Considerations on a Facility to Finance the Climate Benefits of ODS Bank Management

1. Considerations on a Facility to Finance the Climate Benefits of ODS Bank Management Seminar on the Environmentally Sound Management of Banks of Ozone-Depleting Substances Geneva, Switzerland 14 June 2010

2. Overview of Presentation • The challenge: • To establish sources of financing - which are sufficient and sustained - to finance the climate benefits of ODS bank management • The focus of this presentation: • Constraints regarding the voluntary carbon markets • Possible solutions: targeting sources of international climate finance • A key consideration: HCFC waste-streams • The role and rationale for a Facility • To note: • All ODS bank activities under a Facility would be voluntary measures • Other possible sources of financing are not addressed here (e.g., GEF)

3. The Issue: Constraints of Voluntary Carbon Markets While the voluntary carbon markets have an important initial role to play, they have a number of limitations as a financing solution for ODS banks Supply/Demand Imbalance Voluntary Market Constraints Total Voluntary Market Developing Country ODS Banks (Low and Medium Effort) 400 - • Price. Lower prices limit the range • of ODS banks to be financed • Demand. Small size of market • inadequate for potential ODS supply • Quality. Perceptions of • environmental integrity vary • Scope. Limitations, such as no • foams or US-only destruction 300 - Annual Emissions (Mt CO2e) 200 - 100 - 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2009 2008 Sources: TEAP; World Bank

4. Possible Solutions: Targeting International Climate Finance Market Mechanisms Cost Coverage Mechanisms International Climate Finance Voluntary Carbon Markets Multilateral Fund - Pilots Compliance Carbon Markets International Public Finance e.g., EU ETS, $118bn in 2009 • e.g., Copenhagen Acc. • $10bn/yr 2010 -12 • up to $100bn/yr by 2020 Source: World Bank

5. Possible Solutions: Targeting International Climate Finance International Public Finance Compliance Carbon Markets • Opportunity: grants, concessional loans • One global fund or fragmented funds and bilaterals? • Links to developing countries mitigation actions (NAMAs)? • Opportunity: international offsets • One global market (UNFCCC) or regional/domestic (EU, US)? • Costs of ODS can be fully internalized into economy Common Barriers • Lack of awareness/understanding of ODS • Uncertainty (politics) and complexity • Exclusion of MP gasses (UNFCCC only)

6. Key Consideration: Anticipating HCFC Waste-Streams CFC/HCFC Dynamic Opportunity Commercial Refrigeration in Developing Countries (Densely Populated) (Emissions Only) • HCFCs will soon be the main ODS bank waste stream • Large, increasing volumes • Opportunities still cost-effective • HCFCs are not being addressedby voluntary carbon markets • Key barrier: “production for destruction” perverse incentive 100 - = CFC = HCFC 80 - 60 - Annual Emissions (Mt CO2e) 40 - 20 - 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 International climate finance solutions for ODS should be comprehensive and include a pathway for CFC to HCFC continuity Sources: TEAP, UNDP

7. ODS Climate Facility: Overview A Facility, developing a portfolio of demonstration projects targeting specific financial instruments, can be a stepping stone to sources of international climate financing Med//Long Term Near/Med. Term Today • ODS established in • Ad hoc projects Compliance Carbon Markets Voluntary Carbon Markets Market • ODS Climate Facility • Donor led-fund • Oversight framework • Portfolio of projects International Public Finance MLF Bilaterals Cost Cover.

8. ODS Climate Facility: Key Components The Facility’s components are designed to build credibility and establish modalities for ODS bank projects under each targeted financial instrument • Finances projects an on incremental cost basis • For carbon projects: • Provides demand and price • Follows market convention: contract to buy offsets • Donor • Fund • Environmental integrity is critical • For carbon projects: methodologies, registry, verifiers • For int. public finance: verified emission reductions • Oversight • Framework • Market development and broad representation • Different sectors, project sizes, HCFCs, etc. • Different partners: public sector, private sector Portfolio of Projects

9. ODS Climate Facility: Possible Structures • A number of possible structures for a Facility exist • Designs with MLF, MP bodies, MLF Implementing Agencies • Variations could also involve voluntary carbon standards • Factors to consider include • Leveraging respective qualities, expertise and existing capabilities • Ease/speed of establishment in different institutions • Short term versus long term structures Fund (Managed by) Oversight Framework • Configuration • #1 • #2 • #3 • Multilateral Fund • MLF Implem. Agencies • MLF Implem. Agencies • Montreal Protocol Bodies • Montreal Protocol Bodies • MLF Implem. Agencies

10. Concluding Remarks • The voluntary carbon markets will not provide the sufficient and sustained • financing necessary for ongoing ODS bank management • A Facility can explore 3 related strategic issues for ODS banks • Targeting the compliance carbon markets • Targeting international public finance • In due course, addressing HCFC bank management • The Facility’s value is in moving from an ad hoc to a systematic approach, • and more effectively and credibly making the case for financing ODS bank • management • Maximizes awareness-raising and engagement • Coordinated action to address barriers • Controlled, ring-fenced portfolio of projects • Precedents exist: UN REDD, Prototype Carbon Fund for CDM

11. Thank you. For further information: www.undp.org/chemicalswww.mdgcarbonfacility.org