The Carbon Partnership Facility

Transcription

1 The Carbon Partnership Facility Objectives, features and Current Status June 2009 World Bank

2 Towards a new approach: objectives of the CPF Use carbon markets to catalyze a transformation toward low-carbon development Be more strategic than before, work at the country level: Support long-term investments programs and technologies for transition to low-carbon economy Integrate carbon finance into public and private investment decisions Shift away from a project-by-project approach to programs of investments & sector based approaches Provide inputs to establishing a long-term regulatory framework post-2012

3 Structure and Governance

4 CPF - Buyers and Sellers in a Partnership BUYERS (governments, companies) Minimum financial contributions Willingness to purchase Emission Reductions (ERs) generated over the long term Program development Carbon Asset Development Fund (CADF) ER sale and purchase Carbon Fund SELLERS (governments, companies) Emission Reduction contribution Willingness to develop and implement specified emission reduction programs and sell ERs Partners (Host Governments, other) and Donors

5 Members of the Facility Buyer Participants: governments and companies that want to acquire emission Reductions (ERs) Seller Participants that are owners of an investment program and will sell a portion of the ERs generated to the Buyer Participants Donors sign an Administration Agreement to make a donor contribution to the CADF participate in Facility discussions in an advisory role proposed type of EU Commission Participation Partners - typically Host Country governments - assisting the Trustee in identification and development of Programs

6 Carbon Fund Holds funds for Emission Reduction (ER) payments only Consists of Tranches, each with a discrete set of Buyer Participants and Portfolio Selection Criteria First tranche to provide carbon finance to several key sectors (e.g. power, energy efficiency, waste, transport, thematic/crosscutting programs)

7 Carbon Asset Development Fund (CADF) Covers all Facility costs for ER Program preparation and supervision functions Provides funds for: Methodology work ER program identification and development Project Design Document and monitoring plan preparation Includes direct preparation grants to Sellers and Host Countries Funded by: Charge from Buyers due upon signing of Participation Agreement Donor contributions of minimum 2 million per Donor

8 Governance: representation of Seller and Buyer Participants Annual Participants Meeting Provides broad guidance and a forum for information exchange Each constituency elects its representatives to the Partnership Committee May overturn decisions of the Partnership Committee on the Pricing Approach by simple majority of both Buyers and Sellers Partnership Committee 3 to 6 Sellers, 3 to 6 Buyers, 3 Partners (1 Donor + 2 other Partners) Equal representation of Buyers and Sellers at all times Annual endorsement of the pricing approach and the form of ERPA, including ERPA general conditions by 2/3rds majority Advises on carbon asset creation priorities and operational issues

9 Operations

10 Emission Reduction Programs Series of investment activities over time in a common implementation framework Undertaken by a single entity or coordinated by an intermediary May utilize CDM/JI methodologies but methodology development to respond to emerging mechanisms a key part of the CPF Many expected to be identified through the operations of the World Bank Most ER Programs already under development have IBRD lending, GEF or Clean Technology Fund financing

11 ER Asset Types 1. Compliance credit basis: e.g. CERs, ERUs, AAUs, other as they may emerge payment typically upon issuance could be used where approved methodologies available 2. Verified Emission Reduction basis: when not clear whether the ERs will be acknowledged under a compliance regime E.g. when a new, not yet approved methodology used payment typically upon Verification Buyers assume regulatory risk reflected in ER price Trustee would make an effort to convert VERs into compliance grade credits Some VERs may not get converted

12 First Tranche Program Portfolio Criteria Trustee will strive for technology and geographic diversity of ER Programs No more than 20% of funds of the First Tranche would be committed to any one Program No funds of the First Tranche would be committed to purchase of AAUs, unless otherwise agreed with the Buyer Participants Can purchase ERs up to 2022; however, many Emission Reduction Purchase Agreements may have a shorter purchase period

13 First Tranche Program Portfolio Criteria: eligible categories & themes 1. Energy generation, transmission and distribution 2. Energy efficiency measures 3. Waste Management 4. Oil and Gas Sector 5. Transportation 6. Thematic approaches, e.g. urban programs 7. Other types of activities based on consultations with the First Tranche Buyer Participants prior to approving the relevant Program Idea Note. The Trustee shall only review Program Idea Notes on hydro power Programs further to upstream consultations with the Buyer Participants in the relevant Tranche.

14 Methodology work through the CADF

15 Methodology Needs of CPF Portfolio Many new programmatic/sectoral approaches need to be explored, e.g., Sector or sub-sector baselines A common baseline for, e.g., power or a product, expressed as a carbon intensity/emission per unit of production Standardization, benchmarks Agreed automatic eligibility of certain technologies/ activities to claim credits (in a country and timeframe)

16 Analytical work completed 1. Policy Instruments and Approaches for Scaling up Investment in Climate Change Mitigation Activities and their Interface with the World Bank s New Carbon Partnership Facility 2. Options for Further Standardization in the Climate Change Project (JI and CDM) Framework 3. Program of Activities under the CDM: Application to the World Bank s Carbon Partnership Facility 4. Scaling Up Demand-Side Energy Efficiency Improvements through Programmatic CDM 5. Approved methodology AMS.I.J- Deemed Savings for Demand-Side Energy Efficiency

17 Work in progress Urban GHG mitigation framework GHG Mitigation in transport Energy efficiency in buildings HCFC phaseout - Linking Montreal Protocol and Kyoto Protocol mitigation actions Other areas could include for example Carbon Capture and Storage? Global iniatives for gas flare reduction? Competitive industrial sectors?

18 Pricing Approach

19 Principles of the Pricing Approach The Pricing Approach needs to safeguard both Buyers and Sellers interests in a reasonable manner Needs to be transparent, reflect the risk profile and the risk allocation between Buyers and Sellers in each transaction Partnership Committee endorses a Pricing Approach based on Trustee s proposal The Pricing Approach is utilized for all Emission Reduction Purchase Agreements (ERPA) Expected to include at least the following elements: May use both fixed and variable pricing components Floor and ceiling prices can further reduce price fluctuations in the contract and limit down or upside market risks. A benchmark/reference representing the asset type transacted e.g. for primary CER contracts would utilize primary CERs as the benchmark Appropriate risk adjustments to the benchmark price, reflecting the specifics of any given ER program at the time of ERPA signature

20 Illustration: Reference Price with Upside and Downside Sharing, plus ceiling and floor P1 = 16 P1 Cap = 14 ER delivery = (P0+P1)/2 = (10+16)/2 = 13 P0 = 10.0 D0 D1 D2 Floor = 6 ER delivery = (P0+P2)/2 = (10+4)/2 = 7 P2 = 4 P2 D0 = ERPA signature date P0 = market price at ERPA signature D1, 2, = delivery dates P1, 2, = market price each delivery date

21 Buyer Participants rights and benefits of CPF

22 Buyer Participants have control over the process Decide the Pricing Approach and ERPA General Conditions together with Seller Participants Buyer Participants approve all ER Programs before they are included in the portfolio of that Tranche: may object to Programs by a 2/3 majority of Buyer Participants Buyers approve the Trustee s ERPA negotiation mandate for each ER Program Buyers are consulted for relevant decisions affecting the Programs in the Tranche and material changes in the CFD before the signing of an ERPA

23 Buyer Participant s right to withdraw mitigates International Agreement risk Withdrawal by each individual Buyer Participant is possible if no International Agreement is reached by June 30, 2011 If the withdrawing Buyer s share is not purchased by other Buyers, the withdrawing Buyer would be reimbursed its pro rata share of CADF Charge that is not needed to meet the Trustee s commitments* and the withdrawing Buyer s uncommitted contribution would be cancelled * i.e., resources needed to honor the obligations resulting from Programs that have been approved at the Carbon Finance Document stage by Buyer Participants in the Tranche

24 Experienced management team with a track record and other World Bank resources Senior level key staff: Facility Coordinator, CPF Operations Team Leader Policy and Methodology Team Leader Carbon Finance Unit with: a staff of ca. 70 people Proven track record on acquiring and on methodology development (close to 30% of all methodologies) CPF management team can draw on the specialist staff within the World Bank Underlying World Bank Group financing instruments reduce the financing risk of the ER Programs and delivery risk Many programs in the public sector or in state owned companies: have been excluded from the carbon market so far or that are difficult to access by private sector buyers directly

25 Current Status

26 Current Status Opened to participation and contributions on 11 October, Donor Contributions to the CADF, making it operational: Spain, 5m Norway, 2m EU Commission, 2m (under contracting phase) Two Buyer Participation Agreements to the CPF Carbon Fund Spain, 65m Endesa, 35m Known senior management/company board level proposals in excess of 150m 45 companies/entities and governments have signed an Expression of Interest: 33 potential Buyers, 3 potential Donors, 9 potential Sellers Note: work ongoing on programs with several other potential Sellers in addition to the 9

27 ER program development 5 Program Idea Notes approved: Morocco Solid Waste Management Program Vietnam Renewable Energy Development Program China: IGCC (may include a CCS pilot plant) Hubei Province Biogas Program (households and farms) Indonesia Carbon Finance Framework for Geothermal Power Development About 10 other ER programs being developed In e.g. Mexico, Brazil, Nigeria, India, Egypt Close coordination with World Bank lending etc. and the Clean Technology Fund All of the approved PINs linked to other WB financing CTF Investment Plans systematically reviewed for CF opportunities

28 Next steps/timeline Seller Participation Agreements for the 5 five programs with approved PINs expected to be signed over the coming months Carbon Fund expected to become operational in early fall 2009 Thereafter an Organizational Meeting elects the initial Partnership Committee

29 Questions? Jari Vayrynen