBank

Environmental Goal A project must make a

positive contribution to improving the quality of the environment, e.g. Conserve biodiversity Reduce soil losses Rehabilitate degraded

lands Such benefits are an

integral component of well chosen projects – not an add on

CF

Carbon Carbon

Finance Finance

Products Products

of the of the

World World

BankBank

Social Goal A project must make a

positive contribution to improving the livelihoods of local people and especially the poorest and indigenous peoples, e.g. Additional income Income stability Education, capacity

building, technology transfer

Health benefits

CF

Carbon Carbon

Finance Finance

Products Products

of the of the

World World

BankBank

Additional goals Contribute to adaptation to climate

change in host countries

Seek opportunities for synergies between the major conventions covering climate, biodiversity and desertification (land degradation)

Maximize the opportunity for learning by doing

CF

Carbon Carbon

Finance Finance

Products Products

of the of the

World World

BankBank

Two Windows

1st Window: JI: All LULUCF

CDM: Afforestation/Reforestation

2nd Window to explore activities beyond afforestation/reforestation Restoration of degraded forests, revegetation, improved

tillage, conservation of remnant vegetation

2nd Window is subject to the same standards as all other activities Additionality, permanence, measurement, verification

CF

Carbon Carbon

Finance Finance

Products Products

of the of the

World World

BankBank

First Window In-fill planting for forest

restoration

Community forestry

Agroforestry

Biofuels

CF

Carbon Carbon

Finance Finance

Products Products

of the of the

World World

BankBank

BioCF 2nd Window

Landscape Management

CDM Host countriesRevegetation Soil Carbon

Management

CF

Carbon Carbon

Finance Finance

Products Products

of the of the

World World

BankBank

Project Portfolio 90+ Project Idea Notes received already

20-30 good candidates

Supply > Demand: Buyers’ market

BioCarbon Fund will be able to support 10-20 projects

Early screening on financial, environmental and social criteria

Diversity of projects (project types and regions)

Seeking more dryland projects (and funding for them)

CF

Carbon Carbon

Finance Finance

Products Products

of the of the

World World

BankBank

Example Projects .. 1 Community-based tree

planting to combat land degradation

Community groups organised through existing social networks are trained in tree planting and maintenance

Trees reduce soil erosion, provide shade and produce food and fuelwood

BioCF funding supports the teams of trainers and carbon verifiers and helps establish the tree nurseries

Landscape Management Project Coordinated by private

company working with local organizations & government agencies

Forest restoration and protection for conservation and reducing soil degradation

Improved agricultural practices and agroforestry that reduce pressures to clear native forests

Small scale plantings for high quality timbers for longer term income

BioCF funding makes the package as a whole financially feasible

CF

Carbon Carbon

Finance Finance

Products Products

of the of the

World World

BankBank

Example Projects .. 2 Forest protection via

plantings A threatened conservation

area will be protected from encroachment by establishing buffer plantings of fast growing native species

Local people will have the rights to use these areas for fuel and food collection

BioCF funding is the core financial input to make the project feasible

Sugar and biofuels Project will reduce field

burning of sugar cane and its wastes and use them instead as biofuels

Small plantings of fast growing trees will be established to ensure continuity of fuel supply

BioCF vetting and funding will help overcome barriers by demonstrating viability of the concept, and opening the way to additional carbon sales

Tannin, biofuel, and land rehabilitation A business that engages local

communities as “outgrowers” of trees for tannin production and biofuels from the waste is no longer financially viable

Carbon sales through the BioCF can change this and allow the scope of the business to expand

CF

Carbon Carbon

Finance Finance

Products Products

of the of the

World World

BankBank

BioCarbon Fund and Adaptation

Adaptation challenge: to increase the biological and social resilience of communities reliant on agricultural and forest ecosystems

Fund can act as a catalyst for changing land-use practices Source of funding Demonstration of new

practices/crops Conservation of buffers, genetic

resources etc

Most Host Countries are

more concerned with successful adaptation to

climate change than with mitigation

CF

Carbon Carbon

Finance Finance

Products Products

of the of the

World World

BankBank

Seeking synergies between the major environmental conventions

Climate, environmental and livelihood goals

Compatibility with national sustainable development goals

Local participation: communities, NGOs, private and public sectors

Actions that assist adaptation to climate change

Emphasis on managing the whole landscape

UNCCD