Overview of the MDG Carbon Facility Matt Spannagle Carbon Technical Adviser Millennium Development Goals Carbon Facility Bureau for Development Policy United Nations Development Programme

1 UNDP MDG Carbon Facility 1 Recall: HFC & N 2 O reduction 40% Renewable Energy 23% CH 4 reduction 16% Energy efficiency 7% Cement & Coal mine/bed, 7% Fuel switch, 7% Afforestation & Reforestation, 0.2%

2 UNDP MDG Carbon Facility 2 Recall: MDG Impact Number of Countries Low High Low High Objective for UNDP’s Carbon Strategy Current CDM Market*

3 UNDP MDG Carbon Facility 3 Process of selecting Fortis Internal Approvals RFP: Expression of Interest RFP: Review Period RFP: Evaluation Period RFP: Negotiations with Finalist Qualified for RFP Start 15 Attended Meeting Proposals Received 126 Finalists 1 Winner 3 Process Step Timing Number of Banks 11 December: Launch RFP 11 January: Participants’ Meeting 31 January: Proposals due Oct, Nov5-19 February: Selecting 3 Finalists 26 Feb – 5 March: Interviews and ranking of Finalists 26 March: Commence negotiations May: Signing of contract Launch (June 5)

4 UNDP MDG Carbon Facility 4 Fortis Bank - overall best deal for Project Proponents Market leader in carbon finance  Early key player and investor - can best manage risk, and offer best prices  2004: awarded “Carbon Trade of the Year” for first ever trade of EU Allowances using a derivates based contract.  2008: awarded “Best Carbon Trader 2008” One of the largest banks in the world, a counterparty that will honor its contracts to purchase credits  Institutional stability / solvency – a strong solvent partner to the Facility.  In current time of credit uncertainty, Fortis are in a strong position to honor their Facility obligations, including their contracts with Project Proponents.  According to S&P, Fortis is rated AA+

5 UNDP MDG Carbon Facility 5 MDG Carbon Facility Partnership with Fortis Fortis Project Proponents UNDP 2 Year Agreement Emissions Reduction Purchase Agreement (ERPA) Payment of Cost Recovery Fee $285k / project Payment for Credits Delivery of Carbon Credits 15m credits Cost Recovery Service Agreement Project Management Services Project Due Diligence Services

6 UNDP MDG Carbon Facility 6 Fortis – Carbon Banking Services Carbon Market Price

7 UNDP MDG Carbon Facility 7 Fortis – Carbon Banking Services Pricing Formula Example Illustrative FSP Pricing Floor: €10 Rolling Component: 50% discount Example at two market prices: EUA Phase 2 at €12 EUA Phase 2 at €22 Floor Component €10.00 €6.00 €11.00

8 UNDP MDG Carbon Facility 8 Fortis – Carbon Banking Services 15 million credits, ~36 projects Key feature: one price across the portfolio, irrespective of project characteristics Benefits for project proponents Fixed price protects against market downside Advance payment for UNDP’s Cost-Recovery Fee Fortis as a solvent counterparty Features

9 UNDP MDG Carbon Facility 9 UNDP - Project Development Services Part 1: Due Diligence Part 2: Project Documentation Part 3: Establish Monitoring System Two step process Initial screening In depth evaluation Preparation of documentation Approval by host country Validation by 3 rd party auditors Implementation and oversight of monitoring system in project’s first year ERPA 1 st Credit Issuance Registration Part 1: Due Diligence Part 2: Project Documentation

10 UNDP MDG Carbon Facility 10 PDD Host country approval Designated national authority Operational entities Project owner Executive Board Validation Registration Financing & implementation Monitoring Verification & certification Issue CERs Project Idea Note (PIN) Projec t idea Recall MoU/LoE SA/ERPA

11 UNDP MDG Carbon Facility 11 Project Year MilestoneServices Offered by Facility Year 1MoU/LoE Service agreement /ERPA Registration; - project identification and sourcing - due diligence - preparation of project documentation (PDD), arrange for validation Year 2Project commissioning - basic oversight and technical assistance on implementation Year 31 st year of credit issuance - monitoring support and pre-verification of credits MDGCF services

12 UNDP MDG Carbon Facility 12 UNDP - Team Structure Country Office Role MDG Carbon Facility Team Part 3: Monitoring System Part 1: Due Diligence Part 2: Project Docs. RTA CO Conslts Project 1Project n RTA CO Conslts Assist in identifying/ sourcing projects Assist in due diligence and gathering of documents Technical Finance & Legal Execution Assist in project documentation formulation Liaise with local authorities and actors Oversee collection of operational data Desk top review and site visits Central Support Carbon Projects

13 UNDP MDG Carbon Facility 13 MDG Carbon due diligence Commitment SCREENING EVALUATION No. of potential projects Due Diligence effort, $$$ & scrutiny per project Commercial banks buying ‘product’ (emission reductions) – they need to be sure they are committing to a stable, safe partner in project proponent requirement for formal due diligence process  requirement for formal due diligence process

14 UNDP MDG Carbon Facility 14 Due diligence Aspects Due diligence on 5 aspects: A.Carbon layer B.Technical feasibility (engineering) C.Financial/Management/Legal viability D.Compliance with environmental & social principles + MDG impacts E.Country risk

15 UNDP MDG Carbon Facility 15 MDG Carbon due diligence MDG Carbon due diligence process that all projects must undergo: Phase 1: Screening CDM eligibility, financial and technical feasibility etc. early elimination of ineligible or unviable projects low cost to screen Phase 2: Evaluation in depth May require additional studies or info collection Recommend either for commitment or rejection. Risk areas are identified and risk management strategies developed.

16 UNDP MDG Carbon Facility 16 Due diligence aspects in Screening and Evaluation Carbon layer Technical feasibility Country risk Commitment SCREENING EVALUATION E&S complianc e + MDG impacts Financial and Legal Intensity of due diligence varies between screening & evaluation depending on aspect  e.g. carbon layer due diligence performed mainly at Screening while MDG impact assessment requires more effort and is mainly conducted at Evaluation  Due diligence applied in coordination and iteratively  e.g. if Carbon layer assessment reveals low volume of CERs, the underlying financial security is analyzed before continuing with other aspects

17 UNDP MDG Carbon Facility 17 MDG Impact assessment and project selection Project-intrinsic MDG benefits e.g. employment/income, Access to energy air quality improvement Project-extrinsic MDG benefits e.g. invest part of CER income to: schools or health clinics, HIV education campaigns, environmental restoration += MDG Score  Intrinsic and extrinsic MDG impacts are quantified  Quantification based on “no. of people impacted under each MDG”  PP not required to re-invest CERs into extrinsic benefits but may do so to increase MDG Impact Maximization of portfolio’s development dividend

18 UNDP MDG Carbon Facility 18 What might MDG Carbon projects look like? 15 million credits 28 to 44 projects (mid-point 36) launched in Projects vary by Size Technology Geography MDG attributes Pipeline will be developed on an on-going basis

19 UNDP MDG Carbon Facility