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“ Making the Carbon Market work for Development Finance ”

“ Making the Carbon Market work for Development Finance ”. ADB Carbon Market Program. Bruce Dunn Environment Specialist GEF Carbon Finance Meeting 15 November 2010, Washington, D.C. Growing Carbon Market. (Forecast). Source: Point Carbon. However…. Global CDM Slowdown?.

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“ Making the Carbon Market work for Development Finance ”

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  1. “Making the Carbon Market work for Development Finance” ADB Carbon Market Program Bruce Dunn Environment Specialist GEF Carbon Finance Meeting 15 November 2010, Washington, D.C.

  2. Growing Carbon Market (Forecast) Source: Point Carbon However…

  3. Global CDM Slowdown? Source: Point Carbon

  4. Issues • Kyoto Protocol commitments ending in 2012; no agreed international framework yet on post-2012 • Lack of long-term price signal to give incentive for economies to invest in low-carbon alternatives • Lack of investment/equity – carbon market contributing to cash flow of approved projects, but rarely contribute to project financing

  5. Few buyers End of Kyoto Commitments Project Completion Project Approval ? Emission reduction portfolio (e.g. 10 year period) Issue 1: Post-2012 Uncertainty Carbon Credit Volume Year: 2009 10 11 12 13 14 15 16 17 18 19 20 21

  6. Issue 2: CDM adds benefit to entities with (access to) funds in the first place? Source: UNEP Riso Centre (March 2010)

  7. Distribution of CDM Projects by Scope(Registered as of July 2010)

  8. ADB Carbon Market Program Overview

  9. ADB’s Climate Change Program CMP Modalities Finance Knowledge Partnership Scaling-up Clean Energy Encouraging Sustainable Transport and Urban Development Priorities Managing Land Use and Forests for Carbon Sequestration Promoting Climate-resilient Development Strengthening Policies, Governance and Capacity

  10. CarbonFunds Carbon Market Program

  11. Consultation in DMCs (2005-2006)Question: “What do you need to scale up low-carbon projects?” • Need underlying finance • Require carbon market technical support • Desire highest prices/best conditions for CERs • Seek upfront payment for credits to fill finance needs ADB long-term finance •  Expert technical team •  Dedicated credit marketing service • Carbon co-finance vehicle: Carbon Funds

  12. Ongoing ADB Climate Change Projects (Sample)

  13. Underlying Finance:Ongoing projects (sample)

  14. Technical Support for CDM • Upstream support in project preparation phase • Due diligence: technical, financial, legal, safeguards, governance • Capacity building trainings • Carbon credit valuation • Documentation preparation for credits (PIN, PDD, methodology) • Obtaining host country approvals • Facilitating project Validation & Registration • Downstream support in project execution and commercialization • Implementation / commissioning • Monitoring & Verification • Certification & Issuance of CERs to sponsor/developer & fund

  15. Integrate Carbon Credit Valuation

  16. Additional Analysis for Potential Emission Reduction Projects General Project Analyses Lower Additional Transaction Costs

  17. Credit Marketing Facility

  18. Terms of reference and fee structure pre-negotiated with ADB; contracts directly with project entity as “seller’s agent” to find best offer from buyers Agents are only allowed to collect fee from the seller in percentage terms of actual funds transferred from the buyer to the seller Currently retained agents TFS Green: 2-3.5% charge depending on project size (in CER volume) CM Capital Markets: 1% charge regardless of project size CMF Agents

  19. Carbon Co-Finance: Carbon Funds • Asia Pacific Carbon Fund (APCF) for credits up to end of 2012, and Future Carbon Fund (FCF) for post-2012 • Co-finances projects alongside ADB to help fill project financing gap • Purchase of credits generated from now up to 2020 • Can purchase 25-75% of expected carbon credits on upfront payment basis and the remaining credits via payment on delivery • Lower transaction cost if debt/equity financier is ADB

  20. CMP Summary: Main Advantages for Project Developers/Sponsors • Certain funds today, for commodity with uncertain value in the future • Reduced budget commitments to close the financing plan of projects • Comprehensive technical and implementation support • Extra credits from successful project implementation can be marketed with ADB support for further financial upside

  21. Tech-transfer CDM to accelerate the transfer and diffusion of energy-efficient equipment/appliances and other clean energy technologies using CDM Broadening the Regional Distribution of CDM through capacity building and project identification/development seminars in collaboration with IGES and UNFCCC Secretariat Asia-Pacific REDD financing as part of the global REDD partnership (led by the World Bank FCPF and UN-REDD); possible future public-private regional REDD carbon fund Other Ongoing Initiatives

  22. THANK YOU! Bruce Dunn / Toru Kubo bdunn@adb.org / tkubo@adb.org Regional and Sustainable Development Department General inquiries: adbcdm@adb.org

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