Experiences with Green Investment Schemes Jan-Willem van de Ven, Head of Carbon Market Development

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1 Experiences with Green Investment Schemes Jan-Willem van de Ven, Head of Carbon Market Development CEPS, Brussels, 16 November 2015 PUBLIC

2 Agenda Introduction to EBRD Climate Finance and Green Economy Transition Experiences with Green Investment Schemes Origination Development Implementation Discussion 18 November, 2015 PUBLIC

3 EBRD CLIMATE FINANCE The EBRD has a strong climate finance focus on Energy Efficiency and Renewable Energy, and carries out these investments mainly (2/3) with the Private Sector. Results between 2006 and 2015 to date: 17.2 billion invested in sustainable energy projects > 1,000 SEI projects > 70 million tons of CO2 emission reductions per year Results realised in a context of economic recession and instability, in addition to market barriers. The EBRD region global share in 2011 in global emissions was 12.6% (5,503 MtCO2e) Policy dialogue and technical assistance to enable regulatory reform, incl. on energy and carbon pricing remains needed. The EBRD works closely with donors, such as the EU / Members, USA, Japan, CIF and GEF in leveraging donor support for technical assistance, capacity building and cofinancing remains. SEI by business area ( in billion) Corporate energy efficiency 4.5 Cleaner energy production 4.2 Renewable energy 2.9 Sustainable energy financing facilities 2.8 Municipal infrastructure energy efficiency 2.0 Total 16.4 SEI by region ( in billion) Russia 3.2 South-Eastern Europe 3.1 Eastern Europe and the Caucasus 3.0 Central Europe and the Baltic 2.9 Turkey 2.1 Central Asia 1.0 South and Eastern Mediterranean (SEMED) 0.6 Regional 0.7 Total December 2014 PUBLIC 3

4 The green economy transition Objectives and expected results Objectives The Green Economy Transition (GET) approach aims to increase the EBRD s green financing to around 40% of total EBRD financing from 2016 to 2020 up from a 25% target from 2011 to Expected results EBRD GET financing of up to EUR 18 billion by 2020 The GET approach is based on the transition and client-driven business model of the EBRD and in line with its operating principles of transition impact sound banking additionality Mobilisation of another EUR 60 billion for a total project value up to EUR 78 billion Between 50% ~ 66% of GET financing from the private sector, driven by the EBRD business model 18 November, 2015 PUBLIC 4

5 Green Investment Scheme International Emissions Trading A transaction in AAUs under KP Article 17, International Emissions Trading Parties with shortfall could buy AAUs for KP CP-1 compliance Parties can trade, other organisations if authorised by a Party. Green Investment Scheme IET with proceeds being used to (co-)finance climate and environment projects. AAU price a function of compliance needs in a surplus market, with public demand that money was used for good purposes. No specific rules on concepts like Greening Ratio and MRV Deliver where JI cannot, such as small-scale renewables scale renewables and energy efficiency in housing. 18 November, 2015 PUBLIC 5

6 GIS - Origination Buyers side: Parties like Spain and Ireland Authorised market players, such as Japanese trading houses Multilateral carbon funds (IBRD, EIB, EBRD) Questions on the Buyer s side: Will the greening be delivered? What is the Greening Ratio? How is the MRV being carried out? What is the structure and flow of funds? Sellers side: Initially reluctant, followed by a growing interest to sell, particularly when the financial crises started to unfold. Observations On Sellers side many questions and uncertainties: Do we have a surplus for sale? Why sell now, do we need it later? What is the right price? How to use the co-finance? Who is allowed to sell? Do we need a law or regulation? Effect of State Aid Rules or other OECD conditions (EU countries)? PUBLIC

7 GIS - Development The MCCF explored GIS transaction with a number of countries. The origination and development led to GIS transactions in Poland and Slovakia. The development of Greening Programmes / Plans were essential, including e.g. on what basis grants are determined and paid, what type of technical assistance is needed, and how will the MRV be done. Key to success was i) political support, ii) building mutual understanding and advise on regulatory changes needed and iii) ability to help to structure greening plans, and were needed their implementation. The AAU price negotiations were done between the buyer and seller. In order to develop a leveraged GIS, clarity on the total transaction sum was needed. In order to allow for the time and effort for a proper greening plan these negotiations were done at an early stage. The EBRD with donor funding from The Netherlands sponsored a AAU Sale and Purchase Agreement Template for Green Investment Schemes. New terms such a Greening Operator and Greening Ratio were defined. This development helped to build confidence among players. Capacity building (current term would be readiness) was provided to countries like Ukraine and Poland. In Ukraine a GHG emissions model was built to ascertain the carbon budget position. In Poland advise was provided on the legislative changes needed to allow for GIS transaction. 18 November, 2015 PUBLIC 7

8 GIS - Implementation A broad range of GIS outcomes, ranging from the schemes that received strong criticism, to robust structures like the GIS in Poland and Slovakia. Source: Green Investment Schemes: The AAU Market between 2008 and Climate Strategies, September /11/2015 PUBLIC

9 MCCF GIS POLAND Under MCCF two transactions signed between Poland and Spain (EUR 25 million) and Poland and Ireland (EUR 15 million) These first two Polish GIS transactions helped to unlock the market for Poland, and several other GIS transactions followed. AAU Transaction Proceeds used for: Public Building Energy Efficiency Biomass projects Biogas projects Renewable energy network connections Flexibility between the sub-programmes. The implementation resides with NFOS, which is the Greening Operator. NFOS provides grants, calibrated on the expected emission reductions. The grants are allocated based on call for proposals. No technical assistance and project sponsor to arrange further financing. Strong obligation on the MRV as to finance and greenhouse gas emissions November, 2015 PUBLIC 9

10 MCCF GIS SLOVAKIA AAU proceeds from GIS transaction between Slovakia and Spain co-finance SlovSEFF, which is sustainable energy financing facility of EUR 40 million developed by the EBRD. Incentive payments are funded from the proceeds of the sale of carbon credits from the Slovak Republic to Spain. EBRD s co-operation fund to channel AAU transaction proceeds as grants to sub-projects. Strong private sector focus, additional Technical Assistance to both the Slovak Banks and their sub-borrowers. The calculation of a project's emission reductions is based on CDM methodologies 18 November, 2015 PUBLIC 10

11 Discussion Global UNFCCC New GIS pre-2020 as part of KP CP-II? Will there be a KP CP-III? Precursor for the Sustainable Development Mechanism with Tradable International Accounting Units? Intra-EU ESD Flexibility Mechanism, i) Project-based, ii) GIS-alike and/or iii) mix? Pre-2020 transactions? 2030 Framework inclusion? EU ETS ESD FM cross-overs? Interaction with Multiannual Financial Framework ? Fungibility with Paris Agreement, access to global carbon market? 18 November, 2015 PUBLIC 11

12 Thank you For all further enquiries, please contact: Jan-Willem Van de Ven Head of Carbon Market Development Energy Efficiency and Climate Change EBRD, One Exchange Square London, EC2A 2JN United Kingdom 18 November 2015 PUBLIC 21

13 MCCF GIS SLOVAKIA Carbon Reduction Compensation Carbon reduction compensation = CO 2 e emissions avoided per year (in tonnes) * 20 * 3 years * 0.943* (minimum 5% of disbursed loan, maximum 20% of disbursed loan) ( * ) rounded figure corresponding to a discount rate of 3% over 3 years Projects covered by the EU ETS may also be eligible to receive a CRC provided that an equivalent amount of EU allowances (EUAs) is cancelled at the benchmark market price in respect of which the CRC is paid, to avoid double-counting of emission reductions. The CRC calculation for ETS covered may be different. 18 November, 2015 PUBLIC 13