T HE W ORLD B ANK C ARBON F INANCE U NIT Experiences and challenges implementing PoAs from the perspective of a Stakeholder P RESENTATION AT UNFCCC P O A WORKSHOP M AY 2011 BY F ELICITY S PORS (F WORLDBANK. ORG ) & M ONALI R ANADE (M WORLDBANK. ORG )F WORLDBANK. ORGM WORLDBANK. ORG

T HE W ORLD B ANK C ARBON F INANCE U NIT Contents Potential of PoAs Overview of World Banks PoA portfolio Spot the difference – two kinds of PoA. Summary of key regulatory barriers Recommendations for overcoming these barriers Implications for PoAs if barriers overcome

T HE W ORLD B ANK C ARBON F INANCE U NIT PoA potential – Regional distribution Number Crunching 30% PoAs vs 73% CDM projects in BIC (Brazil, India and China) 11% PoAs vs 1.7% CDM projects in LDCs/SIDs Source: UNEP Risoe CDM/JI Pipeline Analysis and Database, March 1st 2011

T HE W ORLD B ANK C ARBON F INANCE U NIT PoA potential – supporting sustainable development by supporting small dispersed HH/SME projects EE demand side29 Waste23 Solar12 Hydro5 EE supply side4 Forestry & Agriculture2 Fossil fuel switch2 Biomass energy2 Agriculture1 CMM1 Transport 1 Total PoAs 82 But PoAs have not achieved scale up of GHG mitigation in number of PoAs nor in size of PoAs.

T HE W ORLD B ANK C ARBON F INANCE U NIT 10 small scale – Household RE in Bangladesh (ASM I.A) – Household EE in Senegal, Bangladesh (AMS II.C) – Supply side EE in China, Yemen, India, (AMS II.A) – Waste in Uganda, Phillipines, Thailand (AMS III.F & III.D) – Transport in Egypt (AMS III.C) 4 large scale – LFG in Brazil, Phillipines, Morocco (ACM0001) – Hydro in Vietnam (ACM0002) CME categories – Financial Institutions (e.g., Bangladesh, Brazil, Phillipines) – Government agencies (e.g., Uganda, Vietnam, Senegal) – Power companies (China, India, Yemen) World Banks PoA Portfolio Under validation

T HE W ORLD B ANK C ARBON F INANCE U NIT Additionality of PoA – How to justify programs supported by public funds? – How to assess PoAs that support mandatory laws? Defining eligibility criteria for additionality of CPA – DOEs requiring very precise criteria – Too many criteria so restrictive that only 1st CPA may be eligible Setting baseline – Survey methods – Sample size Monitoring systems – Building appropriate monitoring structure and database without over-burdening the CME and at rational cost – Yet unknown verification challenges A few Challenges (among many others)

T HE W ORLD B ANK C ARBON F INANCE U NIT Structuring program – Upfront cost of structuring programs (seed funds) – Building capacity of CME – Designing programs to incorporate future sources of revenue Procedural issues – Start date of PoA and CPA (partly resolved by the 31 Dec 09 rule) – Focal point designation in MOC (resolved) – Other minor issues DOE Liability – Trustees‘ dilemma – Buyers‘ dilemma – CME financial capacity and credit-worthiness A few Challenges (among many others)

T HE W ORLD B ANK C ARBON F INANCE U NIT Challenges: Complex and varied business structures Hands-off Hands-on Whole-seller PoA Coordinating entity is the CPA entity controls all CPAs finances all projects prepares all CPA-DDs covers all monitoring costs PoA retains 100% revenue PoA Coordinating entity can influence CPAs finances some projects CPA entity leads preparation of CPA-DD covers own monitoring costs PoA retains major part of revenue PoA Coordinating entity communicates with EB Support CPA development CPA entity finances project directly leads preparation of CPA-DD covers own monitoring costs PoA retains minor part of revenue PoA Coordinating entity supports identification of CPAs part finances all projects covers monitoring costs CPA entity prepares own CPA-DD covers own monitoring costs PoA shares revenue Retailer

T HE W ORLD B ANK C ARBON F INANCE U NIT “ We can't solve problems by using the same kind of thinking we used when we created them." – Albert Einstein Based on experience it is possible to identify two kinds of PoAs in general : – PoA type A – individual units for each CPA (poss. different owners of CPAs). – PoA type B - small/micro activities or technologies e.g. lighting, cooking stoves often located in LDCs or countries with less than 10 CDM projects. Recommendation to increase scale up – Different procedures and regulations required to support PoA types A and B, critical for ensuring regional representation addressed, and SD projects scaled up to achieve potential GHG reductions. Challenges are plenty – how to find a solution?

T HE W ORLD B ANK C ARBON F INANCE U NIT Two procedures for two different kinds of PoA PoA type A PoA & CPA PDD CME Validation by DOE Registration EB Monitoring of CPAs Verification DOE Issuance CERs PoA type B PoA PDD only - by CME PoA validated by DOE Registration EB Monitoring of CPAs Verification DOE Issuance of CERs Solution for PoA type B (micro CPAs): 1.Only PoA PDD (i.e. not CPA-DD) to be prepared for registration. CPAs do not need to be validated at inclusion. 2.PoA PDD validated by DOE. Should contain check list of eligibility requirements and must comply with additionality requirements for micro scale CDM projects 3.Monitoring periodically undertaken for representative sample of CPA units. 4.Verification - DOE ensure CPAs comply with eligibility criteria i.e. verification = “quasi validation”. Risk of liability much less than at point of registration. 5.Issuance of CERs with verification report once approved by EB.

T HE W ORLD B ANK C ARBON F INANCE U NIT Key barriers in existing rules 1 Additionality_ i) Lack of clarity on key criteria for additionality demonstration and ii) proving CPA would not occur without PoA is asking DOE to prove something counterfactual. Micro scale guidelines will help alleviate some issues for microscale. 2 DOE liability and definition of erroneous CPA inclusion. ( SEE Presentation later) 3 PoA start date definition. CPA cannot start prior to publication of PoA on the UNFCCC website. Institutional structuring of PoA can require more time than is needed to prepare the first CPA. 4 Methodology combinations. No clear process for approving combinations and each combination has to be assessed. EB60 – Secretariat to define procedure. 5 Baseline identification: Guidance on how to define baseline emissions when PoA supports law enforcement. E.g. Egypt Vehicle Scrapping PoA 6 Guidance on sampling. Can DOEs verify CPAs according to sample assessed? Not applied yet (due to liability concerns)

T HE W ORLD B ANK C ARBON F INANCE U NIT Recommendations to address regulatory barriers facilitate larger CPAs What is “good enough” for eligibility criteria Type B PoA – PoA not CPAs assessed at registration. DOE verifies conform to eligibility criteria at verification Additionality Allow notification of PoA start with letter, do not require publication of final PoA-DD on website. PoA start date Define procedures for submissions from PP Top down definition of combinations key sectors e.g. housing in consultation with stakeholders Methodology combinations Standard approach to determining baseline i.e. reg = x% enforced as identified by x,y,z. Consultation with DNAs Baseline Identification Provide guidance on sampling of CPAs Clarify standardized approach for SD assessment by DNAs Sampling guidance

T HE W ORLD B ANK C ARBON F INANCE U NIT  Institutional framework with interrelations and dependencies. Time consuming to identify right partners and secure government approval.  Setting up a business model which enables a high participation and being operable. i.e. Need for seed or upfront financing often deters private sector involvement.  High level of standardization required to ensure simplicity in calculations for complex PoAs e.g. housing, transport and agriculture. Standardisation approaches must be defined and must be politically acceptable to DNAs.  Awareness raising via stakeholder interaction. DNAs can play role to increase awareness of PoA potential, but they must first understand the issues and be able to recognize best practice. PoA working group? Solving regulatory rules is unlikely to “flood” the market with PoA CERs due to non regulatory barriers

T HE W ORLD B ANK C ARBON F INANCE U NIT Thanks for listening

T HE W ORLD B ANK C ARBON F INANCE U NIT PoA - Incentive or policy implementation program as CDM project: Program operator receives CDM revenues; Program participants receive incentive payment; Incentives are provided against carbon ownership; Market based private sector driven and bottom-up approach to sustainable sectoral transformation (difference to sectoral crediting); Addressing small and micro activities; Core target group: households, SMEs, municipalities. Economics and Finance: Appropriate type and dimension of incentive (grant, soft loan..); Core deal: incentive against carbon ownership (appropriate contracts); Funding of the programme (in particular seed funding). Challenges: Complex business arrangements

T HE W ORLD B ANK C ARBON F INANCE U NIT Expansion of Micro-scale ruling to CPAs (source: UNFCCC )