Multilateral Carbon Credit Fund A climate change initiative From EBRD and EIB Madrid, 23/24 May 2006 Christopher Knowle

1. Multilateral Carbon Credit Fund A climate change initiative From EBRD and EIB Madrid, 23/24 May 2006 Christopher Knowles, EIB & Jan-Willem van de Ven, EBRD

2. Objectives of the MCCF • Procure quality carbon credits from EBRD/EIB financed projects in the 27 Countries in Transition • Increase investment flows in low-carbon and clean technologies • Support the development of emission trading • Encourage private sector involvement • Promote dissemination of best practices

3. MCCF Countries in Transition and applicable emissions trading regimes

4. Key features of MCCF • Co-sponsored and managed by EBRD and EIB • Open to: • shareholders of EBRD or EIB, • and also private companies and other public entities (compliance/voluntary buyers) • Aims to buy credits under JI, CDM, and ETS • from EBRD- and/or EIB- funded projects • Can also facilitate Green Investment Schemes;

5. Contractual Framework for Project-based Carbon Credits

6. MCCF Management • MCCF secretariat - light: • Develops legal framework / structure • Interface with Participants, Carbon Managers, Project Companies, and Governments • Co-ordinates with EBRD and EIB via a high-level Steering Committee • Carbon Managers – 2-3 private firms: • Individual project carbon due diligence • Completion of baseline study • Structure and negotiation of individual project ERPAs

7. Key features of MCCF • Off-take per project: 100ktCO2 to 5mtCo2 • All sellers will be: • Located in a country in transition • Financed by either EBRD or EIB • Buyers bear delivery risk and Kyoto risk • Phasing: • Investment period 2006-2008, • Delivery period 2008-2013 (2014)

8. Open to all shareholders of EBRD or EIB Cooperation Fund between EBRD and each Participant Funds channelled through the Cooperation Fund EBRD purchases credits from Carbon Managers for the account of Sovereign Participants (via Master Off-take ERPA) The “Sovereign Window” (I)

9. The “Sovereign Window” (II) • Assembly of Participants at least once a year • to review progress, agree business plans, approve accounts and budgets • Launched when at least three countries have signed a contribution agreement for a minimum aggregate €15 million • Can proceed ahead of Private Window

10. The “Private Window” • Parallel to the Sovereign Window • Joint Governance with Sovereign Participants • MCCF will set further participation criteria: • Compliance buyers, • minimum rating/financial strength and integrity • Different participation mechanism, with no EBRD intermediation: • Direct off-take of Carbon Credits from Carbon Managers • Direct payments for Carbon Credits to Carbon Managers

11. Project identification, development and approval – Stage 1 • MCCF Secretariat identifies potential transactions within EBRD/EIB pipelines • CM undertakes first stage due diligence: • Project Identification Note, Carbon Mandate Letter, Letter of Endorsement, • MCCF Secretariat circulates PIN to all Participants • Participants provide indicative, non-binding indications of interest

12. Project identification, development and approval – Stage 2 • Carbon Manager develops Carbon transactions (input/assistance for PDD, approvals) • Carbon Manager negotiates ERPA • MCCF Secretariat seeks final approval from interested Participants: • Sign-off on draft Project-ERPA • Confirmation of off-take quantities • Documentation concluded • Project ERPA between Project Company and CM • Off-take ERPA between CM and EBRD (for the account of Sovereign Participants) • Off-take ERPA between CM and each non-sovereign Participant

13. Carbon Credit Transaction stepsfrom origination to delivery

14. Financial aspects (I) • Budget approved by all Participants in the Assembly • Cost sharing and funding partially ‘a la carte’ • Fixed costs paid by all Participants pro-rata to MCCF commitments on a six-monthly basis • Project specific costs paid by all Participants expressing a Stage 1 interest • Off-take costs paid by all Participants making a Stage 2 commitment • GIS cost to be charged on a separate basis to participating Sovereigns

15. Financial aspects (II) • Total costs over the life of MCCF estimated at [12%] assuming • Total MCCF commitments of €100m • Carbon Credit price of € [7.5] / ton CO2 • Broad split of Carbon Credit types • Project ERPAs agreed with [30] sellers • Budget calls 6 months ahead and participants to transfer funds

16. Legal Documentation • Sovereigns • Contribution Agreement • General Conditions (of Cooperation Fund) • Other Participants • Adherence Agreement • Master off-take ERPA with Carbon Managers • All Participants • Rules

17. Acceptance of Commitments • Maximum commitments - €150m • Target minimum commitments under each Window - €50m • Reduced demand under one Window can be transferred to the other Window • Maximum individual commitment - €35m • Minimum individual commitment - €2m (Sovereign) and €5m (Private) • All commitments accepted on a first come first served basis, • non-sovereigns subject to due diligence

18. How EBRD / EIB add value • Unique knowledge of Countries in Transition, potentially the largest global supplier of Carbon Credits • One of the main non-governmental investors in the region • Strong commitment to energy efficiency and renewable energy; growing pipeline of emission reduction projects • High standards of underlying project due diligence (financial, integrity and environment) • Carbon finance expertise • Direct Host Government access and track record in policy dialogue • Catalyst for private sector involvement • Risk mitigation through size and diversification

19. 20 Mton MCCF target for Project-based Carbon Credits: a realistic target • Both EBRD and EIB have set targets for the financing of EE and RE • Active pipeline being developed in both JI and CDM • Currently [x] projects in an advanced stage of due diligence for project financing, potentially generating [y] tons of CO2

20. Green Investment Schemesfacilitated by MCCF

21. Next Steps • Finalise participation of first round Sovereign Participants • Active marketing to the private sector • After 1st closing of Sovereign Window: Engagement of Carbon Managers • of (Sovereign) Participants • Approval of General Conditions • Approval of 1st budget • 1st Joint Assembly of all Participants • Approval of Rules

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