1 Central American Carbon Program: Implications for rural communities, renewable energy and the environment August, 2000 Most of the data and studies in this presentation were collected with financial support from the UNDP and CABEI between

2 A REGION HISTORICALLY IMPACTED BY DISASTERS

3 FACT: Extreme Climate Events are increasing

4 Emissions are increasing due to wrong price signals

5 One of the Kyoto Protocol Scenarios for Latin America and the Caribbean Ex-ante< 1% Biological 75%-85% Non-biological 25%-15% Mitigation >$3.5 b/year Adaptation* >(8.5) b/year Climate Change Economic Impact Ex-post > 99% *Ref. Adapted from CEPAL 2000

6 Why a Central American Carbon Program? To prioritize mitigation projects coherent with the Alliance for Sustainable Development signed in Coherent with the mission of CABEI, UNDP and CCAD to fight poverty, and promote integration. Part of Agenda XXI to increase competitivity. Requested by the Ministers of the Environment in November 1999 (Tegucigalpa Declaration). Complementary with the World Bank PCF and private sector initiatives (i.e BP, Shell) with a regional focus.

7 Will Reduce Domestic Compliance Costs in Industrialized Countries and Promote Global Trade Fuente: Tabla 1 de Richard Baron, "The Kyoto Mechanisms: How Much Flexibility do they Provide? en Richard Baron, Martina Bosi y Alesandro Lanza, Emissions Trading and the Clean Development Mechanism: Resource Transfers, Project Costs and Investment Incentives, informe para la International Energy Agency para la Quinta Conferencia de las Partes, Bonn, octubre-noviembre de 1999.

8 Will Maximize the Central American CERs Potential* which is Substantial at a Market Price of $28/ton * Carbon estimates comes from the Harvard-INCAE-CABEI project, for the range between 6.5 and 62 million tons per year cost estimates are less than $20 per ton (Castro Salazar, 1999; Boscolo et al., 2000) ** Estimates for Panama and Belize come from a CCAD study conducted in 1998.

9 The CCP will have a Fund and Regional Projects Central American Carbon Program (CCP) The FUND (FOCECA)  Trust for financing Carbon estimates and projects.  Certification  Capacity Building and Training.  Marketing of CERS. The FUND (FOCECA)  Trust for financing Carbon estimates and projects.  Certification  Capacity Building and Training.  Marketing of CERS. Specific Projects Producing CERs  Complementary financing to generate CERs.  Regional Programs such as off- grid electrification.  Identify projects with carbon reduction potential in forestry, transportation and energy. Specific Projects Producing CERs  Complementary financing to generate CERs.  Regional Programs such as off- grid electrification.  Identify projects with carbon reduction potential in forestry, transportation and energy.

10 Description of The Central American Carbon Fund Target to raise $25 millions between A trust fund at CABEI. Up to $1.5 million from CABEI’s environmental fund. All stakeholders will have representation at the executive committee of the trust. Coordination with the CABEI and partners traditional programs.(i.e.CABEI-IADB a potential partnership for off-grid electrification for rural communities).

11 Examples of Mitigation Projects: Renewable Energy Non Biological: –Wind Energy: costs are competitive due to technology, cheaper land leasing and CO2 emerging markets. –Solar: costs are reducing due to technology, scale of the off grid market and additional cash flow coming from the CO2 emerging markets. –Natural gas: could be competitive with thermal generation using fossil fuels.

12 Biological: –Biomass energy: suitable land and abundant options for reforestation projects and sugar cane coo-generation. –Forest Conservation and expansion of protected areas. –Greener Fossil Fuels: marketing a CO2 neutralized fuels by planting more trees. Examples of Mitigation Projects: Forest Projects for Rural Communities

13 Example #1: Impact of the Carbon Market on Access to Renewable Energy Sources by the Poor... $4/ton $37/ton $69/ton $101/ton

14 Example 1: Renewable energy for off-grid communities combining traditional financing and CO 2 On grid average cost is 9 cents/kWh. Solar energy costs are around 13 cents/kWh, other sources range between 7 and 20 cents/kWh. Trading Certify CO 2 between $5-$35/ton could finance the difference... Rural communities will pay a similar cost than the communities on-grid but will be using renewable increasingly. A flagship project to attend 5% of the more than 2 million families without electricity in the Central America will cost $100 million.

15 Example 2: Emissions Neutralized Fuels or Fuel Switching? CO2 costs may induce fuel switchingTrees + fossil fuels

16 Example 3: Wind Power is Becoming Competitive Costs of Plantas Eólicas (20 MW) project in Costa Rica was 7.4 cents per Kwh in Costs of Tejona (20 MW) project was 3.4 cents per kWh and same site in Four main reasons: –Costs reduction due to technology improvement –Carbon reductions sold at around $10 per ton –Successful learning process in Costa Rica –The Central American Banks has played a pioneering role financing projects.

17 Example 4: Switching from traditional agriculture to forest friendly crops and conservation

18 Example 5: Carbon price scenarios and its potential for expansion of the Mesoamerican Biological Corridor

19 SUMMARY What do we need? –Expand protected areas in Mesoamerica by more than 5 million hectares. –Recover degraded land and convert land to more forest friendly activities (3.2 million hectares). –Promote the use of renewables in energy generation by internalizing CO 2 in energy prices.

20 What is next? –Help identify, design and implement mitigation projects. –Partnerships. –Promote additional carbon funds in developing countries to complement the PCF. SUMMARY