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Co-Financing Options: Support for HCFC Phase-out The World Bank Group Montreal Protocol Operations 4-7 October, 2011 Regional Meeting of the Latin American and Caribbean Ozone Network Port of Spain, Trinidad Drivers for Funding Scale-up Environmental Objectives • Achieve ozone objectives through 2040 • Maximize climate benefits Funding Considerations Adequacy of MLF funding available as a whole to meet incremental costs Potential to mobilize non-MLF resources for co-benefits ee gains Options 1. 2. Co-financing approaches that can leverage funding through market mechanisms Co-financing options possible through Multilateral Development Bank lending instruments and mechanisms Why Co-financing Matters The MLF Context Positive impact on environment Projects MLF Donors Additionality Projects that bundle ozone and climate co-benefits can generate significant global environmental benefits through phase-out of HCFCs + reduction in CO2 through adoption of more energy efficient technologies Scaling-up funds can be used to meet demonstrated demands in HCFC management strategies 3 Tapping into the Markets • The use of market mechanisms can increase and accelerate funding by tapping into carbon assets • Future carbon assets generated by projects through ee gains can be monetized and channeled back into projects to improve the overall funding window • Potential carbon assets are new and additional to MLF funding • Depending on the modality, additional upfront funding/project finance can be made available • Financial viability of projects improve with inflow of additional funds Enhanced positive impact on environment Projects Carbon Assets MLF Donors + MARKET 4 Blending with Other Finance Instruments Blending with MDB lending instruments can also increase and accelerate access to funding by identifying synergies with strategic national or sectoral development goals supported by various types of loans Projects Enhanced positive impact on environment + MLF Donors Fully or partially blended Relevant, sector specific loans LOANS 5 Co-financing: Options and Mechanisms Grant Funding • GEF Market-based funding • Carbon Finance • VCS Other Finance Instruments • CIFs • Development lending Grant Funding Global Environment Facility (GEF) • Climate Change Strategy for GEF 5 • OBJ 2 - Promote market transformation for energy efficiency in industry and the building sector • barrier removal—source of grant funding to establish conditions for market sustainability • OBJ 6 - Support enabling activities and capacity building Market-Based Funding : Carbon Finance World Bank Carbon Finance Unit (CFU) Funds contributed by governments and companies in OECD countries are used to purchase project-based GHG emission reductions in developing countries and CEITs Emission reductions are purchased through one of 10 carbon funds on behalf of the contributor, and within the framework of the Kyoto Protocol's Clean Development Mechanism (CDM) or Joint Implementation (JI) Not loans or grant resources to projects : contracts to purchase emission reductions similar to a commercial transaction ◦ ◦ Emissions reductions are paid for annually or periodically, once verified by a third party auditor The selling of emission reductions can increase the bankability of projects by adding an additional revenue stream in hard currency, which in turn, can provide a means of leveraging new private and public investment into projects that reduce GHG emissions Over 60 private companies and over a dozen governments have invested more than $2 billion in World Bank managed carbon funds The Bank's carbon finance operations have demonstrated numerous opportunities for collaborating across sectors, and have served as a catalyst in bringing climate issues to bear in projects relating to inter alia, energy efficiency and waste management Market-Based Funding : Carbon Finance Voluntary Carbon Market Dec. XX/7 - study on the size and scope of existing ODS banks and the costs and benefits of taking action on different categories of banks relative to the ozone layer and climate change Verified Carbon Standard (VCS) : quality assurance standard that projects can use to quantify GHG emissions, ensure they meet accepted quality standards and are independently verified, and issue credits in voluntary markets ◦ approved a new methodology to quantify greenhouse gas emission reductions from activities that recover and destroy ozone-depleting substances (ODS) ◦ http://www.v-c-s.org/methodologies/VM0016 Climate Action Reserve (CAR) : addresses the US carbon market by establishing regulatory-quality standards for the development, quantification and verification of GHG emissions reduction projects in North America ◦ issue carbon offset credits known as Climate Reserve Tonnes (CRT) generated from such projects ◦ 2 protocols: United States Ozone Depleting Substances (ODS) Project Protocol and an Imported Ozone Depleting Substances Project Protocol ◦ provide a standardized approach for quantifying and monitoring the GHG reductions from projects that destroy domestic or imported ODS with high global warming potentials that would have otherwise been vented ◦ http://www.climateactionreserve.org/how/ Other Finance Instruments: Climate Specific CLIMATE INVESTMENT FUNDS (CIFs) A World Bank partnership with the multilateral development banks that provides financing instruments designed to support low-carbon and climate-resilient development through scaled-up financing Clean Technology Fund (CTF) Promotes scaled-up financing for demonstration, deployment and transfer of low-carbon technologies with significant potential for long-term greenhouse gas emissions savings • Energy Efficiency - CTF promotes programs in support of buildings, industry, and agriculture • Eligibility – ODA eligible + have an active MDB Country program • Mexico – 50 US $M (September 2010) - Efficient Lighting and Appliances Project Other Finance Instruments: Climate Specific Lending Flows: Climate Specific Strategic Climate Fund (SCF) An overarching framework to support 3 targeted programs with dedicated funding to pilot new approaches with potential for scaled-up, transformational action aimed at a specific climate change challenge or sectoral response • Pilot Program for Climate Resilience (PPCR) – objective is to pilot and demonstrate ways to integrate climate risk and resilience into core development planning, while complementing other ongoing activities • Supports two types of investments 1) Funding for technical assistance to enable developing countries to build upon existing national work to integrate climate resilience into national and sectoral development plans 2) Funding public and private sector investments indentified in national or sectoral development plans or strategies addressing climate resilience • One regional program focused on the Caribbean: Dominica, Grenada, Haiti, Jamaica, Saint Lucia, Saint Vincent and the Grenadines Other Finance Instruments : Development Focused The World Bank Group includes 2 unique development programs that provide access to loans: The International Development Association (IDA) : focuses on the world's poorest countries The International Bank for Reconstruction and Development (IBRD) : aims to reduce poverty in middle-income and creditworthy poorer countries The International Development Association (IDA) One of the world’s largest sources of aid, IDA provides support for health and education, infrastructure and agriculture, and economic and institutional development to the 79 least developed countries Established in 1960, aims to reduce poverty by providing interest-free credits and grants for programs that boost economic growth, reduce inequalities and improve people’s living conditions It is the single largest source of donor funds for basic social services in the poorest countries Other Finance Instruments : Development Focused • IDA lends money (known as credits) on concessional terms. What does this mean? 1. IDA credits have zero or very low interest charges 2. repayments are stretched over 25 to 40 years, including a 5 to 10-year grace period 3. select countries receive IDA grants • Protecting National and Global Resources • IDA has provided about US$5.2 billion in environmental and natural resources projects over the past decade • Support provided has helped mitigate air pollution in urban and industrial areas, provide cleaner and more reliable supplies of water, make land management more sustainable, and deal with climate change, protect biodiversity and build environmental institutions [e.g. disaster mitigation and management in Haiti] • IDA Eligible Countries (defined by GDP): Bolivia Grenada Nicaragua Dominica Guyana St. Lucia Honduras Haiti St. Vincent and the Grenadines Other Finance Instruments : Development Focused The International Bank for Reconstruction and Development (IBRD) Aims to reduce poverty in middle-income and creditworthy poorer countries by promoting sustainable development through loans, guarantees, risk management products, and analytical and advisory services. IBRD borrowers include countries at widely different stages of development, from emerging markets, such as Mexico, to countries struggling to find a foothold in the global economy. Established in 1944 as the original institution of the World Bank Group, IBRD is structured like a cooperative that is owned and operated for the benefit of its 187 member countries. IBRD raises most of its funds on the world’s financial markets. The income that IBRD has generated over the years has allowed it to fund development activities as well as to ensure the financial strength that enables it to borrow at low cost and offer clients good borrowing terms. Other Finance Instruments : Development Focused IBRD ~ Toward the Future The demand for policy, knowledge and financing support in low carbon growth and climate resilience is growing steadily. IBRD resources can be expected to be called to support transformational programs with lower emissions catalyzed by dedicated climate resources. IBRD capital is also expected to be in greater demand for guarantees and insurance products to attract private sector investments in new technologies and in climatevulnerable areas. Contributions to existing and emerging climate funds are expected to leverage considerable underlying financing from public and private sources EE/RE Financing at the World Bank 1,771 US $ Millions World Bank Group Financing for Energy Efficiency & Renewable Energy | Figures in $US Millions (fiscal year 2010) World Bank Lending Instruments and Approaches World Bank investment lending finances goods, works, and services in support of specific economic and social development objectives in a broad range of sectors Specific Investment Loan (SIL) - supports the creation, rehabilitation, and maintenance of economic, social, and institutional infrastructure ◦ SILs may also finance consultant services and management and training programs When are SILs used? ◦ SILs are flexible lending instruments, appropriate for a broad range of projects ◦ SILs help to ensure the technical, financial, economic, environmental, and institutional viability of a specific investment. They also support the reform of policies that affect the productivity of the investment. Co-financing in Practice WB GEF Portfolio: Blending with Lending As an Implementing Agency of the GEF, the Bank views blending/integrating projects with loans as one good way to achieve the leveraging requirements of the GEF Of projects under implementation in FY11, 44% were blended with IBRD or IDA loans ◦ The bulk are in the biodiversity and climate change focal areas ◦ POPs – a recently endorsed PIF for a POPs FSP in Vietnam will blend with an IDA loan of US $150 M in the health sector Energy Security • Mexico is Latin America’s largest energy consumer • strategic importance to the economy and is a driver of economic growth, productivity and competitiveness • Energy efficiency and diversification • long-term sustainability of the Mexican energy matrix Climate Change mitigation • Mexico is a major contributor to greenhouse gas emissions • 12th in the world in terms of total GHG emissions • 2nd largest emitter in Latin America. • The energy sector accounts for >60% of total CO2e emissions EE Residential Sector • 2008 - residential sector = 26 % of total electricity use in Mexico • PRONASE (Energy Efficiency Program 2009-2012) • opportunities to achieve optimal use of energy and generate substantial energy savings in the medium and long term, including lighting and household equipment Scrapping Centers IBRD Retail Stores Government of Mexico (SENER, via an operator) CTF National Development Bank GEF Guarantee Facility Repayment via Electricity Bills Eligible Consumers $$$ IBRD, CTF, GEF $$$ Carbon 4 sources of financing Finance Filling the Gap : Voluntary Carbon Markets CFC-12 will be captured from old appliances and properly collected and recycled or stored at qualified scrapping centers. Non-recyclable CFC-12 should be properly destroyed With Montreal Protocol MLF resources, the project will support the development of a project document for submission to the voluntary carbon markets to finance the destruction of CFCs. Useful Resources Climate Investment Funds ◦ http://www.climateinvestmentfunds.org/cif/ IBRD ◦ http://web.worldbank.org/WBSITE/EXTERNAL/EXTABOUTUS/EX TIBRD/0,,menuPK:3046081~pagePK:64168427~piPK:64168435~ theSitePK:3046012,00.html IDA ◦ http://www.worldbank.org/ida/ Climate Finance Options (WB/UNDP partnership) ◦ Funding sources/results of projects on the ground ◦ http://www.climatefinanceoptions.org/cfo/index.php Thank You Montreal Protocol Operations Environment Department The World Bank