1. GEF and Carbon Finance: Exploring New Options for GEF-5 GEF-5 and Carbon Finance Meeting November 15, 2010 Washington, DC

2. GEF-5 Replenishment Concluded in May 2010 for a record replenishment of $4.25 billion for GEF-5 (July 2010 to June 2014) By focal area – Climate Change:$1,360 million – Biodiversity:$1,210 million – International Waters: $440 million – Chemicals: $425 million – Land Degradation: $405 million Plus Corporate Programs, Small Grants Program, Private Sector, etc.

3. Funding for Climate Change Mitigation Focal Area Allocation – $1,360 million Under STAR – $1,088 million Contribution to SFM – $100 million Focal Area Set-aside – $172 million ($80 million + $92 million) – Up to $20 million of the set-aside could be allocated to regional or global carbon finance projects/programs.

4. Strategic Objectives in GEF-5: Climate Change Mitigation Promote demonstration, deployment, and transfer of innovative low-carbon technologies Promote market transformation for energy efficiency in industry and the building sector Promote investment in renewable energy technologies Promote energy efficient, low-carbon transport and urban systems Promote conservation and enhancement of carbon stocks through sustainable management of land use and forestry Support enabling activities and capacity building

5. Features of GEF and CDM (From a 2008 presentation, Zhang) GEFCDM MandateFinancial mechanism of UNFCCC Market-based mechanism of KP ObjectiveTo transform the markets toward less-carbon-intensive paths To meet emissions targets for developed countries and provide finances resources and technology for developing countries StrategyBarrier removal; long-term; catalytic Project based; focusing on direct emissions reduction ModalityUpfront grant or concessional financing for agreed incremental costs Payment on delivery of emissions reduction (to improve project revenue streams) Project type Preventive measures to reduce/avoid CO2; primarily RE, EE, and transport projects End-of-pipe fixes to capture/decompose gases of high GWP (HFC, CH4); relatively few RE, EE, transport projects M&VEx ante estimate; weak traceability; self-reporting Rigorous methodology; quantified, monitored, verified, and certified

6. What GEF has supported GEF creates enabling legal, regulatory environment; CF supports specific projects. GEF demonstrates technical and financial viability; CF replicates. GEF provides partial risk guarantees; CF participates in project financing. GEF provides funding from non-CC focal areas; CF project earns credits from reduced/avoided emissions. What GEF has shied away from o Creation and operation of DNAs o CDM methodology development o PIN/PDD development o CDM project verification and certification o (Co-)Financing projects that earn CERs “Rule of Thumb” in the Past

7. Options for Carbon Finance in GEF-5 Capacity building to help create enabling legal and regulatory environments Support of programmatic carbon finance and other activities under the post-2012 climate regime Demonstration of technical and financial viabilities of technologies Partial risk guarantees and contingent financing for carbon finance projects Co-financing of innovative carbon finance projects –With credits to be retained in the recipient country for further project replication

8. Issues to Ponder Diversion from ODA Additionality for CDM (including programmatic CDM) Double dipping and double counting Sequencing of GEF and CF projects Voluntary vs. compliance markets New frontiers for GEF involvement – Where to push the envelope, and how….

9. Contact Information Zhihong Zhang, Ph.D. Coordinator, Climate Change Mitigation Email: zzhang2@thegef.orgzzhang2@thegef.org Tel: 202-473-9852 Website: www.TheGEF.orgwww.TheGEF.org