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The World Bank New Carbon Initiative for Development. Dr Ali Adan Ali Team Leader Climate Change and Environment Research Group Centre for Biodiversity NMK . Organization. Background to World Bank and Climate Change Why Carbon Finance Economies Highly Vulnerable to Climate Change

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The World Bank New Carbon Initiative for Development


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    1. The World Bank New Carbon Initiative for Development Dr Ali Adan Ali Team Leader Climate Change and Environment Research Group Centre for Biodiversity NMK

    2. Organization • Background to World Bank and Climate Change • Why Carbon Finance • Economies Highly Vulnerable to Climate Change • Need for a full range of policy instruments • Potential of Climate-Friendly Technologies • Policy for Market Readiness • World Bank Carbon Initiative for Development examples • Concluding Remarks

    3. World Bank and Climate Change • World Bank’s mission is poverty reduction • WB endorses IPCC predictions • Climate change, a “global public bad”, affects the poorest the most • Private-public initiatives needed to mitigate climate change • Take advantage of Kyoto flexible mechanisms • Develop core CDM/JI market • Expand “carbon finance” into small projects • Demonstrate implementation of carbon sinks • Build capacity of Host Countries

    4. Countries Highly Affected Top Ten Countries Vulnerable to Climate Change Source: World Bank, Sustainable Development Network, Environment Department, 2008

    5. Need for potential transformative policies

    6. Examples Potential Transactional Barriers for Renewable Energy • Smaller project sizes Higher transaction costs • Longer lead times  Higher development costs • Higher ratio of capital Need for longer-termcosts to operating costs financing at reasonable rates • Newer technologies Higher operating risks • Less experienced sponsors Higher completion and operating risks • Unfamiliar to financiers  Scarce/higher-cost capital • Either excess or absence  Over-subsidized orof concessional funding under-competitive

    7. APEC Economies Have Already Set Ambitious Targets for 2020

    8. Developing Countries are already taking action… CHINA: Energy efficiency, 20% reduction in energy intensity from 2005 to 2010; 15% renewable energy target by 2020; Clean technology R&D; sustainable transport BRAZIL: Reducing Amazon deforestation by 70% by 2020; biofuel program, energy efficiency ETHIOPIA: Integrating adaptation in sustainable land management, social protection, hydropower development, building capacity programs INDIA: Adaptation (drought, floods, cyclones, glacier melting), energy efficiency, hydro and new renewable energy, solar energy R&D CARIBBEAN ISLANDS: Adaptation to increasing hurricanes and storms, using catastrophic risk bonds MOROCCO: Integrated approach to tackling CC in water, agriculture, and urban sectors, Mediterranean Solar Plan Initiative

    9. Synergies of national goal create a large zone of “no-regrets” policies. • Most developing economies, have established ambitious targets to cap and reduce green house gas (GHG) emissions. • However, these targets will not be achieved unless the full range of policies are considered and implemented. • Fiscal Policy will be central – and carbon pricing essential but not sufficient • It will need to be complemented by broader reforms to liberalize financial and energy markets and strengthen independent regulators to allow pass through of carbon prices.

    10. There is a diverse range of climate friendly technologies (CFTs) used and produced in some economies and they are well placed to exploit these technologies. • Market-readiness to finance and trade clean projects and carbon caps will be crucial. • Fiscal policies concerning adaptation will need to go beyond costing of climate change and consider the cost and benefits of adaptation strategies under conditions of uncertainty. • Africa need to position itself well through enhanced regional cooperation to advance climate change policies. • Several Africa economies can already now use fairly advanced market mechanism to achieve mitigation in domestic markets or in bilateral trading. • But for this to happen, they will need to build institutional, technical and political capacity to manage the complexities of these systems.

    11. Synergies that create large “no-regrets” zone Across Multiple Policy Goals • First, countries are seeking to tackle national environmental problems: e.g. CC mitigation goals and air pollution reduction goals have synergy. • Second, addressing energy security is another important goal, as dependence on energy imports and global energy prices rise. Apart from Russia, Canada, Australia, and Brunei, APEC and Africa economies either already are or will become energy importers. • Third, countries are also seeking technological advantage and new sources of growth, and see low-carbon technologies as a growth opportunity for the future.

    12. The Ambitious Emissions Targets of APEC /AFRICA economies will not be achieved unless the full range of policy instruments is used. • Many developed countries’ inability to reduce emissions in line with their Kyoto Protocol targets, as well as the challenges facing China. • Need to go beyond low-cost policies: • energy efficient buildings • higher cost policy interventions with fewer immediate co-benefits (but long-term market opportunities), such as CCS. • Opportunities for a green growth vision while implementing Clean Development Mechanisms

    13. Overview of Fiscal Policy Instruments

    14. Fiscal Policy and Pricing will have Central Role • Low Energy Prices vs. Energy Efficiency

    15. Can Have Gains – even double dividends • Global action on climate change by pushing down global energy prices can raise revenues from 0.5% to more than 2% of GDP • Could improve the terms of trade for most net energy importing developing countries. • Use of carbon revenue to offset other taxes • A Bank CGE modeling study for South Africa concluded that a reasonably high carbon tax combined with reductions in taxes on labor and labor market reforms was actually welfare-improving (ignoring climate benefits).

    16. Carbon Pricing Will Be Essential But Not Sufficient– • May not lead to Pass Through • Under Rationing response may be different • Inferior substitution to biomass or to oil • Energy security issues • Liberal energy policies, Independent Regulators, offsetting assistance • Complementary Technology Supporting Policies

    17. Large Potential of Climate-Friendly Technologies“Win-win” measures–examples of countries provided. But Strong Policy and Institutional Requirement

    18. APEC countries are leaders in climate friendly technologies

    19. Overview TOWARDS SUSTANABLE DEVELOPMENT Green Growth is not “cost neutral” (e.g Energy)But there are tools to help manage this Energy Efficiency Renewable Energy New Technologies CO2 Abatement cost Energy pricing reforms • Regulations and financial incentives • Financing mechanisms • Institutional reform • Feed-in Tariff or Renewable Portfolio Standard • Tax on fossil fuel • Support for R&D • Financing incremental cost • Technology transfer World Bank Group

    20. Investment Policies to Support CFTs • Clean Development Mechanism (CDM) permits investment in ventures that reduce emissions in developing countries: hydroelectric power, wind power, bio-mass methane avoidance projects. • Public investment and subsidy programs in CFTshave played a leading role – China: hydro-electric and (fit) PV Solar Power; Thailand – tax, tari • Private Investment: total investment in clean energy increased from approximately USD 33 billion in 2004 to approximately USD 148 billion in 2007. • Investment Certainty -current costs of CFTs, their financing require a policy environment that encourages more certainty on investment incentives: a number of countries practicing this.

    21. Green Growth through Mitigation Policy & Regulatory Menu of Financing Gap “bridging factors” • Green Building Codes • Zoning and Land Use • Green Bank • Guarantees • Grants • Concessional Loans Green Buildings & Urban Space • Legislative Mandates • Renewable Portfolio Standards (RPS) • Qualifying Projects • Renewable Energy Credits • Feed-In Tariffs • Technology Risk Guarantees • Incubation • R&D Co-Funding Renewable Energy • Green Specifications • Policy Targets Energy Efficiency • Alternative FuelObligations • Fiscal Subsidies • Tax Incentives • Energy Efficiency Tax Credits Alternative Fuels • Carbon Offsets • Carbon fund • Carbon Exchange • Reducing Emissions from Deforestation and Degradation World Bank Group

    22. Policy For Market Readiness • Importance of Markets and Financing. • Offset mechanisms like CDMs, Reformed CDMs. • Sector-based crediting and trading. • Crediting/payment systems based on nationally appropriate mitigation actions (NAMAs). • Allowance-based emissions trading systems (cap and trade).

    23. International Deployment of Selected Market Mechanisms

    24. Market Readiness Cycle

    25. Annual Natural Disaster Economic Loss (in US$ millions). • In 2008, natural disasters cost the world US$200 billion. USA and China bore 90% of this burden. • No country is safe from climate vulnerability meteorological hazards: • land area • population • industrial and agricultural areas

    26. Fiscal Policy and Adaptation: In addition to considering costing, decision making will be Important. A First Approach to Investment Principle Under Uncertainty

    27. Green Growth through Adaptation Menu of Financing Gap “bridging factors” Policy & Regulatory • Redevelop Urban Land • Guarantees • Private financing • Concessional Loans for public good aspects • Unlock Urban Land Values • Zoning and Land Use Sanitation and wastewater • Legislative Mandates • Privatize landfill/STP management • Establish PPP arrangements Redefine Roles and Responsibilities for Brown Agenda Solid Waste Management • Set Abatement Specifications • Pay on abatement • Establish insurance mechanisms Pay for achieving national abatement standards Establish Catastrophic Risk Financing arrangements Vulnerability to disasters World Bank Group

    28. Carbon Initiative for Development • The Carbon Initiative for Development (Ci-Dev) was launched in December 2011. • It will build capacity and develop tools and methodologies to help the poorest countries of the world access carbon finance, mainly in the area of energy access. • Supporting Energy Access with Carbon-Linked Performance Payments. • It will also use emission reduction-based performance payments to support projects that use clean and efficient technologies in low-income countries.

    29. Objectives of the Ci-Dev • To demonstrate that performance-based payments in the form of certified carbon emission reduction purchases can lead to successful and viable business models that promote increased private sector participation and share lessons for replication. • To influence future carbon market mechanisms so that least developed countries, especially in Sub-Saharan Africa, receive a greater and fairer share of carbon finance that results in both high development benefits and that avoid carbon emissions. • To support poor countries in developing standardized baselines and establishing "suppressed demand" accounting standards in such key areas as rural electrification, household energy access and energy efficiency. • To contribute proposals to further improve and extend the scope of the CDM for use by the poorest countries, especially for Programmes of Activities (POA).

    30. Examples of project

    31. 1. Reducing Carbon Emissions While Making Money • The Clean Development Mechanism (CDM), which is part of the Kyoto Protocol, allows developing countries to implement emission reduction projects and count such project-level emissions reduction as saleable credits.

    32. Carbon Market Development • Expanding the reach and boundary of carbon markets • The WBG portfolio has more than 200 projects in 57 developing countries, spanning 23 technologies • Africa accounts for one fifth of active projects in the WBG carbon finance portfolio compared to 2-3% share of projects in the CDM pipeline 10 Carbon Funds: $2.5 billion • Supporting programmatic and sector-wide interventions • Carbon Asset Development Fund – €7 million • Carbon Fund - €100 million • 4 sellers participants, more programs in preparation Carbon Partnership Facility (CPF) • Supporting Country-readiness and piloting incentives for reducing emissions from deforestation and forest degradation - $160 million available • 37 participating developing countries • 11 Readiness grants signed Forest Carbon Partnership Facility (FCPF)

    33. A growing menu of climate finance instruments Adaptation Mitigation Global Environmental Facility (GEF) The Adaptation Fund Carbon Funds Carbon Partnership Facility Special Climate Change Fund Forest Investment Program Least Developed Country Fund Forest Carbon Partnership Facility Global Facility for Disaster Risk Reduction & Recovery Pilot Program for Climate Resilience Clean Technology Fund Scaling Up Renewable Energy for the Poor Risk Instruments (GEF)

    34. Mobilizing Finance: Climate Investment Funds Clean Technology Fund: demonstration, deployment, and transfer of low carbon technologies. Commitment: $4.5 billion Strategic Climate Fund: Programs to pilot new approaches and scale-up: Commitment: $1.9 billion Approved in July 2008, CIFs have balanced and equitable governance with equal representation from developed and developing countries

    35. Why Carbon Finance • Different cities face different challenges – ranging from waste management and improving air quality to reducing energy costs and increasing urban green space. • Carbon finance is an opportunity to improve life in mega-cities • The World Bank Institute helps cities to plan low-carbon pilot projects.

    36. Examples of project • The residents of Dar-es-Salaam, the capital of Tanzania, are exposed to bad air quality produced by open fire cooking. • The city plans to start a stove cooking project and is looking into waste management improvements – both of which will reduce the city’s greenhouse gas emissions. • Reducing Carbon Emissions While Making Money

    37. Cities have great potential to significantly save energy and reduce greenhouse gas emissions. • Two-thirds of the global energy savings could occur in cities, considering the role cities play in implementing national policies aimed at reducing energy consumption.

    38. But developing country cities often don’t have the capacity and know-how to develop such policies and projects. • There is a general lack of awareness about the opportunities and lack of technical know-how on CDM.  Also there is limited capability among local governments.

    39. 2. The Carbon Finance Capacity Building Program • Government and city officials face major challenges such as institutional and technological barriers.  • And it is not easy to increase public awareness and build consensus on climate change or boost the necessary political support required to initiate changes in domestic policies that combat climate change. • But revenues and sustainable low carbon developmentwhich would be generated through the clean development mechanism are excellent opportunities to bring the population on board. 

    40. That’s where the World Bank helps. Its Carbon Finance Capacity Building (CFCB) program focuses on implementing CDM projects in emerging mega cities of the South. • CFCB program assists cities so that they can access carbon finance for greenhouse gas mitigation and low carbon sustainable development. • Sharing knowledge on carbon finance, developing project priorities, providing advice on project development and launching pilot projects is part of the program’s support. 

    41. CDM is very useful for Africa but on the other hand, the continent often face weak capacity problem, so CFCB can help improve the knowledge and capacity required-develop human capital.

    42. 3. New Opportunities Through New Ways of Learning • The program is  using e-learning, video knowledge sessions and peer-to-peer workshops for city officials and other stakeholders to share knowledge and raise awareness. • The CFCB program collaborates with a local partner  in the cities and launches pilot projects in cooperation with a city’s requirements. • This allows the cities to learn and solve their challenges themselves by involving their own local organizations

    43. The CFCB Address • Institutional barriers • Essential framework conditions • Technological barriers.

    44. The CFCB offers a great opportunity for learning more about carbon finance not only through training which aims creating an institutional hub on carbon and climate finance but also by implementing a pilot project. • CFCB assists us to build our capacity. • Climate Finance is a Catalyst for development

    45. Prototype Carbon Fund • A partnership between seventeen companies and six governments, and managed by the World Bank, the PCF became operational in April 2000. As the first carbon fund, its mission is to pioneer the market for project-based greenhouse gas emission reductions while promoting sustainable development and offering a learning-by-doing opportunity to its stakeholders. The Fund has a total capital of $180 million.