Integrating GEF & Carbon Finance: A No-Regrets Policy Robert Kelly

1. Integrating GEF & Carbon Finance: A No-Regrets Policy Robert Kelly Regional Technical Advisor,Climate Change Mitigation robert.kelly@undp.org Washington D.C., November 15th 2010

2. In 5 years, the CDM has sparked an $8 billion/year market Number of Projects in the CDM Pipeline,January 2005 – October 2010 6,767 6,060 5,688 Compound Monthly Growth Rate = 11% Approximately 1 billion CERs by 2012 5,089 4,475 3,788 2,944 2,041 1,414 821 520 147 67 Jan05 Jun05 Dec05 Jun06 Dec06 Jun07 Dec07 Jun08 Dec08 Jun09 Dec09 Jun10 Oct10 Source: UNEP Risoe (2010)

3. The carbon market already dwarfs the GEF Carbon market in 2009: $144 billion GEF 5 Climate Change (annualised):$0.3 billion 118.5 2.7 US$ billions 2.0 1.1 0.4 0.3 0.3 EUETS AAUs PrimaryCDM JI VoluntaryMarket GEF 5 Total GEF 5ClimateChange Allowances Credits GEF Source: World Bank (2010)

4. But carbon finance is not easy ACM0003: Emissions reduction through partial substitution of fossil fuels with alternative fuels or less carbon intensive fuels in cement manufacture 3 pages of eligibility criteria;40 pages in total CDM Tool: Calculation of the number of sample plots for measurements within A/R CDM project activities A typical page…

5. There is plenty of untapped carbon finance potential The Reality The Potential “There is a large, diversified range of CDM opportunities across Sub-Saharan Africa’s energy sector…a technical potential of more than 3,200 clean energy projects, including 361 Programs of Activities. If fully implemented, this technical potential could provide more than 170 GW of additional power-generation capacity, more than twice the region’s current installed capacity.” - World Bank, 2008 25 registered CDM projects (two-thirds in RSA); 2 PoAs

6. Attractivemitigation project Infeasiblemitigation project CDM revenue GEF barrier removal Yes, the GEF can play a vital role in laying the groundwork Financial Return Risk of Investment

7. But the GEF should not stop at the broader enabling environment GEF financing should be used to support individual carbon finance projects 1 • The distinction between ‘public goods’ and ‘private goods’ is artificial • New methodologies • First-of-a-kind projects (including PoAs) • Under-developed sectors (e.g. forestry, energy efficiency) • Catalysing national markets (proof-of-principle projects)

8. But the GEF should not stop at the broader enabling environment GEF financing should be used to support individual carbon finance projects 2 • Emissions double-counting is not a show-stopper • Why not just create a new GEF accounting category, in addition to direct, indirect and post-project direct reductions, called ‘GEF-catalysed carbon market reductions’?

9. But the GEF should not stop at the broader enabling environment GEF financing should be used to support individual carbon finance projects 3 • GEF needs to stay relevant! “Mobilising $100 billion/year by 2020 is feasible but challenging…Funding will need to come from a wide variety of sources…Instruments based on carbon pricing are particularly attractive because they both raise revenue and provide incentives for mitigation actions” - Secretary General’s High Level Advisory Group on Climate Change Financing Mediterranean Solar Plan

10. And project-based carbon finance is not the only game in town + Evolving Carbon Finance Instruments NAMAs • E.g. Renewable Energy Support Programme • A NAMA to support the implementation of a feed-in tariff could include: • Covering the incremental cost of renewable generation • Capacity building to expand technical & regulatory expertise • Establishment of institutions to operate the system • Investing in enhanced grid capacity • MRV Global Emissions Time Sound familiar? Source: Climate Action (2009)

11. Noel Soriano Project-based carbon finance (CDM/JI)

12. Comparison of GEF and Carbon Finance

13. Some Developing Countries are not Benefitting from Carbon Finance • No established DNA in some countries, and where there is one, inadequate capacity to perform roles of DNA. • Lack of technical capacity to develop and prepare CF projects, let alone GEF projects • High transaction costs for CDM projects, which are being repaid from CER revenues • (PIN/PDD development; DOE validation & verification; Registration; Monitoring cost, etc) • High risks for projects particularly those that have high development dividends in least develop countries • (Uncertain feasibility, due to non-availability of baseline data, no established and approved methodologies, etc)

14. Potential GEF Support for Carbon Finance in CCM Projects

15. Examples of Potential GEF Support for Carbon Finance

16. Examples of Potential GEF Support for Carbon Finance

17. Oliver Waissbein Sectoral Approaches & Unaddressed Sources & Sinks

18. Ideas for GEF Engagement Sectoral Approaches & Unaddressed Sources & Sinks Moving to scale, quantifying and putting a price on carbon Trading Schemes Project-based (CDM) Programmatic CDM Sectoral Approaches NAMAs General Barriers • Data: • Sector baseline surveys • Policy: • Policy formulationand implementation • Finance: • Financing and incentives for private sector • MRV: • Design of data collection systems

19. Ideas for GEF Engagement Sectoral Approaches & Unaddressed Sources & Sinks UNDP Examples • 1. Sectoral approaches • Joint UNDP/Deutsche Bank report on GET-FiT. Feed-in Tariffs for Renewable Energy • Possible fund to finance premium • Possible links to CDM, sectoral and NAMAs • 2. Emission Trading • Domestic or regional schemes • 3. Climate impact of ozone depleting substances • Transition from voluntary to compliance carbon markets

20. End/ Additional Slides

21. Combining and Sequencing Climate Finance: Life Cycle Management of Refrigerators • Energy Efficient • Market Transformation/ • Early Retirement • Current Funding Sources: • GEF • MLF (pilots) • Innovative financing • mechanisms Waste Management Usage Phase ODS Life-Cycle • End of Life/ • ODS Destruction • Current Funding Sources: • VERs • MLF (pilots) • Innovative financing • mechanisms • Industrial Conversion/ • Manufacture of ODS-Free, • Low-GWP Appliances • Current Funding Sources: • MLF • CERs (HFC 134a) • VERs (HCFC 141b) Replacement of unit