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

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 Bank Carbon 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 Equivalent 2 Emission Reductions PCF Other project funding Payment on delivery

Source: PCF calculations, based on database assembled with Natsource,Co2e.com and PointCarbon (est.) Estimated volumes transacted (MtCO2e) 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

Market Intelligence: “Few Countries Benefiting, Little Private Sector Buying” Market: cumulative 200 million tonnes CO 2 traded ($500 million) since 1996 Five-fold increase between 2001 and 2002 But … Only 43% of all carbon transactions made in CDM/JI ( ), dominated by Dutch and PCF Only 13% of the private sector’s purchases were in CDM ( ) 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 tons CO2e million maximum

C F Carbon Finance Products of the World Bank New Funds Development BioCarbon Fund

C F Carbon Finance Products of the World Bank 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 Carbon Fund (CDCF) BioCarbon 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

C F Carbon Finance Products of the World Bank 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 Carbon Fund (CDCF) BioCarbon Fund Level of Interest stage only Canada, Italy Japanese & European “finance” companies Japanese energy companies Major NGOs

C F Carbon Finance Products of the World Bank 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 Projects

C F Carbon Finance Products of the World Bank 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 (Companies & Governments)

C F Carbon Finance Products of the World Bank BioCarbon Fund Harnessing the carbon market to sustain ecosystems and alleviate poverty

C F Carbon Finance Products of the World Bank 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/CO 2e ) CDM and JI

C F Carbon Finance Products of the World Bank Triple Goals of the BioCarbonFund

C F Carbon Finance Products of the World Bank Atmospheric Atmospheric benefit The project must contribute to reducing GHG in atmosphere Strict additionality test

C F Carbon Finance Products of the World Bank 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

C F Carbon Finance Products of the World Bank 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

C F Carbon Finance Products of the World Bank 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

C F Carbon Finance Products of the World Bank Two Windows 1 st Window:  JI: All LULUCF  CDM: Afforestation/Reforestation 2 nd Window to explore activities beyond afforestation/reforestation  Restoration of degraded forests, revegetation, improved tillage, conservation of remnant vegetation 2 nd Window is subject to the same standards as all other activities  Additionality, permanence, measurement, verification

C F Carbon Finance Products of the World Bank First Window In-fill planting for forest restoration Community forestry Agroforestry Biofuels

C F Carbon Finance Products of the World Bank BioCF 2 nd Window Landscape Management CDM Host countries RevegetationSoil Carbon Management

C F Carbon Finance Products of the World Bank Project Portfolio 90+ Project Idea Notes received already good candidates Supply > Demand: Buyers’ market BioCarbon Fund will be able to support projects Early screening on financial, environmental and social criteria Diversity of projects (project types and regions) Seeking more dryland projects (and funding for them)

C F Carbon Finance Products of the World Bank 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

C F Carbon Finance Products of the World Bank 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

C F Carbon Finance Products of the World Bank 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

C F Carbon Finance Products of the World Bank 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