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Role of GEF-5 in Carbon Finance: Ideas to Engage and Support

Explore the potential roles for GEF-5 in carbon finance, including designing financial instruments, piloting sectoral approaches, enabling domestic climate change action, and facilitating partnerships. Address barriers to project financing and market risks, while supporting programs in key sectors and fostering regional dialogue.

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Role of GEF-5 in Carbon Finance: Ideas to Engage and Support

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  1. Ideas to engage GEF and carbon finance under GEF-5Input from IDB Washington D.C. 15 November 2010

  2. Possible roles for GEF 5 on carbon finance • On the basis of IDB’s experience in Latin-America and the Caribbean, GEF could make a significant contribution to carbon finance on the following areas (among others): • Design and test financial instruments to facilitate carbon finance operations • Pilot sectoral/programmatic approaches in key sectors • Enable domestic climate change action through market mechanisms

  3. Financial instruments • Development of carbon markets limited by barriers to project financing and by project and carbon market risks • Little experience with financial instruments applied to carbon finance: • Guarantees, contingent financing, equity, “green-lines”, etc. • Growing interest from local financial institutions: • Development and commercial banks, insurers, exchanges • Technical assistance to identify opportunities and needs • Facilitate partnerships • Design and test instruments

  4. Sectoral/programmatic approaches • Need to expand the scale of carbon finance operations and reach underrepresented sectors/technologies • New and emerging carbon finance mechanisms present significant challenges • Institutional complexities and transaction costs are often beyond the means of individual private promoters • Investments in some key sectors depend on decisions from public agents, who often face legal, financial and practical barriers to engage in carbon finance • Support the set-up and implementation of programmes in key sectors (energy efficiency, waste management), including nationally appropriate mitigation actions

  5. Domestic climate change action • Domestic climate change action limited by regulatory, technical and market barriers • Companies and organizations in developing countries are increasingly exposed to climate change related risks • Emerging local carbon markets initiatives in developing countries • Lack of adequate regulation to promote voluntary action • Limited capacities related to corporate greenhouse gas accounting, independent verification and carbon trading • National efforts benefit from regional dialogue and integration

  6. Francisco Arango (farango@iadb.org) Sustainable Energy and Climate Change Unit Inter-American Development Bank

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