World Bank Carbon Finance Business and Strategy

1. World Bank Carbon Finance Business and Strategy Enabling, and then sustaining the CDM: now and beyond 2012 Buenos Aires, December 2004 Eduardo Dopazo edopazo@worldbank.org

2. Climate Change and the World Bank Mission • What we work for: poverty alleviation and sustainable development • We accept IPCC conclusions that • least developed countries stand to loose most • the poorest have the least capacity to adapt to climate change, especially in rural areas • JI and CDM offer an unprecedented opportunity to increase private and public investment in clean technologies in developing countries, thus contributing to sustainable development

3. Structure of the Carbon Market Project-Based Transactions Allowance Markets UK Emission Trading Scheme Kyoto Pre-Compliance Kyoto Compliance EU Emission Trading Scheme Chicago Climate Exchange New South Wales Certificates Retail Not for Kyoto Compliance

4. Main Driver: ComplianceVolume traded in project-based transactions, million tCO2e 80 Kyoto Pre-Compliance 60 Not Kyoto Pre-Compliance 40 20 0 1996 1997 1998 1999 2000 2001 2002 2003 2004 (Jan-May)

5. Total Value of Carbon Projects(in million U.S.$, nominal) 300 Known Estimated 200 100 0 1998 1999 2000 2001 2002 2003 2004 (Jan-May)

6. Who is Buying? In percent of volume purchased since Jan.03 Australia & New USA Canada Zealand 3% 3% 3% Other EU CFB 3% 24% Netherlands 23% Japan 41%

7. Who is Selling? In percent of volume sold from 2003 to May 2004 OECD 10% Transition Economies Latin America 8% 27% Africa 4% Asia 51%

8. Prices since January 2003(in U.S.$ per metric ton. of CO2e) $6.00 $4.00 $2.00 $0.00 ER Buyer takes Seller takes Registration Risk Registration Risk Not Kyoto Pre-Compliance Kyoto Pre-Compliance

9. Outlook • Major Development: EU ETS. Single largest market worldwide, potentially major driver • Large scale pledges (by EU governments) to become projects in 04, 05 • More CDM Methodologies Approved to reduce transaction costs • Large sellers continue to dominate the market(China, India, Brazil, Indonesia) • Likely upper limit of contributionof CO2e and CH4 assets to OECD compliance gap until 2012: 300 Mt CO2e; gap to be filled up by AAUs, HFC23, N20 assets

10. Most Important Findings of Bank Carbon Finance Business to Date • Regulatory consolidation and many years of transactions are needed to streamline and standardize carbon asset creation under CDM/ JI to make carbon finance accessible on volume commensurate with the needs for serious climate change mitigation. • CDM/JI Carbon Asset Creation remains complex and difficult with lead times of 3-7 years from project identification through delivery of first ERs (especially for CO2 and CH4 assets) • These and other factors severely limit direct private investment CDM/JI • Carbon finance and TA for capacity building must go hand in hand to support carbon market development • Small projects, hence smaller countries and poorer communities will lose out

11. World Bank Carbon Finance Strategy:Carbon Finance Beyond PCF • Expand Carbon Market Development (other OECD Governments and industry consortia on demand) • Provide First-of-a-kind opportunities: Introduce more countries and companies to carbon market • Benchmark carbon asset creation: Increase certainty and lower entry barriers for private capital (“crowd-in private sector”) • Expand access to CDM/JI assets: Bank intermediation is critical to expand supply • Integrate and strengthen TA/Capacity Building (CF Assist) • Demonstrate credible forestry/agriculture “sinks” activities: BioCF • Open Markets for small projects and smallcountries: CDCF

12. World Bank Carbon Finance Products Total funds under current management: $420 million Prototype Carbon Fund. $180 million. Multi-shareholder Community Development Carbon Fund. $45 million - target of $100 million; Multi-shareholder $15 million - target $40 million; Multi-shareholder $125 million, prospect of $180 million: Dutch Government $15 million, with further $80 million/year under discussion; Italian Multi-shareholder Netherlands JI Facility $40 million. Economies in Transition only

13. Evolution of Products and Funds under Management

14. CFB’s Evolving Role in the Market “Catalyze markets for climate change mitigation and sustainable development” Making a Market: (1999-2004): • Demonstrate first-of-kind opportunities • Build demand • Increase awareness of potential impact of carbon finance Diversification (2005-2009): • Acting as an agent of Bank borrowing countries to assist them to develop assets for the market • Creating opportunities to manage risk and build capacity for a greater direct private sector role in carbon trade

15. CFB’s Evolving Role in the Market II • Bank’s own managed funds to address barriers to market development to extend reach of carbon finance to countries, technologies and sectors that have yet to benefit, including integrating carbon finance to programmatic lending Consolidation (2010-2014) • Expanding assistance to client countries to facilitate direct selling, meeting demand for capacity building and technical assistance • Expanding frontiers of market to poorer, smaller countries and uncharted high development potential markets

16. World Bank Carbon Finance Business and Strategy THANK YOU! www.carbonfinance.org Eduardo Dopazo edopazo@worldbank.org