1. T E A P R T F S u p p l e m e n t R e p o r t, M O P - 2 0, D o h a 1 Supplement to the Report on the Replenishment of the Multilateral Fund for the Period 2009-2011 (and beyond) TEAP - Replenishment Task Force

2. T E A P R T F S u p p l e m e n t R e p o r t, M O P - 2 0, D o h a 2 Funding requirement 2009-11 summary The total funding requirement for the triennium 2009- 2011 is likely to be in the range of US $339 to US $630 million If based on two HCFC consumption funding and two cost effectiveness scenarios for all Article 5 Parties This is a slight (updated) change compared to the values published May 2008, and does not take into account the possible impact of various parameters investigated

3. T E A P R T F S u p p l e m e n t R e p o r t, M O P - 2 0, D o h a 3 Two reports published in 2008 This presentation is a summary of the results published in The Supplement to the Assessment report, October 2008 which report contains some more detailed investigations of various aspects dealt with in the report The Assessment of the Funding requirement for the Multilateral Fund for the period 2009-2011, May 2008

4. T E A P R T F S u p p l e m e n t R e p o r t, M O P - 2 0, D o h a 4 Decision XIX/10 Mentions for the study: “…while taking further into account: The need to allocate resources…. Maintain compliance Rules and guidelines by the Executive Committee Financial commitments in 2009-2011 Approved country programmes The provision of funds for accelerating phase-out and maintaining momentum… Experience to date The impact of the international market on supply and demand………”

5. T E A P R T F S u p p l e m e n t R e p o r t, M O P - 2 0, D o h a 5 Decision XIX/6 Decision XIX/10 is related to XIX/6, which mentions specifically: To agree that the funding available through the Multilateral Fund in the upcoming replenishments shall be stable and sufficient to meet all agreed incremental costs to enable….. To agree that the Executive Committee …. give priority to cost effective projects and programmes which focus on, inter alia: Phasing out first HCFCs with higher ODP,....national circumstances Substitutes and alternatives that minimize other impacts on the environment, including on the climate…GWP, energy use and other..

6. T E A P R T F S u p p l e m e n t R e p o r t, M O P - 2 0, D o h a 6 Additional requests at OEWG Bangkok Additional requests were made for study at OEWG-28: Destruction Inflation Institutional Strengthening Cut-off dates and impact of second conversion funding Cost effectiveness factor composition Climate benefits Other issues, exports and multinational rule Demonstration projects Risk analysis in case of high growth through 2012

7. T E A P R T F S u p p l e m e n t R e p o r t, M O P - 2 0, D o h a 7 Additional requests at OEWG Bangkok TEAP considered all elements requested for further study regarding their impact on the funding requirement; this with a focus on the next 2009-2011 triennium In the case of the investigation of cut off dates and the funding of second conversions the impact on the funding requirement during the three trienniums was considered

8. T E A P R T F S u p p l e m e n t R e p o r t, M O P - 2 0, D o h a 8 Destruction (1) The Montreal Protocol has not yet financed emissions reduction measures Funding of destruction - disposal needs to be considered in the triennium 2009-2011, because the banks of unwanted CFCs and halons will largely “leak” away soon Certain sources report 9-12,000 (metric) tonnes as available for destruction in 2008 ExCom 48/42 report indicates 1500 tonnes available every year Impossible to accurately estimate the amounts concerned Costs mentioned (US $6/kg) not related to carbon credits

9. T E A P R T F S u p p l e m e n t R e p o r t, M O P - 2 0, D o h a 9 Destruction (2) Destruction activities were estimated to cost US $27 million; this estimate was based upon assumptions for quantities and the cost for the destruction (including logistics) (a quantity of 4500 tonnes was assumed for 3 years) Further investigation was done on the basis of (28) submissions of quantities by Article 5 Parties On the basis of the submissions extrapolations were made, the estimate could not be refined; it has been assumed that the amount of US $27 million will still be enough to cover all possible destruction costs in the next triennium

10. T E A P R T F S u p p l e m e n t R e p o r t, M O P - 2 0, D o h a 10 Funding requirement (non-HCFC) 2009-2011 ODS consumption (NPP, TPMPs) (MDIs)45.0 million CTC, process agents 6.4 million MB consumption13.2 million Production phase-out (CFC, MB, accelerated)19.1 million Destruction27.0 million Supporting activities (CAP, IS, Treasurer, Core, MLFS, ExCom) 92.0 million TOTAL 202.7 million

11. T E A P R T F S u p p l e m e n t R e p o r t, M O P - 2 0, D o h a 11 HCFCs in Article 5 Parties before 2007 HCFC consumption considered in four Groups: (1) very large (China), consumption > 12,000 ODP tonnes (2) larger size (17 Parties), consumption 120-1200 ODP tonnes (3) smaller size (34 Parties), and consumption 6-120 ODP tonnes (4) small (83 Parties) consumption < 6 ODP tonnes

12. T E A P R T F S u p p l e m e n t R e p o r t, M O P - 2 0, D o h a 12 HCFCs in Article 5 Parties before 2007 Small size Article 5 Parties have only HCFC-22 servicing consumption Total China HCFC consumption was 17,000 ODP tonnes in 2006 2006 totals for Groups 2/3/4: Group 2 -- 7000 ODP t Group 3 -- 1000 ODP t Group 4 -- 150 ODP t Total Article 5 HCFC consumption in 2006 was larger than 300,000 metric tonnes (± 25,000 ODP tonnes)

13. T E A P R T F S u p p l e m e n t R e p o r t, M O P - 2 0, D o h a 13 HCFC Article 5 Consumption (ODP t)

14. T E A P R T F S u p p l e m e n t R e p o r t, M O P - 2 0, D o h a 14 Baseline or 2012 funding In case only baseline funding is assumed, there will be no funding needed to achieve the 2013 freeze For the 10% reduction 2013-15, funding needs to start in 2010 -- when the baseline has not yet been established In case of funding the 2012 consumption level, funding needs to start in the year 2009; 2012 consumption will not be known at that stage; question is how realistic this will be The eventual funding requirement will be “somewhere in between” (the two funding scenarios)

15. T E A P R T F S u p p l e m e n t R e p o r t, M O P - 2 0, D o h a 15 Inflation Parties requested TEAP to look at the impact of inflation Task Force determined the elements subject to inflation agreed projects cannot be inflated new projects estimated can be subject to inflation; this includes all new activities (non-HCFC and HCFC) supporting activities not corrected for inflation; some already have an annual adjustment mechanism No references for global inflation numbers, normally split for developed and developing (emerging) economies Conclusion: funding would increase by US $4-9 million per % inflation dependent on which HCFC funding scenario

16. T E A P R T F S u p p l e m e n t R e p o r t, M O P - 2 0, D o h a 16 Servicing for HCFCs Servicing important for all Article 5 countries for achieving compliance, but particularly for small consuming Parties Cost estimates have been made for addressing servicing (using the MLF experience in funding RMPs, NPPs, TPMPs, via set-up of legal and technical frameworks, R&R etc.); in cost estimate several IS components implicitly considered Cost estimates made on the basis of HCFC consumption Funding of the servicing (HCFC-22) sector is considered for all Article 5 Parties US $63 million assumed to be required for the triennium 2009-2011 to realise the first 10% reduction level in 2015

17. T E A P R T F S u p p l e m e n t R e p o r t, M O P - 2 0, D o h a 17 Institutional Strengthening Parties requested TEAP to study IS funding scenarios considering the needs likely to be encountered in 2009-11 The Panel reviewed the body of the work by the ExCom, as well as cases made by some Parties It is difficult to find good arguments to justify either a level of decrease or increase in IS funding Funding suggested for HCFC servicing includes elements that are normally included as IS (at US $13.3 million) May 08 funding scenario could be seen as an implicit IS funding increase, even if direct IS funding is kept constant

18. T E A P R T F S u p p l e m e n t R e p o r t, M O P - 2 0, D o h a 18 Cut-off dates (1) The Multilateral Fund has a cut-off date of July 1995 for ODS (CFCs, halons etc.); capacities built after that date are non-eligible This is valid for both production and manufacturing (consumption facilities) In the Supplement Report the production has not been considered, because the May 2008 report assumes that production phase-out funding will not apply to the replenishment 2009-2011

19. T E A P R T F S u p p l e m e n t R e p o r t, M O P - 2 0, D o h a 19 Cut-off dates (2) Cut-off dates for HCFCs considered in the Supplement report : 2000, 2004, 2007 (past); 2010 (future) has been requested but was not really considered since no differences with 2007 are expected The eligible HCFC consumption is smaller the further the cut-off date is in the past (with HCFC consumption increasing after cut-off) HCFC consumption consists of foams, refrigeration and AC, of which the latter has a large servicing component One would expect the funding to decrease with earlier cut- off dates, and smaller consumption levels

20. T E A P R T F S u p p l e m e n t R e p o r t, M O P - 2 0, D o h a 20 HCFC Consumption China

21. T E A P R T F S u p p l e m e n t R e p o r t, M O P - 2 0, D o h a 21 HCFC Consumption Group 2 Parties

22. T E A P R T F S u p p l e m e n t R e p o r t, M O P - 2 0, D o h a 22 HCFC Consumption Group 3 Parties

23. T E A P R T F S u p p l e m e n t R e p o r t, M O P - 2 0, D o h a 23 Cut-off dates (3) The major assumption in calculating the funding requirement dependent on the cut-off date is that the Multilateral Fund will fund all consumption for compliance A cut-off date of 2007 has a majority of reductions in the (HCFC-141b) foam sector; with earlier cut-off dates the eligible foam consumption decreases In case of earlier cut-off dates, more reductions have to be found in the eligible (more expensive) R/AC sub-sector Compared to 2007 funding for 2000 cut-off is higher: US $16 million - 0 years IOC, US$ 115 million - 2 years IOC

24. T E A P R T F S u p p l e m e n t R e p o r t, M O P - 2 0, D o h a 24 Cut-off dates (4) Early cut-off dates have their impacts on the funding for the first but also for the subsequent trienniums The impact on the funding depends on the consumption pattern of Parties (or Groups of Parties) in the cut-off year Several Parties may have no difficulty identifying eligible consumption for up to 30% of HCFC consumption reduction Other Parties may have already difficulties to find enough eligible consumption to be used for the funding of reductions in the second or the third triennium (2015-17) In the long term, early cut-off dates: lower funding, but…..

25. T E A P R T F S u p p l e m e n t R e p o r t, M O P - 2 0, D o h a 25 Second conversions (1) Second conversions (conversions of equipment that already was converted from CFC-11 to HCFC-141b -- with Multilateral Fund assistance) can be funded at a chosen level incorporating Capital costs Operating costs Technical assistance costs, or any combination thereof The percentage of second conversions (related to the cut-off date) can be determined from MLF Project Completion Reports and from UNEP Article 7 data It is difficult to derive consistent data sets; reporting deficiencies in -141b may be related to pre-blended polyols

26. T E A P R T F S u p p l e m e n t R e p o r t, M O P - 2 0, D o h a 26 Second conversions (2) Two scenarios can be considered for the funding of second conversions (to the mix of alternatives mentioned): (1) Second conversions gradually (2) Second conversions first (no other conversions) Reality will be “in the middle” and will depend on a Party’s choice in a HPMP to be developed TEAP Task Force has calculated a large number of cases for the next trienniums For 2009-2011, funding requirement may be decreased by (1) US $5-10 million (2) US $25-50 million

27. T E A P R T F S u p p l e m e n t R e p o r t, M O P - 2 0, D o h a 27 Cost effectiveness factors (1) Foams (both HCFC-141b and -142b) 2006 HCFC consumption take as starting point Plants of sizes 5, 25 and 75 tonnes were distributed over all relevant Article 5 Parties, leading to an estimate of the total number of plants Different alternatives were assumed in different size plants (HFC-245fa-mixes, methyl formate, water blown, and hydrocarbons (40% share)) with each the specific capital and operating costs (IOC) Using the total consumption in all plants, cost effective- ness with and without IOC can be determined per kg

28. T E A P R T F S u p p l e m e n t R e p o r t, M O P - 2 0, D o h a 28 Cost effectiveness factors (2) Refrigeration and AC (HCFC-22) Split room air conditioning and commercial ducted AC For split units HFCs (both R-410A and R-407C) and propane considered; for commercial ducted AC only HFCs Based on 80% split and 20% ducted systems --and equal shares of all alternatives--, cost effectiveness factors (based on capital costs and operating costs) were determined For commercial refrigeration R-404A and HFC-134a considered with a larger part of the conversions to HFC- 134a; based on this, cost effectiveness factors determined R/AC CE factors based on 2/3 AC, 1/3 comm. refrigeration

29. T E A P R T F S u p p l e m e n t R e p o r t, M O P - 2 0, D o h a 29 Climate benefits (1) A number of scenarios have been elaborated upon: the Replenishment Scenario, the current pragmatic approach with some implicit climate considerations the Baseline Scenario (least cost solutions only) the Functional Unit Scenario, where climate benefits are maximised allowing additional funding according to a cost-effective limit based climate criteria (i.e. $/tonne CO 2 saved) the Technical Potential Scenario, aimed at maximising climate benefit on the basis of technical options irrespective of the costs associated with those options

30. T E A P R T F S u p p l e m e n t R e p o r t, M O P - 2 0, D o h a 30 Climate benefits (2) TEAP Response to XVIII/12 Report provided a comprehensive overview of technology options for the HCFC phase-out both by sector and sub-sector Most significant development since 2007 is the emergence of low GWP HFC (HFO) options for both refrigeration and foam blowing At present the scope of applications is unclear It reminds Parties that the technological landscape is continuously changing and these changes need to be factored into future transition strategies (reducing leakage, while postponing transition in R/AC ?)

31. T E A P R T F S u p p l e m e n t R e p o r t, M O P - 2 0, D o h a 31 Climate benefits (3) The TEAP response to the request for climate (cost-related) considerations has been targeted at identifying methods for evaluating costs and benefits It is still premature to make reliable cost abatement curves in a rapidly changing technological landscape Timing of transitions will also impact potential climate gains It needs to be mentioned in this context that: Priorities under XIX/6 will be set first by ozone compliance Every transition should be fully evaluated for climate impact More innovative funding mechanisms are emerging but these need to be governed by appropriate methodologies Potential climate benefit will depend on choices under the MLF

32. T E A P R T F S u p p l e m e n t R e p o r t, M O P - 2 0, D o h a 32 Exports and multinational ownership The original TEAP report considered 20% exports in the determination of the cost effectiveness factor for refrigeration and AC; this was done on a global basis Exports could be larger; no reliable information available Each 10% more yields a reduction of US $6 million (IOC 2Y) Especially the multinational component in foam enterprises was not considered in the May 2008 report This may introduce an extra US $6 million reduction in the funding requirement for 2009-11 per 10% “multinational” This issue can be further dealt once HPMP info is known

33. T E A P R T F S u p p l e m e n t R e p o r t, M O P - 2 0, D o h a 33 Demonstration projects TEAP was requested to reconsider the funding for demonstration projects; Parties mentioned that these projects normally contribute to compliance and should therefore be considered under “non-servicing HCFC” TEAP and its RTF believe that demo-projects are needed and will be twice as expensive as normal projects The US $5.4 million (May 2008 report) was therefore split into two equal parts, one specifically for the demonstration aspect and one part brought to normal HCFC projects This will slightly reduce the funding requirement for the triennium 2009-2011

34. T E A P R T F S u p p l e m e n t R e p o r t, M O P - 2 0, D o h a 34 China resubmission of (2005)-06 data UNEP originally considered the Chinese (2005) 2006 HCFC data without export and import data for specific HCFC chemicals (due to transmission or interpretation problem) This resulted in incorrect values for the net consumption of the different HCFCs; May 08 report based on these values China resubmitted data for production, im- and exports This resulted in slightly lower estimates for the baseline of HCFC-141b and -142b, higher estimates for HCFC-22 The impact on the 2009-2011 HCFC funding (for China) is a decrease of about 3%; the change has been considered for both funding scenarios in the Supplement report

35. T E A P R T F S u p p l e m e n t R e p o r t, M O P - 2 0, D o h a 35 Funding requirement 2009-2011(US $million) ODS (non HCFC cons.) 83.7 Destruction27 Supporting activities92 HCFCs (baseline funding) (2012 funding) HPMP preparation 3.9 HCFC demo-projects2.7 HCFC, servicing63 HCFC, non-servicing (CE var.)66.5-115.0238.3-357.5 TOTAL 338.7-387.2 510.6-629.8

36. T E A P R T F S u p p l e m e n t R e p o r t, M O P - 2 0, D o h a 36 Summary Estimated funding requirement For 2009-2011: US $339-630 million Indicative funding requirements For 2012-2014: US $421-635 million For 2015-2017: US $536-658 million (the last two trienniums include production phase-out)

37. T E A P R T F S u p p l e m e n t R e p o r t, M O P - 2 0, D o h a 37 High growth until 2012; risk analysis (1) TEAP had extrapolated the growth for the period 2007- 2010 and used decrease in growth during 2010-2012 9% growth mentioned for 2010-2012 by Group 1 Party at OEWG Bangkok; Parties requested a risk analysis by TEAP 2013-2015: 5% reduction in total consumption per year Servicing will be about 1% of this 5%; efforts for reductions will start after the approvals of HPMPs (even when baseline can only be estimated), incl. service plans If, as of 2010, 9% growth will occur, the 2012 consumption will be 25% higher than the baseline

38. T E A P R T F S u p p l e m e n t R e p o r t, M O P - 2 0, D o h a 38 High growth until 2012; risk analysis (2) Approvals occur based on baseline consumption; this can be estimated in 2010, but will not be known until end 2011 It implies that a 5-7 times higher reduction has to be realised in one year (2012/2013) compared to the strict reduction from the baseline in 2013 Independent of the consumption which will occur in 2012, approvals have to be done in 2009 (implementation delay) when baseline and 2012 consumption are not yet known Phasing out amounts in the order of 25% of the baseline (versus 5% in 2013) implies an enormous increase in workload for all entities involved

39. T E A P R T F S u p p l e m e n t R e p o r t, M O P - 2 0, D o h a 39 High growth until 2012; risk analysis (3) This in particular if the 25% reduction applies to the largest consuming Party, and could well be 80,000 tonnes This will directly impact the funding requirement to be agreed upon at MOP-20, which would then even be larger than following the “high” 2012 funding scenario The risk that this reduction cannot be addressed via projects in time to reach the 2013 freeze level (even when sufficient funding would theoretically be available) is very probable, is likely to result in non-compliance in 2013, and could continue for much more than one year