Ideas to engage GEF and carbon finance under GEF-5 Input from IDB Washington D.C. 15 November 2010

Possible roles for GEF 5 on carbon finance On the basis of IDB’s experience in Latin-America and the Caribbean, GEF could make a significant contribution to carbon finance on the following areas (among others):  Design and test financial instruments to facilitate carbon finance operations  Pilot sectoral/programmatic approaches in key sectors  Enable domestic climate change action through market mechanisms

Financial instruments  Development of carbon markets limited by barriers to project financing and by project and carbon market risks  Little experience with financial instruments applied to carbon finance:  Guarantees, contingent financing, equity, “green-lines”, etc.  Growing interest from local financial institutions:  Development and commercial banks, insurers, exchanges  Technical assistance to identify opportunities and needs  Facilitate partnerships  Design and test instruments

Sectoral/programmatic approaches  Need to expand the scale of carbon finance operations and reach underrepresented sectors/technologies  New and emerging carbon finance mechanisms present significant challenges  Institutional complexities and transaction costs are often beyond the means of individual private promoters  Investments in some key sectors depend on decisions from public agents, who often face legal, financial and practical barriers to engage in carbon finance  Support the set-up and implementation of programmes in key sectors (energy efficiency, waste management), including nationally appropriate mitigation actions

Domestic climate change action  Domestic climate change action limited by regulatory, technical and market barriers  Companies and organizations in developing countries are increasingly exposed to climate change related risks  Emerging local carbon markets initiatives in developing countries  Lack of adequate regulation to promote voluntary action  Limited capacities related to corporate greenhouse gas accounting, independent verification and carbon trading  National efforts benefit from regional dialogue and integration

Francisco Arango Sustainable Energy and Climate Change Unit Inter-American Development Bank