UNFCCC Technical Workshop on JI: Incentives and Barriers

1. UNFCCC Technical Workshop on JI: Incentives and Barriers Jan-Willem van de Ven Head of Secretariat Multilateral Carbon Credit Fund October 16, 2007

2. Multilateral Carbon Credit Fund • Established by the European Investment Bank (EIB) and the European Bank for Reconstruction and Development (EBRD). • Participants: six countries and six private companies • Belgium (Flanders), Finland, Ireland, Luxembourg, Spain, Sweden • Abengoa (Spain), ČEZ (Czech Republic), Gas Natural (Spain), Endesa (Spain), PPC (Greece), and Union Fenosa (Spain). • Total of €165-million for 3 zones across Central Europe and Central Asia (€150 mln for projects, €15 mln committed by Ireland for Green Investment Schemes) • Projects are being sourced, developed and contracted by Carbon Managers • MCCF Secretariat facilitates GIS by: • Bringing together committed sovereign buyers and selling sovereigns with (hard) greening demands • Proceeds of the AAU transaction for technical assistance (project preparation and Kyoto compliance) and financial incentives to EBRD and EIB funded financing facilities and projects Multilateral Carbon Credit Fund A joint EBRD – EIB Initiative

3. Three Zones: Recent Kyoto Protocol Ratifications in the Western-Balkan

4. Results are different across the region • MCCF Carbon Managers at the moment review over 100 projects with a sustainable energy aspect. The project leads are equally distributed over the three zones: West (EU), North East (JI) and South East (CDM) • Carbon transactions get done (Bulgaria, Romania), yet below expectations in North East (JI) and West (EU-ETS / JI) when considering the technical potential • Good progress in South East Zone, however these are CDM countries! • Why do in Countries in Transition, and esp JI and ETS, the barriers (still) prevail over the opportunities?

5. Observations I • Sponsors often mix-up “cap and trade” and “baseline and credit” regimes; risks and therefore prices are different, it takes time to get to the level of understanding needed to do the deal • Carbon credits means de-facto export where international market rules prevail (English law, Arbitration, etc.), many (local operating) sponsors are out of their legal depth • Poor management and organisation of the carbon credit function in most companies in the region (unclear and scattered responsibilities, no endorsed corporate climate strategy) • For certain countries JI status still unclear, or implementation rules not fully agreed and implemented or not sufficiently communicated • JI eligibility restrictions due to Double Counting Guidelines and the Acquis baseline issues seem to restrict renewables like wind and hydro, in reality very few projects get done so JI is very much needed

6. Observations II • Over-allocation of EUAs led to one-off revenues, perhaps more than compensating the rising energy costs, still companies have not started to tackle wasteful energy use in a managed way • Sponsors often lack sufficiently reliable data to establish a baseline, JI in Eastern-Europe should take into account the “transition impact” issues • Sponsors afraid that what they realize/sell now, will be cut later in allocation as Cap and Trade is anticipated (no certainty on early action) • The LoA approval rules/conditions are not clear, no orderly process, more a gamble than a calculated risk of rejection, any appeals possible? • Growing interest in indexed pricing, however doesn’t that defeat the JI additionality case?

7. What we do? • MCCF: Increasing efforts to develop and buy Carbon Credits (JI, EU ETS) • EBRD’s Sustainable Energy Initiative: • Technical Cooperation for • Policy Dialogue with Countries of Operation (Ratification, Models, Legal) • Project Sponsors (energy audits, legal structuring, climate plans) • Expand the CDM Project Support Facility to include JI • Information workshops • Development new products, also based on pCDM approaches

8. Innovations needed to make JI work • Ex-ante LoA’s for white list project types? • Relaxation of double counting guidelines in respect of renewables? • If possible reward JI projects with emission reductions after 2012 with late credits (first commitment period AAUs) • Limit the sovereign ERU issuance and transfer risks • State role to: • communicate the process more pro-actively • increase awareness of local sponsors on what they may expect from the international carbon market • provide comfort that early action will be taken into account positively • Decision making processes to be transparent, right to appeal decisions, disclosure names decision makers • Keep additional administration to a minimum (on top of the JI Track-II documentation) • States to appropriately resource the JI approval process

9. Who to contact…