International Climate Change Regime n UNFCCC – “stabilization of greenhouse gas concentrations at a level that would prevent dangerous anthropogenic interference with the climate system” n Kyoto Protocol – QELROs for OECD countries and EITs (Annex I) to reduce emissions of six GHGs on average 5.2% below 1990 levels in – Kyoto Mechanisms: JI; CDM; Emissions Trading n Buenos Aires Plan of Action – Strengthen implementation of the Convention – Demonstrate, inter alia, substantial progress on the Kyoto Mechanisms – Decisions on the operational modalities of the Kyoto Mechanisms by CoP-6

Purpose of the PCF To help create a market for carbon offsets within the framework of the Kyoto Protocol through – demonstrating how CDM and JI trade can contribute to sustainable development – providing “learning by doing” experience for Parties to the Protocol on key policy issues (for example, defining and validating baselines) – building confidence that the trade can benefit both sellers and buyers

OECD governments/ companies buy offsets WB manages PCF Client countries (EITs/ developing countries) originate offsets Benefits: risk diversification reduced transaction costs What is the Prototype Carbon Fund? $ $ CO 2

Project selection and validation Periodic independent verification/ certification Registration Protocol Transfer Emission Reductions Project implementation From Projects to Emissions Reductions “PCF Value Chain” Distribution emission reductions

Why would the private sector participate in PCF?...one or more of the following reasons.... n cost- effective way to meet Kyoto Protocol obligations (price of $ 20-30$/T) n reduce entry barriers to carbon market. Learn from PCF at low cost to do your own Funds and trades n increase image of environmental responsibility as a competitive tool n profit in the secondary market

PCF will catalyze Market Development through: n Building private sector and host government confidence in offset trade (Bank will exit market when private sector enters) n demonstrating intermediation and brokerage in mitigating risk and lowering transaction costs n engaging major private capital in learning from PCF experience n creating “high quality” uniform sovereign commodity n developing generic contracts, procedures, protocols n helping client countries and companies develop own “funds” n building host government market capacity n demonstrating price contracts that share risk acceptably between buyers and sellers in uncertain early markets n Second Closing (if necessary): one year later

Examples of Knowledge Generated n “Additionality” and Baseline determination n Validation, Certification and Verification protocols, procedures and outcomes n sample project-based offset contracts (e.g. with host government, project sponsor) n emerging market and risk analyses n price formation agreements (e.g methods for risk and benefit-sharing) n Targeted seminars and workshops on PCF experience and implications

Option Space for Climate Change Mitigation $/TonneCarbonAbated 200 % or Volume Abated % 20% 40% 80% Curtailment Win-WinLo-CostHigh-Cost (Mini-) Hydro; Gas; Geothm’l Some CCT’s; CH 4 Capture; Potential “Win-Win” Renewables; DSM; Nuke (?) Developing Renewables; Fuel Cells MC Low-hangingfruit IBRD/IDA The$20Bill Pseudo-“Win-Win” Policy Dialogue IBRD/IDA/BI-L Private Cap. GEF Lubricant J.I./AIJ Public-Private Investment Funds GEF Buy-Down OECD R,D&D Venture Cap.

PCF Project Selection and Portfolio Criteria Generic: Adhering to UNFCCC, Bank standard, with emphasis on renewable energy projects n Broad balance between CDM and JI with initial emphasis on CDM n Not less than 2% and no more than 10% of Fund’s assets in one project n Not more than 20% of Fund’s assets invested in Projects in the same host country n Not more than 10% of the Fund’s assets in forest-based sinks (and only in EITs) n Mostly renewable energy technology - but no more than 25% of the Fund’s assets in any one technology

PCF Indicative Project Pipeline Endorsed: n Latvia: Liepaja Solid Waste Management n Costa Rica: Renewable Energy Small Scale Power Under consideration: n Hungary: Tatabanya Biomass Power n Kazakhstan: Mini Hydro Power n Uganda: Renewable Energy

Host Country Committee for the PCF

PCF Status and Time Line PCF Participants: Governments reviewing participation: 6 Companies signed MoUs: 20 Companies reviewing participation: 30+ Key Dates: n Public Announcement - December 15, 1999 n First Closing - February 2000 n Organizational Meeting - February/ March 2000

Host Country Role in the PCF – Host country committee Composed of those countries either signing a letter of endorsement for a PCF project or a Memorandum of Understanding Composed of those countries either signing a letter of endorsement for a PCF project or a Memorandum of Understanding Provide advice and strategic guidance to the Fund Management Provide advice and strategic guidance to the Fund Management Annual meetings, prior to Participants’ Meeting to provide effective input Annual meetings, prior to Participants’ Meeting to provide effective input – Observer status in Participants committee and Participants’ meetings