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Financial Engineering for Natural Refrigerants

Steve Gorman Program Manager Global Environment Program Environment Department The World Bank Group. Financial Engineering for Natural Refrigerants. World Bank provided $46.9 billion for 303 projects in developing countries worldwide in 2008;. World Bank’s Lending Program.

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Financial Engineering for Natural Refrigerants

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  1. Steve Gorman Program Manager Global Environment Program Environment Department The World Bank Group Financial Engineering for Natural Refrigerants

  2. World Bank provided $46.9 billion for 303 projects in developing countries worldwide in 2008; World Bank’s Lending Program

  3. World Bank Group Renewable energy & energy efficiency financing fy2004-09

  4. World Bank Group Low-Carbon energy Commitment in Fy09

  5. Available Resources for Climate Change Carbon Market: CDM&JI ~ $ 8 billion for FY09 GEF $ 0.25 blln for FY09 Both M&A WBG RE & EE Progam (IBRD/IDA/ IFC/MIGA) $3.4 billion for FY09 FCPF $0.2 b REDD Climate Investment Funds (MDBs) $6.1 billion GEF $ 0.25 b Adaptation funding Adaptation Fund $ 0.3-0.5 blln Other MDBs$3 billionfor FY09 UNDP $ 0.09- 0.12 blln for adaptation PrivateDonors$ ? EUGlobal ClimateChange Alliance€ 0. 3 blln GFDRR $ 0.07 blln Bilateral Donors$ ? Adaptation(Total Needs est. $28-67bn / year) Mitigation(Total Needs est.$170bn+ / year) Resourcesto addressClimate Change ? MLF $2b since inception ? FY09 estimates are projections

  6. Available Sources of Project-level Mitigation Finance • GEF: Global Environment Facility • Allocated $2.4b to CC mitigation from 1991-2008 • Current GEF-4 Replenishment $1b for CC, $250m per year • GEF-5 Replenishment beyond 2010 • CIF: New funds, esp. Clean Technology Fund (CTF) • Pledges of $6.1b across all components of CIF • Pledges of $5.2 b especially for CTF • CF: Newly established Carbon Partnership Facility (CPF) • Existing funds of $2b for period up to 2012 largely committed • CPF pledges of $200m will open first tranche for operation • World Bank Group’s own resources • FY08 Approvals of $2.7b for renewables and energy efficiency, including GEF, IFC, MIGA, IBRD, and IDA • Target of $3.3 billion for FY’09 to EE and RE How to utilize the above for HCFC phase-out and maximize the impact of the limited resources available?

  7. Can the four sources be combined in the same project? (+) Cash Flow Year Baseline development project—BAU—no GHG mitigation (-)

  8. Mitigation Project: GHG emission reduction (+) Cash Flow Year Redesigned project—higher costs & benefits (-)

  9. GEF/MLF GEF/MLF: Remove Barriers, Innovate and Condition Markets (+) Cash Flow Year (-)

  10. CTF Add CTF: Transform Markets (+) Cash Flow Year (-)

  11. CF Add CF: Enhance Revenues (+) Cash Flow Year (-)

  12. CF GEF/MLF CTF Condition Markets, Transform Markets, Enhance Revenues (+) Cash Flow Year (-)

  13. How to weave together the four sources of mitigation funding? • Each must be used in a manner consistent with its objectives and approaches • GEF: Focus on barrier removal—source of grant funding to establish conditions for market sustainability • CTF: Focus on investment support—providing investment support in form of loans, grants or guarantees • CPF: Performance reward to provide extra revenue to scale-up carbon-reducing investments • MLF: Identify applications of strategic importance to phase-out and find intersection with above • May be linked simultaneously in same project structure or sequentially through a consistent programmatic approach

  14. MLF provided $1m grant—30 chillers • Total market has 189 ODP t • Given GWP, equals 378,000 t CO2 eq • GEF provided $6m—185 chillers • Interested in energy savings, 4.8 TWh over 20 years • Equal to 3.9 m tonnes CO2 eq plus replication • CDM-Spanish carbon fund • Purchase CERs from project—revenues to revolving fund • Flows of CER’s, 982,000 CER’s valued at $12m • Private investors---$80m to make investment complete India Chillers: How to phase-out 1200 chillers with $1m?

  15. GEF-direct 4.6 m tCO2e CDM 982,000 tCO2e MLF 95,000 tCO2e CDM $12 million GEF $6 million MLF $1 million Synergies can lead to Greater Impact: India Chillers Private Sector $80 million GEF-indirect 8 m tCO2e Leveraging enables MLF Funds to achieve greater impact and investment

  16. Synergies make it possible to design projects to utilize CTF, CPF, GEF & MLF • Objectives are not identical, but overlap can be found • To reduce growth in GHG emissions linked to HCFCs • Condition markets; scale-up markets; enhance revenues • Instruments are compatible with each other—can be used sequentially or simultaneously • Requires foresight, strategic thinking • Building upon HCFC phaseout for greater EE & GHG reductions • Some complexities do exist • Issues of eligibility • Focus on larger countries • Changing strategy and focus • Sunset clause • Although programmatic approaches can be tailored to all four instruments, need to focus on problem at hand

  17. IFFIm was launched in 2006 thanks to the initiative of the United Kingdom Government. IFFIm is also supported by France, Italy, Spain, Sweden, Norway and South Africa who have together pledged to contribute US$ 5.3 billion to IFFIm over 20 years. This strong financial base enables IFFIm to have a triple-A rating from the three major rating agencies. IFFIm raises finance by issuing bonds in the capital markets and so converts the long-term government pledges into immediately available cash resources. The long-term government pledges will be used to repay the IFFIm bonds. The World Bank acts as financial adviser and treasury manager to IFFIm. Innovative financial engineering – International Finance Facility for immunisation (IFFIM)

  18. Potential replication to support Natural refrigerant & EE projects Donors Up to 20-year Grants Investors Capital Market Funding International Facility for Ozone/Climate (IFFOC) Carbon Revenues from Compliance and Voluntary Markets Financial Management Country Driven ODS and Climate Protection Programs

  19. Toward Greater Cooperation and Synergy in Climate-related Funding • Opportunities do exist to utilize multiple sources of funding in projects that will replace HCFC with the most optimum ozone and climate friendly technologies • Innovative financial engineering model to monetize future commitments to support up-front investment exists and could be applied to future commitments (MLF contributions) and future revenues (CERs) • Strategic thinking is necessary to piece together puzzle and maximize global benefits • As much as strategy, patience may be even more necessary • Cooperation and synergies are necessary to leverage large impacts and benefits

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