Energy Efficiency and Climate Finance

1. Energy Efficiency and Climate Finance The World Bank Presented at the WEC-ADEME Regional Workshop “Evaluation of Energy Efficiency Policies in the MENA Region’ -Roundtable on Kyoto Mechanisms- March 15-16, 2010; Tunis www.worldbank.org/energy

2. Structure of the Presentation • Energy Sector Development Context and Climate Change • Climate Finance Mechanisms • Integrating EE into Climate Change Mitigation • Project Examples

3. Energy Sector – WBG Response to the Evolving Context Need to respond to broader global energy agenda due to new challenges. • Global financial and economic crises • Increasingly visible climate change impacts • Increased energy prices volatility Corporate Initiatives • Infrastructure Recovery and Assets (INFRA) • Energy for the Poor • Development and Climate Change Strategic Framework for the World Bank Group (DCCSF) • Climate Investment Funds (CIF) • Clean Technology Fund (CTF) • Scaling up Renewable Energy Program (SREP) RE and EE helps in meeting a convergence of WBG’s multiple objectives • Economic Growth • Energy Security • Environmental Sustainability • Poverty Reduction Key Instruments • Project Investments - Development Policy Lending • Financial Intermediation - Technical Assistance

4. Development and Climate Change Strategic Framework (DCCSF) of the WBG • Support climate action in country-led development processes • Mobilize additional concessional and innovative finance • Facilitate the development of market-based financing mechanisms • Leverage private sector resources • Support accelerated development and deployment of new technologies • Step up policy research, knowledge, and capacity building

5. New Energy Sector Strategy Under Preparation/Consultations- Key Issues http://www.worldbank.org/energyconsultations • Twin objectives: • improving access and reliability of energy supply, and • facilitating a shift to a more environmentally sustainable energy development path • Tailored approaches to different country circumstances • Effective use of climate finance, with complementary roles of public and private sectors, and innovative blending of various financial products • Renewed attention to incentives for EE, RE, and subsidy/price issues • Developing methods and guidelines for GHG analysis and for applying DCCSF criteria for coal

6. Energy Efficiency Implementation Challengesand Financing Mechanisms GEF Incentives POLICY & MARKETS • Rational Tariffs • Subsidies’ Removal • Life cycle costing Procedures • EE Standards & Labels • Building EE Codes • Mandatory EE Audits • ESCO Development • Utility DSM • Credit enhancement (Financial) mechanisms • Energy Savings Certificates Development Assistance (Investments, Financial Intermediation, Policy lending, AAA/TAP) Leveraging Private Sector Capital CIF/CTF Incentives Carbon Market Incentives

7. Climate Finance Jointly run by MDBs to provide grants and concessional financing to developing countries to address urgent CC challenges Clean Technology Fund (CTF) ~ $5.2 b Strategic Climate Fund ~ $1 b — Scaling up RE in Low Income Countries SREP — Access Issues Carbon Finance 10 Carbon Funds ~ $2.2 b (200 projects) Carbon Partnership Facility (CPF)

8. Climate Investment Funds The CIF are a new source of funding through which the MDBs will provide additional grants and concessional financing to developing countries to address urgent climate change challenges. Donors have pledged over US$6.1 billion Clean Technology Fund ~ $5.2 bill. Strategic Climate Fund ~ $1 bill. • Finance scale-up demonstrations, deployment, and transfer of low carbon technologies • Grants, IDA-like concessional loans, guarantees • Supports programs involving: • Power Sector (Renewable Energy and highly efficient technologies to reduce carbon intensity) • Transport Sector (Efficiency and modal shifts) • Energy Efficiency (Buildings, industry, and agriculture) • Targeted programs with dedicated funds to provide financing to pilot new approaches for climate change challenges with potential for scale up • First program for Pilot Program for Climate Resilience • Other potential programs include Forest Investment Program • And a Program for Scaling Up Renewable Energy in Low Income Countries

9. Mobilizing Finance through Carbon Markets • Kyoto Funds under implementation with 10 funds and facilities worth $2.5 billion in capital • Partnership of sellers and buyers of emission reductions to support implementation of market mechanisms post 2012 • Carbon Asset Development Fund (CADF) operational at €7 million (Spain, Norway and European Commission) • Carbon Fund currently at €100 million (operational target at €200 million) • Programs under preparation in Brazil, China, Indonesia, Mexico, Morocco, and Vietnam; more under development • New technology to be explored, e.g. carbon capture and storage Carbon Partnership Facility (CPF)

10. R.FED & UKRAINE 0% CANADA - 6% W&E EUROPE -8% JAPAN -6% US - 7% AUSTRALIA +8% Global Kyoto Commitment • 38 countries faced reduction/limitation commitments - overall reduction of 5.2% from 1990 emission levels • Commitments respond to a GHG reduction of 30%-40% below business as usual forecasts over period 2008 - 2012 N. ZEALAND 0% • 2nd Commitment Period (2012-2017) • 3rd Commitment Period (2018-2022)

11. Kyoto Flexiblilty Mechanisms • International Emissions Trading (IET) is not project-specific. Countries below their cap can sell “excess” emissions to another country (AAUs) • Joint Implementation (JI) is a project-based emissions trading mechanism, occurring between Annex B countries, and involving the transfer of emissions allowances (ERUs) • Clean Development Mechanism (CDM)is a project-based emissions trading mechanism in which industrialized countries or companies can invest in developing countries and receive Certified Emissions Reductions (CERs) EU Emissions Trading System (EU-ETS) which is operational since 01 January 2005 will be able to accept credits from CDM and JI projects (Linking Directive)

12. CDM Concept $200-400/ton abatement cost $0.5-20/ton abatement cost Industrialized Country (Annex I) Developing Country (non-Annex I) Carbon Credits (GHG Emission rights) COMPANY A (GHG Emissions) COMPANY B (Project Activity) Finance Technology Capacity Building

13. Industrialized country with an emissions cap Developing country benefits from technology and financial flows Domestic action Developing country with no emissions cap $ $ Purchase of ERs Emission Reductions (ERs) Purchase of allowances ER industrialized country reduces his GHG emissions Baseline emissions Project emissions Baseline Scenario Project Scenario Project-based Carbon Credits Emissions target

14. Project Example : China EE • The iron and steel industry is the largest industrial source of GHG emissions (3% ). • China accounts for 45% of this potential, partly due to its 34% share in the total world steel production • IEA estimates that if best available steel making technologies were applied worldwide, the total energy savings potential is almost 4.5 exajoules (that is, almost 20%) • China – National EE Improvement Targets (11th Five Year Plan, 1000 Enterprises) • The Electric Arc Furnace method is much less energy intensive (4 to 6 gigajoules of energy per ton of steel output) compared to Basic Oxygen Furnace technology (13 to 14 gigajoules of energy per ton of steel output). • Plus blast furnace improvements, waste heat recovery, coke dry quenching (instead of coke wet quenching), etc. • China Energy Efficiency Financing Project (IBRD-$200 million and GEF- $13.5 million) in FY2008 • In addition, the $12.9 million k Carbon Finance project approved in FY2008 is aimed to help switchover to more EE coke dry quenching process in Baotou Iron and Steel Industry.

15. Project Examples: India EE • The India Chiller Energy Efficiency Project (CEEP)’s objective is to accelerate the replacement of centrifugal chillers with efficient non- CFC based centrifugal chillers in order to promote wide-scale deployment of EE • Contribute to India’s commitment under the Montreal Protocol to completely phase out the new demand for ozone-depleting CFCs by 2010, and reduce the demand for recycled or reclaimed CFCs. • With GEF and MLF assistance of $6.3 million and 1 million respectively, effectively leveraged with estimated carbon finance/CDMof $5.85 million, • Targets replacement of 370 CFC-based inefficient chillers (commercial buildings, industries) • Carbon credits from 215 chiller replacements to be used to for additional 155 chiller replacements. • The Industrial Development Bank of India (IDBI), along with other domestic banks will provide the financing to chiller owners, manufacturers, ESCOs, etc. • Government of India meet its goal of increasing the overall energy efficiency by 20% by 2016-2017

16. Project Example : CFL-Based DSM (EE) • Replacing Incandescent Lamps with High Efficiency CFLs for Grid-based DSM • Poland, Mexico (1995-1998, GEF support) • Argentina, Czech Republic, Hungary, Latvia, Peru, Philippines, South Africa (2002-2005, GEF, ELI) • Sri Lanka (1995), Vietnam (2001-07, WB/GEF) • Uganda, Rwanda (2006-2007, WB) • Timor-Leste, Senegal, Morocco, Uruguay, Argentina, Pakistan, Bangladesh Mexico, Mali, Ethiopia, Guatemala, CAR, Burundi...(2007-2010, WB) Globe Biax Reflector Spiral Source: CFL Toolkit (World Bank-ESMAP) http://esmap.org/news/news.asp?id=126. Total Numbers range from 50,000 to 30 million per country Prices of High Quality CFLs as low as US$0.85 Most large-scale CFL programs are driven by the objective of addressing peak power shortages, load shedding, etc…. Traditionally GEF support was used… more recently, Carbon Finance/CDM incentives are being considered.

17. Rwanda: EE Lighting Program • Electrogaz (electric utility) and MININFRA objective: to address power shortages, peak demand of 60 MW resulting in load shedding. World Bank assistance in 2006 under UERP project. Cabinet decision in July 2006. Tariffs high ($0.22 per kWh) • Program design: Phase 1- 400,000 CFLs (2007-2008); Phase 2 – 400,000 CFLs (2009-2012). • Phase 1 budget: $800,000 ($600,000 for CFL cost + program cost) • Procurement of 50,000 CFLs completed – 20 W, branded CFLs (Electrogaz logo) and distributed free (up to 2 lamps to each “Cash Power” pre-paid consumer) • Remaining 350,000 CFLs in Phase 1 to be distributed on cost recovery basis ($0.37 per lamp). • Estimated savings in 2007-2008 (phase 1) ~ 20 MW (at 1/10th the cost of supply cost) • Expected carbon revenues through CDM (phase 1): $350,000-$400,000 per year over a period of minimum 4 - 5 years life of CFLs Source: MININFRA (Feb 2008)

18. Rwanda EE Lighting Program: Integrating Carbon Finance Electrogaz MININFRA Current Focus: Project in one town/ locality Future Potential: Programmatic Approach Bulk Purchase Manufacturer Free or Subsidized CFL Thru substations Collection of old bulbs Each Household Household Household Source: World Bank Carbon Finance (Feb 2008)

19. GHGs and the Case of China Coal expected to remain China’s dominant energy source (>50% to 2020) About 65% of generation is based on coal Total generation is likely to increase from 508GW (2005) to 1100GW (2020), of which coal units may double from 348GW to 700GW Global and domestic environmental impact Closing window of opportunity Source: World Bank- EAP Presentation (2007)

20. Potential exists, but increasingly more difficult to tap Energy Efficiency in China …further reductions in intensity will not be as easy to realize Source: World Bank- EAP Presentation (2007)

21. Baotou Iron and Steel EE Project(in China) --1 • Two waste heat utilization and Steel Coke Dry Quenching Units • Located in the Inner Mongolia Autonomous Region of China • GOC has pledged to reduce the energy intensity of gross domestic product (GDP) by 20 percent from 2005 to 2010, with implicit energy savings of about 560 Mtce by 2010. • The NDRC also launched the “1000 Large Industrial Enterprises Energy Conservation Action Plan” in April 2006, targeting the top 1,008 largest industrial energy consumers, which consume approximately 30 percent of China’s total primary energy production. Most of the iron and steel producers in China are on the list of the Action Plan. Source: BISCO EE CDM Project PAD (2008)

22. Baotou Iron and Steel EE Project(in China) --2 • The project is expected to generate net electricity supply of 250 GWh annually (from 3x15 MW=45 MW), which will replace the equivalent amount of electricity from the North China Power Grid, and reduce the GHG emissions from the coal-dominated North China Power Grid. • Total Project Cost (Borrower’s) is $67.5 million. • The expected emission reductions from this project are estimated at 214,000 tCO2e per year for five years • CDM ERPA for 900,000 CERs with Danish Carbon Fund (WB Carbon Finance) at unit price of Euro 9.5 per tCO2 Source: BISCO EE CDM Project PAD (2008)

23. Tunisia Energy Efficiency Project- GEF Guarantee IBRD Gov. of Tunisia Projects Identification Loans Government Agency Government Subsidy Bank 1 Technical Assistance Bank 2 Bank 3 Loans Project Companies Implementation Energy Efficiency Projects

24. Merci! For More Information: Anand Subbiah, Sr. Energy Consultant, The World Bank, Washington DC asubbiah@worldbank.org Ashok Sarkar, Sr. Energy Specialist, The World Bank, Washington DC asarkar@worldbank.org Silvia Pariente-David, Sr. Energy Specialist, The World Bank, Morocco sparientedavid@worldbank.org