Climate change as a development challenge

1. Climate change as a development challenge • Meeting the challenge is not a choice between growth and climate change… • a climate smart world is within reach if we act now, act together and act differently… • … and build on new finance, technology and capacity at scale. JariVayrynen, Sr. Environmental Specialist, World Bank

2. WB Strategic Framework for Climate Chance and Development Objectives: • Enable WBG to effectively support sustainable development and poverty reduction, as climate risks and climate-related economic opportunities arise • Facilitate global action and interactions among all countries Key principles: • Working in partnerships guided by UNFCCC process • Country-led, country-driven, “no regrets” actions • Approach tailored to specific needs of diverse clients Knowledge & Capacity Bottom Up Momentum MDB & UN Partnerships Resource Mobilization Climate Investment Funds Regional / Country Strategies

3. Financing Climate Change Mitigation • Scale of financing needs for mitigation estimated by UNFCCC at $200 billion annually • Concessional resources are very limited for low carbon investments in developing countries and transition economies • Mobilizing private sector finance is crucial • Market mechanisms can play a central role

4. Finance scaled-up demonstration, deployment, and transfer of low carbon technologies Country Investment Plans: Support country development strategies Leverage financial products of International Financial Institutions Stimulate private sector engagement Clean Technology Fund (CTF) ± $5 billion Targeted programs with dedicated funding to pilot new approaches with potential for scaling up • Pilot Program for Climate Resilience: Mainstream climate resilience into core development planning • Forest Investment Program: Reduce emissions from deforestation and forest degradation • Scaling Up Renewable Energy in Low Income Countries Strategic Climate Fund (SCF) ±$1 billion

5. World Bank Carbon Market initiatives World Kyoto Funds under implementation reaching over $2 billion in funding and about 130 ER purchase agreements signed Progress with new facilities: Exploring possibilities for further engagement • Carbon in Agriculture sector • Carbon Capture and Storage (CCS) Forest Carbon Partnership Facility (FCPF) • Operational since June 2008 - current donor pledges at $107 million • 37 Developing Country Participants • Carbon Asset Development Fund (CADF) operational at €7 million • Carbon Fund currently €100 million (minimumtarget €200 million) Carbon Partnership Facility (CPF)

6. How do carbon markets work? What is the underlying principle? Cost-effectiveness: a ton of CO2 emitted anywhere in the world has exactly the same impact on climate change and should therefore be reduced/ mitigated where the cost of doing so is lowest. Units = tons of carbon dioxide (or equivalent) allocated as part of an emission cap or “reduced” by a project or program activity. These units are labeled based on the market segment in which they are traded : AAUs, CERs, ERUs, EUAs, VERs, etc. What is traded? • Lowers compliance costs for meeting emission reduction obligations; ; • Catalyzes financial and technology flows to developing countries to facilitate low-carbon growth; • Creates a global and long-term price signal to lower carbon intensity. What are the benefits? • Significant new investments and financial flows • Application of new technologies and financial instruments to reduce emissions at lower costs; and • Transition to a lower carbon economy better tuned to cope with future resource and environmental constraints. Why should this be of interest?

7. Kyoto Protocol-based carbon markets “Business as-usual” projected emissions by 2008 Projected emissions increase between 1990 and 2008-2012 Project-based Offsets (CDM/JI) Sources of reduction CDM: Offsets obtained from a non-Annex I country JI: Offsets obtained from another Annex-I country; Allowances from IET Domestic actions 1990 Baseline IET: Kyoto allowances obtained from another Annex-I country Baseline emissions Kyoto target Kyoto allowed emissions A significant amount of the reduction must be achieved through domestic measures 1990 2008-12 • Beyond domestic actions to reduce emissions, a country can use trading to purchase reductions in another country to achieve compliance with its Kyoto obligations. • Examples of trading options include: • Buying emissions ALLOWANCES (called AAUs) from other countries with commitments which are below their Kyoto cap (International Emissions Trading) • Purchasing carbon OFFSETS from projects which reduce emissions • In developing countries (Clean Development Mechanism – CDM) • In economies in transition (Joint Implementation – JI) 3

8. Purchase of ERs Emission Reduction Units (ERUs) ERU Baseline emissions Project emissions Baseline Scenario ProjectScenario How does Joint Implementation (JI) work? Industrialized country with an emissions cap Domestic action Purchase of allowances $ Emissions target $ Project benefits from increased cash flow

9. EU Emission Trading Scheme 91,910 Carbon Market Values in 2008 (in M US$) Project-Based Transactions Allowance Markets Assigned Amount Units 210 JI 300 SecondaryCDM CDM 6,500 26,300

10. World Bank Carbon Finance Projects in Bulgaria • Joint Implementation projects: • Sofia District Heating • Pernik District Heating • Svilosa Biomass • Green Investment Scheme (GIS)–options study • GIS is a system where revenues from AAU trades are reinvested in environmental projects • To our knowledge Bulgarian Government has not yet concluded any GIS transactions

11. Conclusions • Climate change is fundamentally a development issue, not only an environmental issue • Huge financing needs • Carbon markets will continue to be play a major role in catalyzing low carbon investments in developing countries and transition economies • The World Bank, through a range of financial instruments and capacity building activities, is deeply engaged in this effort

12. Thank You. JariVayrynen jvayrynen@worldbank.org Please visit us online at www.carbonfinance.org