UPDATE ON FINANCING CLIMATE MITIGATION IN DEVELOPING COUNTRIES AND THE ROLE OF THE WORLD BANK CARBON FINANCE UNIT

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1 UPDATE ON FINANCING CLIMATE MITIGATION IN DEVELOPING COUNTRIES AND THE ROLE OF THE WORLD BANK CARBON FINANCE UNIT INTERNATIONAL MARITIME ORGANIZATION MARCH 30, 2011 SCOTT CANTOR CARBON FINANCE UNIT THE WORLD BANK

2 Table of Contents I. Climate finance the big picture II. Recent updates on financing mitigation--outcomes from Cancun III. Outlook the future of carbon markets IV. The World Bank s involvement in Carbon Finance V. World Bank responding to the needs of the carbon markets 2

3 Climate Finance: Additional costs and catalytic impact Total climate finance needed for developing countries over : US$ 180 bln to US$ 250 bln p.a.* or 0.5 % of OECD GDP Climate finance covers additional costs and serves as a catalyst Additional investment needs over (US$ bln p.a.) US$ 180 bln p.a. Mitigation 550 ppm 450 ppm Global ~270 ~460 Developing countries ~150 ~220 US$ 4,620 bln p.a. (2008) Private Sector Investments National Development Budgets to leverage development investments Developing countries Adaptation ~30 ~30 International Development Assistance * UNFCCC, IEA, McKinsey 3

4 Finance & investment flows for climate action in developing countries Source: Atteridge et al. (2009). Bilateral Finance Institutions and Climate Change: A Mapping of Climate Portfolios, Stockholm Environment Institute. 4

5 Recent news on financing mitigation Cancun outcomes Fast Start & Long Term Green Climate Fund Copenhagen commitment anchored : Fast Start Finance of $30 billion ( ) Parties to submit information to UNFCCC annually on resources provided and how to access them Decision to establish GCF accountable to and under guidance of Conference of Parties Governed by 24 member Board (with equal representation from developing and developed countries) Goal to mobilize Long-term Finance of $100 billion per year by 2020 Variety of sources including: public, private, bilateral, and multilateral Significant share of multilateral funding for adaptation should flow through Green Climate Fund COP noted relevant reports on finance, including that of High Level Advisory Group World Bank invited to be interim Trustee, subject to review 3 years after establishment Independent Secretariat Transitional Design Committee 40 members (15 developed:25 developing); open to observers Conveners: UNFCCC Executive Secretary and Mexico MDBs, UN, UNFCCC Secretariat and GEF requested to second staff for design phase Standing Committee to improve coordination and coherence in delivery and MRV of climate finance 5

6 The future role of carbon markets in meeting the mitigation challenge Carbon markets can leverage significant private finance to play a role in the GHG mitigation and sustainable development challenges of the coming decades Carbon markets are part of the equation for funding climate change mitigation actions Carbon markets catalyze private sector resources and entrepreneurship Report of the High-Level Advisory Group on Climate Finance suggests a significant role for carbon markets in meeting the $100 billion target of additional financing per year by 2020: Carbon offsets: $8-150 billion gross per year Auctioning of allowances: $2-70 billion per year Offset levies: up to $15 billion per year depending on carbon price Amounts depend on carbon price and volume of offsets (linked to ambition of emission caps in developed countries) This level of scaling up will require changes in the regulatory environment 1. Policy clarity On the global post-2012 regime On domestic use of offsets in cap-andtrade systems 2. Reform of the Kyoto mechanisms Streamline & simplify processes Adapt mechanisms to allow rapid scaling-up Broaden eligible sectors: agriculture (soil carbon), large hydro, carbon capture & storage 3. Sustained capacity building Enhance engagement from developing countries in the evolution of mechanisms Strong host country policies & complementary financial instruments needed to leverage carbon finance for low carbon development 6

7 The World Bank s involvement in carbon finance An early mover which helped catalyze the carbon market and drive innovation Objectives Impact To pioneer flexibility mechanism 5 years before entry into force of the Kyoto Protocol To assist in building, sustaining & expanding the reach of carbon markets To experiment approaches and methodologies beyond existing regulatory framework To strengthen capacity of developing countries to benefit from carbon market To ensure carbon finance contributes to sustainable development Carbon fund capital increased over time from $160 million in 2000 to ~$2.5 billion now 19 public sector and 54 private sector participants from 3 continents Developer of and contributor to new methodologies Means Global reach 200 projects in 56 countries Pioneer: The Prototype Carbon Fund (2000) established before there was a carbon market Learning-by-doing approach & diversification Model: create demand through the establishment of carbon funds and then originate projects Often purchase post-2012 vintages WB s environmental & social safeguards Investing in capacity building 7

8 The World Bank has established public-private partnerships to pioneer carbon markets (and still growing ) 19 public sector partners 54 private sector partners 8

9 Carbon Finance Unit s first generation of funds PCF Country Funds Specialty Funds Aggregator Fund T1 & T2 Started in 2000 five years before entry into force of Kyoto Protocol 23 private & public sector participants Supporting capacity building Delivering emission reductions since 2005 ~$1.1 billion capitalized funds and facilities 8 government and 22 private sector firms participating CDCF: focusing on CDM in poorest communities BioCF: afforestation & reforestation pioneer, along with soil carbon and REDD Tranche 1 provided needed catalyst to the fledgling carbon market 2 contracts for HFC-23 projects (~129 mtco2e) Helped China s emergence in CDM Supported creation of Chinese CDM governance Tranche 2 closed in February 2011 w/ 105 in capital for purchases post

10 The Carbon Finance Unit s latest generation of product offerings Open for participation by private sector Forest Carbon Partnership Facility Open for participation by governments Partnership for Market Readiness Pioneer of Readiness and carbon finance for REDD+ Partnership between developed and developing countries and private companies Significant capacity building and technical assistance Supporting countries development of readiness component for market instruments Exploring, piloting and testing domestic emissions trading and non- GHG based schemes Capacity-building and piloting that is country-led and builds on country priorities Under development Carbon Partnership Facility Carbon Finance in the Poorest Countries Forward-looking & transformative Pioneer of PoAs innovate to broaden and deepen reach of CDM Utilize carbon finance to scale up systematic approaches to low carbon growth Public & private participants will gain critical learning & experience Continuing the CDCF's pioneering work of bringing the benefits of carbon markets to the poorest countries & communities Continuing the BioCF that builds on the funds ground-breaking work with LULUCF 10

11 SCOTT CANTOR CARBON FINANCE UNIT THE WORLD BANK 1818 H STREET, N.W. WASHINGTON, DC TEL: EDOPAZO@WORLDBANK.ORG