Carbon Finance at the World Bank Workshop on CDM and Africa Jinja, Uganda, 11 November 2005 Andrea Pinna

Carbon Fund $ $ $ $ 22 Emission Reduction Purchase Agreement BanksInvestor DebtEquity Power Purchase Agreement $$ Electricity $$ Carbon Credits Upfront payment as “Equity” Less than 25% of contract Collateralization of ERPA Role of carbon finance in project financing

Key Features of Carbon Finance Both public and private capital – new and additional sources for sustainable development financing Payment on Delivery – payments are made upon annual independent verification that emissions reductions have occurred. –Unlike most buyers in the market, Participants in Bank Funds agree to take Kyoto regulatory risk: Hence, our carbon fund contracts are “bankable”, allowing more projects to get financing than if regulatory risk remained open. Payment stream is in hard currency, reducing financing risk for foreign lenders

TechnologyDelta IRR financial Hydro, Wind, Geothermal % Crop/Forest Residues 3-7% Municipal Solid Waste 5-15+% Carbon economics: Increases in Project Rates of Return as a result of additional revenues from sales of Emissions Reductions (“Carbon”) at $4/tCO 2 e

Hydroelectric power offsetting the need for coal- or gas- fired generation Extending grid to reach customers currently using diesel or kerosene Reducing CO2 and possibly methane (a potent greenhouse gas) by generating energy and bio-fuels from sugar industry by-products -- bagasse and molasses Replacing firewood/kerosene/cowdung with biogas from livestock and human wastes Extracting methane from landfills or avoiding its generation trough composting organic waste in urban dumpsites Extracting methane from disposal of sewage sludge Capturing N20, a powerful greenhouse gas, from fertilizer production Sequestering CO2 by tree planting, small plantations, land restoration (limited capacity to buy though) Types of Carbon Projects

Host country and project nameER generation (est.) Benin Urban Waste Management350,000 Congo Bateke Agro forestry1,000,000 East Africa TIST1,000,000 Ethiopia Addis Ababa Landfill Gas1,600,000 Ethiopia Humbo Assisted Regeneration1,000,000 Ghana Takoradi (IFC)2,250,000 Kenya Greenbelt Movement790,000 Madagascar Biodiversity Corridor200,000 Metahara Sugar Cogen and Ethanol373,000 Niger Acacia Plantation1,000,000 Nigeria Aba Cogeneration (IFC)1,200,000 Nigeria Lagos Urban Waste Management750,000 Nigeria Mayon Turbo Stoves384,780 Nigeria Transmission/distribution1,500,000 Sierra Leone Bumbuna Hydro750,000 South Africa Bethlehem Hydro275,000 South Africa Buffalo City Urban (IFC)1,000,000 South Africa Durban Municipal Solid Waste3,800,000 Tanzania Mtibwa 24MW bagasse Cogen384,000 Tanzania Waste Water Management Uganda Composting (Second Uganda Envt)900,000 Uganda Kakira Sugar Cogen439,000 Uganda Kampala Landfill Uganda Nile Basin Reforestation250,000 West Nile Electrification Project500,000 Zambia Consolidated Farming Limited Bagasse Cogeneration and Ethanol512,000

The World Bank’s Objectives in the Carbon Market Contribute to Sustainable Development –Support Developing Countries To Maximize Gains from Carbon Finance –Add Value to CDM Projects Catalyze the Carbon Market –Develop new markets and sectors for carbon finance –Build Capacity in Client Countries –Provide Liquidity to the Market

The World Bank’s Objectives in the Carbon Market II Address Market Distortions: demonstrate credible forestry/agriculture “sinks” activities Open Markets for small projects and small countries Integrate and strengthen Technical Assistance and Capacity Building: to assist participating countries to access market

World Bank Policy in Carbon Finance Pay Market Prices corrected for risk, purchase either VERs or CERs Always contribute beyond the purchase of the CDM emission reduction While Building Capacity Of Clients Through Support and Training Give Full Information – Transparency and Integrity Bring the Full Instruments of the World Bank Group to Support Clients

World Bank Carbon Finance Products ~$900 million under management $80 million committed - Italian multi-participant $220 million – Spanish Government; will be open to private sector – Bio Carbon Fund: $51.3 million; multi-shareholder. Still open for subscription until end of August; second tranche in September 05 Community Development Carbon Fund: multi-shareholder. First tranche closed at $128.6 million; second tranche to open once Portfolio for first tranche is well developed Prototype Carbon Fund: $180 million, multi-shareholder Netherlands JI Facility ~$40 million.Economies in Transition only (with IFC) $172 million – single government participant (Dutch Government) $64million – Danish multi-participant; still open for subscription Under development: Carbon Fund for Europe

How Carbon Funds Work Industrialized Governments and Companies Developing Countries and Communities Bank Managed Carbon Fund Bank Managed Carbon Fund $ $ Technology Finance $ $ Technology Finance CO Equivalent2 Emission Reductions CO Equivalent2 Emission Reductions Payment on delivery of emissions reductions, not up-front capital costs

Preparation and review of the Project Baseline Study and Monitoring Plan Validation process Negotiation of Project Agreements Periodic verification & certification Construction/Implementation and start up Project completion 3 months 2 months 3 months 1-3 years Up to 21 years Project Idea Note Project Concept Note Project Design Document ER estimates Monitoring Plan Validation by independent Accredited Operation Entity Submission of new method to CDM Executive Board if needed Project Appraisal and related documentation Term sheet (if needed) Emission Reduction Purchase Agreement World Bank/CDM Project Cycle – The Manufacturing Process for Emissions Reductions Initial verification report Verification and certification Supervision

Who does what in the CDM project cycle Project Design Document > Project Proponent Project Endorsement / No objection > DNA Validation of Project Design, Baseline, Monitoring Methodology > Operational Entity > If Baseline / Monitoring Methodology is new, Executive Board approves Methodology Project Approval > DNA Project assists host country in achieving sustainable development Project complies with domestic laws Environmental Impact Assessment Monitoring and Verification > Operational Entity

Preparation and review of the Project Baseline Study and Monitoring and Plan (MP) Validation process Negotiation of Project Agreements Periodic verification & certification Construction and start up Project completion 3 months 2 months 3 months 1-3 years Up to 21 years Letter of no-objection required before authorization is sought for further work from Fund Management Committee and PCF participants Letter of Approval required prior to signature of the Emissions Reductions Purchase Agreement DNA involvement in CDM project cycle

THANK YOU !