Peter A. Cook, Sr. Investment Officer Climate Business Group, IFC Beijing

1. IFC & Low Carbon Economic Development Asia Pacific Finance and Development Center 2010 Biennial Forum onFiscal and Financial Policies for Low-carbon Economic DevelopmentNovember 26, 2010 Shanghai, China Peter A. Cook, Sr. Investment Officer Climate Business Group, IFC Beijing

2. Who We Are, What We Do • IFC is the largest global development finance institution focused on the private sector – the global leader in private sector development finance • We create opportunity for people – to escape poverty and improve their lives • Driven by our vision and purpose, we make a unique contributionto development • We invest, advise, mobilize capital, and manage assets – providing solutions for an inclusive and sustainable world

3. Who We Are - Structure • Owned by 182 member countries • IFC is the main driver of private sector development in the World Bank Group • Collaborates with other members of the group, including the World Bank (IBRD and IDA, MIGA and the International Centre for Settlement of Investment Disputes) • Global: Headquartered in Washington, D.C. • Local: More than 100 offices worldwide in 86 countries, including Beijing and Chengdu in China

4. What We Do - Three Businesses IFC AssetManagementCompany IFC Investment Services IFC Advisory Services • Loans • Equity • Other forms of financing • Advice • Problem-solving • Training • Wholly-owned subsidiary of IFC • Private equity fund manager • Invests third-party capital alongside IFC

5. IFC - 2010 Highlights

6. IFC - Fiscal Year 2010 Highlights • Investments:528 new projects in 103 countries • Advisory services: $268 million in annual expenditures • $18 billion in financing:$12.7 billion for IFC’s own account, $5.3 billion mobilized • IDA countriesaccount for half of IFC projects overall: • $2.4 billion invested in Sub-Saharan Africa, 33 percent increase over past year • IFC earned net income of $1.7 billion for the year, and also made a $200 million grant to IDA

7. What We Do - The Reach of IFC’s Projects IFC’s activities help raise living standards for people throughout the developing world Last year our clients provided: • 2.2 million jobs • $112 billion in micro, small, and medium enterprise loans • 8 million patients with health care treatment • 35 million people with clean water • 29 million people with power connections • 1.4 million students with education services

8. IFC Reach in China in Fiscal Year 2010 Last year our clients provided: • 285,000 jobs • $12 billion in micro, small, and medium enterprise loans • 1 million patients with health care treatment • 15 million customers with clean water • 16 million customers with power connections • 14 million customers with gas distribution • Services to 510,000 farmers

9. Investments by Region/Industry, FY10 Commitments for IFC’s Account: $12.7 Billion SubnationalFinance 1% Private Equity and Investment Funds 3% Global 1% Middle East and North Africa 12% Agribusiness 4% Oil, Gas, Miningand Chemicals 8% Sub-Saharan Africa 19% Infrastructure 12% East Asia and Pacific 13% Latin America and the Caribbean 24% Health andEducation 3% Global Manufacturing and Services 11% Global Information and Communication Technologies 4% South Asia 8% Global FinancialMarkets 54% Europe and Central Asia 23%

10. IFC Climate Business

11. IFC’s Climate Change Agenda  Grow climate-related business to 20-25% of annual commitments by 2013 Thought Leadership • Methodologies for setting and monitoring climate goals and standards across all sectors • GHG intensity accounting, impact assessment and efficiency guidelines • Capacity building for private and public clients related to climate business/policy • Engagement with DFIs, institutional investors, academia and civil society Business Opportunities • Support IFC investments with global knowledge and technical expertise • Develop scalable climate business models • Invest in new and transferable technologies • Develop relations with global and local climate technology companies • Stay abreast with climate-related business solutions and markets Financial Innovation • Leverage and adapt existing financial products (e.g., carbon) • Develop new innovative financial products • Develop efficient mechanisms to leverage public funds with private investment: tap into new climate finance • Scale up through intermediation with financial institutions and funds

12. Planned Climate Investments for IFC’s Account • IFC’s plans to grow its commitment in climate-related investments for its own account from about $1 billion/year in FY10 to $3 billion/year by FY13 • By FY13, investments in climate-friendly projects will be scaled across IFC: • Infrastructure & Natural Resources finances on/off-grid renewables; efficiency in power/T&D, transport & ICT; water • Manufacturing, Agribusiness & Services finance industrial EE & CP; renewables supply chain; green buildings; agri and forestry • Financial Markets works through FIs to finance small/medium green investments and climate-related projects • Clean Technology – investments in innovative, transferable, scalable climate technologies • Climate Financial Products & Funds across all sectors

13. Financial Policies for Climate Change Mitigation: Challenges and Opportunities of Low-Carbon Economic Development

14. The Global Challenge: Financing Climate Change • Current levels of annual climate financing for developing countries ($9 billion) fall short of annual estimated needs • $140-175 billion for Mitigation • $30-100 billion for Adaptation • For this to be achieved and attained, private sector participation and financing is crucial • Solutions need to integrate new business models based on: • Innovation • Scalability • Policy-based incentives and reforms Source: World Development Report 2010

15. Gas plant CCS retrofit Abatement cost € per tCO2e Coal CCS retrofit Global GHG abatement cost curve – 2030 Iron and steel CCS new build 60 Low penetration wind Coal CCS new build Cars plug-in hybrid Power plant biomass co-firing 50 Residential electronics Degraded forest reforestation Reduced intensive agriculture conversion Residential appliances Nuclear 40 Retrofit residential HVAC Pastureland afforestation High penetration wind 30 Degraded land restoration Tillage and residue mgmt Solar PV 2nd generation biofuels Solar CSP Insulation retrofit (residential) 20 Building efficiency new build Cars full hybrid 10 Waste recycling 0 5 10 15 20 25 30 35 38 Organic soil restoration -10 Abatement potentialGtCO2e per year Geothermal -20 Grassland management Reduced pastureland conversion -30 Reduced slash and burn agriculture conversion -40 Small hydro 1st generation biofuels -50 Rice management Efficiency improvements other industry -60 Electricity from landfill gas -70 Clinker substitution by fly ash Cropland nutrient management -80 Motor systems efficiency -90 Insulation retrofit (commercial) Lighting – switch incandescent to LED (residential) -100 Note: The curve presents an estimate of the maximum potential of all technical GHG abatement measures below €60 per tCO2e if each lever was pursued aggressively. It is not a forecast of what role different abatement measures and technologies will play. Source: Global GHG Abatement Cost Curve v2.0

16. Policy instruments to promote Sustainability and Sustainable Energy • Policy instruments are required to promote change in market behavior for the public good. This is particularly common for sustainability • Environmental protection • Energy efficiency • Renewable energy development • Cleaner production • Can range from command and control to market based mechanisms • Policy instruments essentially serve to overcome market barriers for the transformation • Where the underlying sector has economic value, market based instruments provide the most efficient way of achieving a market transformation

17. Aspects of Sustainable Energy • Supply side Efficiency • Transmission lines • Power factor correction • Public transportation • taxis • Supply side renewables • Promotion of grid connected renewable energy • End user use of renewables • Solar hot water and PV • Industrial captive power • Demand side • Industrial consumers • Municipalities (street lighting, pumping) • Commercial and residential : Buildings and Appliances • Vehicular standards and fuels switch

18. Barriers to Sustainable Energy • Awareness • Industry • General public • Use of public transport • Capacity • Utility • ESCO/equipment • Industry • Commercial • Incentives • Business case • Financial • Technical capacity of banks • Transaction size

19. Policy Instruments Increasing cost efficiency & Decreasing control

20. Roles of the State • Policies reflecting climate change and sustainability challenges • Energy policy including role of renewable energy, energy efficiency framework & targets • Environmental policies • Institutional & legal framework • Energy efficiency/renewable energy promotion agencies • Energy efficiency standards/labeling • Energy auditing and market capacity • Renewable energy supporting schemes (feed-in tariffs, off-take structures) • PPP frameworks (ESCo/EPC support) • Utility programs/incentives

21. Roles of the State • Financial incentives • Removing energy price subsidies, targeted structures for low-income households • Direct subsidies • Mobilization of the market (investment subsidies, cash-back incentives) • Managing the risk (first loss guarantees) • Fiscal incentives • Tax credits, tax reductions, accelerated depreciations

22. Getting the Policy Instruments Right • Should be sustainable : the market behavior should have changed permanently after the incentives are phased out • Should be cost-effective • Should simultaneously support and reinforce all the sections of society that need to change • People do not want to change and therefore try to maximize the incentives End user Manufacturer/distributor Financier

23. Creating space for a new product/service

24. Creation of Demand desirability

25. Incentivizing Manufacturers/Service Providers

26. Enabling Financing 1 more details on following slides

27. Energy Efficiency Financing Potential IFC role

28. Renewable Energy Financing Potential IFC role

29. Thoughts for Creation of a State Fund • All players will want to maximize subsidies in the short term • The State should: • Maximize leverage of the fund to create maximum impact • Maximize sustainability/Minimize distortions • Work through the financial sector to ensure long-term ownership

30. Some State Fund Models

31. State Fund Increasing leverage Risk sharing- pari passu Subsidizing capital Risk sharing subordination Direct financing Financial Institution Project Project Project Project Project Project Project Project Project Sustainability Project Low Medium High Project

32. State Fund Increasing leverage Risk sharing- pari passu Subsidizing capital Risk sharing subordination Direct financing Financial Institution Project Project Project Project Project Project Project The value of the state fund and the component of project requiring market financing Only the risk sharing structures make an impact on financing and risk Project Project Project Project

33. Summary • The risk sharing structures are the only structures that address risks that banks may be concerned about • Capital subsidies reduce project costs but the risk to the bank is the same (except on the smaller loan amount) • The subordinated risk sharing provides maximum leverage, impact and sustainability and is the preferred model • Here the state fund can provide a first loss for banks loans extended to the desired sector

34. Thank You! Peter A. Cook Sr. Investment Officer, IFC Climate Business Group Beijing, China Phone:+ 86 10 5860 3000 Email: pcook@ifc.org