Mechanism for Voluntary Mitigation of GHG Emissions in Colombia

1. Mechanism for Voluntary Mitigation of GHG Emissions in Colombia GEF and Carbon Finance Meeting Washington, DC - November 15th, 2010

2. Content • Project Context and Rationale • Justification of GEF Involvement • Objective of the project and components • Risks and challenges

3. 1. PROJECT CONTEXT AND RATIONALE Supply of low-cost mitigation is limited • The international response to climate change and the increasing concentrations of GHG in the atmosphere has given a framework for pricing carbon into the economy • UNFCCC Kyoto Protocol  market mechanisms: Allowances (EU-ETS), CDM and JI • A regulated market with multiple barriers and unclear long-term signals • In this framework, access to carbon finance for developing countries is limited to mostly the CDM • Other emerging regulated markets: RGGI, NSW, WCI

4. 1. PROJECT CONTEXT AND RATIONALE • While the voluntary markets still remain as a small fraction of the overall carbon market (1%), they have shown consistent growth in the last years • In 2009, the voluntary markets had transactions for a total value of $387.4M, 49% less than 2008. • The OTC represented 84% of this

5. 1. PROJECT CONTEXT AND RATIONALE • Although pre-dating compliance markets, voluntary transactions of carbon offsets are gaining momentum due to: • CSR/Branding • Industry front-runners in Sustainability • Pre-compliance (very small) • Other climate-related policy, mainly through trade measures and information disclosure requirements (emerging) • During 2009, voluntary purchases of VERs remained primarily driven by private sector and NGOs for immediate retirement (48%) • Transactions occur primarily Over the Counter (OTC) or through an exchange (e.g.CCX)

6. Advantages • Reduced costs and time • Forestry and REDD projects are accepted • After the wild west, a “regularization” process has occurred: • - Verification and certification requirements • - Registration • - Uniformity of proprietary units transacted (standards) • Transparency, credibility and robustness 1. PROJECT CONTEXT AND RATIONALE • Disadvantages • Their non-regulated nature makes them volatile and with limited capacity • Highly affected by international and national policy frameworks • Higher risks of non-delivery and permanence • Limited capacity to have a large scale impact

7. 2. JUSTIFICATION FOR GEF INVOLVEMENT • Although Colombia’s contribution to global GHG emissions is approx. 0.37% of the world’s total, the country’s emissions volume continue an upward trend • Many corporations have started including Climate Change within their Corporate Sustainability or Social Responsibility policy; yet only a few have started taking action or know what to do • Airline companies and others are preparing for stricter market regulations in the EU regarding their carbon footprint • Some companies have started their own GHG accounting efforts and offsetting programs, but with little credibility • Minimal capacity in the country for generation and commercialization of VERs, specially from the Forestry/REDD+ sectors • Lesser capacity for creating national transparent, credible and reliable market transactions

8. 2. JUSTIFICATION FOR GEF INVOLVEMENT • Increasing interest from large scale companies to participate in a GHG carbon footprint mitigation and offsetting program • Increased interest from national consumers to offset their own carbon footprint • Supply awaiting market opportunities • Increased interest from international buyers in the country • Key national stakeholders, including the Stock Exchange and Mercantile Exchange have a mandate to open new business opportunities in the carbon markets

9. 3. PROJECT OBJECTIVE AND COMPONENTS • Formulate and establish the technological and institutional platform basis for a Verified Emission Reduction Unit (VER) market mechanism to facilitate the voluntary mitigation of GHG emissions in Colombia, through: • creating a market platform for nationally produced VERs accessible to national or international buyers; • supporting the issuing of VERs from agriculture, forestry and/or REDD projects developed in Colombia; and • fostering local demand of VERs through corporate carbon mitigation and offsetting strategies

10. Certification and Issuance (VCS, CCB, VER+) Registry VERs supply Offsets/VERs Demand • Recognition and training program for Companies that supports GHG accounting, mitigation and offsetting • Promotion campaign to sensitize consumers and possible international buyers • Incentives to support corporate engagement • Capacity building for MVR • Support in the verification, validation, certification, registry and commercialization • Financing instruments to support implementation • Marketing and promotion 3. PROJECT OBJECTIVE AND COMPONENTS INTERNATIONAL NATIONAL VER market platform

11. 3. Risks and challenges • Low market take from national buyers --> low prices may make mitigation efforts unworthy • Narrow and sporadic supply of VERs going to national markets • Companies are more interested in selling their own VERs than in offsetting • Slow market growth makes it unviable in the mid-term • Regulated markets take off again, driving prices up

12. 4. Summary • Current efforts in the international arena appear to be insufficient for providing the right incentives in pricing carbon into the economy • Developing countries have a large range of low-cost mitigation options which are being untapped due to access to carbon finance, particularly VERs markets • This project aims at catalyzing the conditions for a market of colombian-based VERs through comprehensive and sound processes and technologies, within the principles credibility, transparency and competitiveness

13. THANK YOU ! Carolina Jaramillo IDB-GEF Technical Focal Point carolinaj@iadb.org