Development + Carbon = Carbon with a human face

Overview Developed with International Emissions Trading Association (IETA) Objective: Purchase ERs + create community development benefits Small-scale projects in small countries and poor, rural areas in all developing countries US$ 100 m funding target Private & public sector participants Managed as a World Bank Trust Fund

Rationale Carbon finance now bypasses small countries: Small projects = high transaction costs, high risks Market for high value “development + carbon” ERs UNFCCC’s drive to cut costs through streamlining procedures and bundling projects

How the Fund Works $ $ Industrialized Governments and Companies Technology $ Technology Finance $ Finance Industrialized Governments and Companies Developing Countries and Communities Community Development Carbon Fund CO Equivalent 2 Emission Reductions CO Equivalent 2 Emission Reductions

Benefits to CDCF Participants All Participants High value ERs: buy at $3-6/t/CO2e, outcome price $7/t/CO2e Risk mitigation via diversification Knowledge of carbon market and asset creation Companies Governments Catalyze private investment in clean technologies Support sustainable development objectives of UNFCCC Meet regulations or for trading Demonstrate social responsibility Gain competitive advantage

Design Challenge: Lowering Cost of Delivering Small Projects to CDCF applying CDM streamlined procedures Using Bank “umbrella” legal agreements and project appraisal documents for financial intermediaries (SMEs, micro-finance credits, development banks, NGOs) Grooming financial and other intermediaries to deliver carbon finance to lines of business (small/micro power supply, crop processors, rural industry) Taking costs off the balance sheet for upstream costs: raising pools of Bilateral ODA and Foundation funds for TA Optional up-front payment of Fund shares to generate net income for

CDCF Portfolio Criteria Compatibility with UNFCCC definition of “small scale” Only CDM No more than 10%-20% of capital in one country A minimum of 25% of portfolio in LDCs and other poor smaller developing countries Up to 25% of capital for small-scale agroforestry Local+Global environmental benefits + improve local livelihoods

CDCF Deal Flow Examples Methane: agri & waste mgt Mini hydro & windmills Community Agroforestry Energy efficiency

Scale of Energy Service Typical Total Project Financing Project Type (examples only, many other options are feasible) Scale of Energy Service Typical Total Project Financing Typical Carbon Purchases over 10-14 years, nominal terms Mini-Hydropower 1-15MW $1-30 million $100,000-$2.0 million Micro-Hydropower 100W-1MW $100,000 - $2 mm $10,000 - $150,000 Wind Power 400W – 15 MW $ 200,000 - $15 mm $5000 - $2.0 mm WoodWaste Heat and Power in Wood Processing 1-15 MW $ 500,000 - $10 mm $100,000 - $5.0mm MSW to Energy 500W-15MW $500,000 – $20 mm $100,000 - $10 mm Sugar Cane Bagasse Power and Heat 5MW-15MW $2mm - $15 mm $ 200,000 - $5mm Crop Res. Power 1MW – 15MW $1mm - $10 mm $100,000 - $5m Agroforestry 1000 – 5000 ha $100,000 - $1 mm Reforestation 500 – 5000ha $ 50,000 - $5 mm $ 50,000 - $5mm

Parallel Grant Resources for CDCF and BioCF Implementation Implementation Partnership Concept Need grant assistance, especially for the smaller, poorer countries, for: Project/portfolio identification and preparation Training and capacity building for financial intermediaries, local private sector, NGOs, regulatory agencies, Government line agencies Carbon asset creation: sectoral and standardized baselines, monitoring protocols Sources: Donors (govts, foundations); Participants net income from advance payments

Planned Implementation Partnerships Global Village Energy Partnership (GVEP): internal Bank Partnership with Energy Sector – a public private partnership to provide grant resources for TA for rural energy development Several OECD Governments in discussion to link bilateral aid agency programs with CDCF through a CDCF TA TF and jointly prepared work program CF-Assist Link: new Bank umbrella TA program to support carbon finance flows under CDM/JI

$ Terms (Both Funds) $ 100 million $ 50 million Ongoing fund – Open-ended nature Additional tranches possible once 1st tranche is placed in projects Minimum contributions Private sector $ 2.5 million Governments $ 5 million Payment Streams Optional upfront payment Otherwise drawn down over 17-18 years: 1st years not larger than 7% of total/year Target Fund Size $ 100 million $ $ 50 million Minimum Fund Size

CDCF Development Steps April + July 2002: CDCF Advisory Group Meetings May-Dec, 2002: Marketing, Design fund September 2: Public Launch at WSSD in Joburg Nov 12-13th: Meeting of MOU signatories in Washington Dec 12th: Bank Board approval Mid-January, 2003: Open for subscriptions 2nd Quarter 2003: Minimum fund size achieved, Operations begin

BioCarbon Fund Harnessing the carbon market to sustain ecosystems and alleviate poverty

BioCarbon Fund Overview Three equally important goals Atmospheric benefit through carbon sequestration or conservation assessed by strict standards Environmental benefit through landscape restoration and biodiversity conservation Social benefit through poverty reduction and improved livelihoods Additionality Permanence Adequate metrics Community participation

BioCarbon Fund Overview Basic structure First Window : Projects under Art 6 (JI) and Art 12 (CDM): Kyoto eligible Second window : Projects that meet the three goals but are not Kyoto eligible in the First Commitment Period Private & public sector participants Target size US$ 100 million Managed as World Bank Trust Fund with guidance from contributors and host nations See www.biocarbonfund.org

BioCF Rationale Extend carbon finance to agriculture and forestry sectors – including many countries with otherwise limited opportunities under the CDM Provide a source of funds for appropriate land management/rehabilitation, and adaptation practices Demonstrate technical and policy issues of Land use, land-use change and forestry (LULUCF) activities Meet the demand for cost-effective ERs from mandatory and voluntary markets

BioCarbon Asset Classes A Continuum of Activities Afforestation, Reforestation Forest Management Wetland Restoration Land Degradation Prevention Mostly Carbon Sequestration Mostly Carbon Conservation Agroforestry Improved Agricultural Practices Watershed Management Reduced-impact Logging

Outcome of Technical Advisory Group (TAG), July 17 Preferred Portfolio Outcome of Technical Advisory Group (TAG), July 17 Activity JI CDM Over Horizon Production forestry: plantations in landscape mosaics Y - Agroforestry: replicable models in major ecosystems y Restoration forestry: connecting fragments/corridors Forest management: including fire management? n Forest protection: eg reduce losses to fuel wood ? Biofuels: sequestration as part of fuel cycle Y* Agricultural management: eg reduced till Grazing land management: drylands; large areas Wetland management: must assess net reductions

Plantations Agenda Consensus of Forest Trends Working Group, July 18 – all stakeholder groups: Benchmark plantation development in BioCF Can agree minimum practical standards, more work.. Examples of minimum standard requirements include: all plantations must be in a landscape mosaic with positive biological and social contribution and no single monoculture land use pattern and model contracts to protect interests of communities and indigenous peoples

BioCF 1st Window Kyoto-Eligible Examples JI Countries only Sustainable Forest Management JI Countries only Afforestration/ Reforestration CDM & JI Countries Reduced tillage

BioCF 2nd Window “Over-the-Horizon” Examples CDM Host countries Revegetation Soil Carbon Management Landscape Management

Biofuels Projects where new trees or crops are established to provide biofuels as part of a wider social and landscape management goal.

Rehabilitation of degraded lands? Viable Assets? Rehabilitation of degraded lands? Fire management? Agroforestry

Agroforestry

Avoided deforestation?

Fund Development Steps Design: Techncial Advisory Group Formed and met July 17th to review project and portfolio criteria BioCarbon Fund Launch: Nov 5th in Tokyo Nov, Feb: Meeting of MOU signatories March: Bank Board approval, Issue Information Memorandum, Open for subscriptions Mid 2003: Minimum fund size achieved, Operations begin