96621 CLIMATE AND CARBON FINANCE for sustainable development 2 01 4 A NNUAL REPO RT 1 l CLIMATE AND CARBON FINANCE 2014 ANNUAL REPORT MISSION STATEMENT Our mission is to support putting a price on carbon by providing assistance on and piloting innovative, cost-effective climate change mitigation approaches in World Bank Group client countries. Such approaches include international mechanisms, emissions trading schemes, carbon taxes, and results- based finance. The report covers the carbon funds, facilities, and financial products managed by the World Bank Group between January 1, 2014 and December 31, 2014. An online version of this report is available at www. worldbank.org/climatefinance. Note: All dollar amounts are in U.S. dollars ($) unless otherwise indicated. The euro/U.S. dollar exchange rate used in this report is 1.30, the pound sterling/U.S. dollar exchange rate used in this report is 1.55, and the U.S. dollar/NOK exchange rate used in this report is 7.69. These exchange rates were used by the carbon funds and facilities in reporting to their participants in 2014. All greenhouse gas emission reductions are reported in metric tons of carbon dioxide equivalent (tCO2e). This report is provided for informational purposes only. The carbon funds, facilities, and financial products reported on are not legal partnerships. No warranties or representations are made as to the accuracy, reliability, and completeness of any information herein. 2 l CLIMATE AND CARBON FINANCE 2014 ANNUAL REPORT CLIMATE AND CARBON FINANCE for sustainable development 2014 ANNUAL REPORT CLIMATE AND CARBON FINANCE 2014 ANNUAL REPORT l 3 ACRONYMS BioCF BioCarbon Fund IP Indigenous Peoples CDM Clean Development Mechanism ISFL Initiative for Sustainable Forest CER Certified Emission Reduction Landscapes (BioCF) CFL Compact Fluorescent Lamp JI Joint Implementation Ci-Dev Carbon Initiative for Development LED Light-Emitting Diode COP Conference of the Parties LDC Least Developed Country CPF Carbon Partnership Facility M&E Monitoring & Evaluation CSO Civil Society Organization MRP Market Readiness Proposal (PMR) EB Executive Board (CDM) MRV Monitoring, Reporting, and Verification ER Emission Reduction NCM Networked Carbon Markets ER-PIN Emission Reductions Program Idea Notes NGO Non-Governmental Organization (FCPF) NMM New Market-Based Mechanism ERPA Emission Reductions Purchase Agreement PAF Pilot Auction Facility for Methane and ETS Emissions Trading Scheme Climate Change Mitigation EU European Union PMR Partnership for Market Readiness EU ETS European Union Emissions Trading System PMR PA Partnership Assembly for the PMR FCPF Forest Carbon Partnership Facility PoA Programme of Activities FCPF PC Participants Committee of the FCPF RBF Results-Based Finance GCCCF Climate and Carbon Finance Unit REDD Reducing Emissions from Deforestation (World Bank Group) and Forest Degradation GCCGT Forest and Landscape Climate Finance REDD+ REDD plus Conservation, Sustainable Unit (World Bank Group) Management of Forests, and GDP Gross Domestic Product Enhancement of Forest Carbon Stocks GHG Greenhouse Gas R-PP Readiness Preparation Proposal (FCPF) IETA International Emissions Trading Association tCO2e Metric tons of Carbon Dioxide IFC International Finance Corporation Equivalent INDC Intended Nationally Determined UNFCCC United Nations Framework Convention Contributions on Climate Change WBG World Bank Group 4 l CLIMATE AND CARBON FINANCE 2014 ANNUAL REPORT TABLE OF CONTENTS Introduction from the Managers.................................................. 7 Getting Climate Finance Flowing Infographic........................... 8 Overview: Next Generation Carbon Market Initiatives........... 10 Kyoto Funds and Facilities......................................................... 11 State and Trends of Carbon Pricing........................................... 12 New Approaches in Carbon Finance......................................... 16 Efforts to Promote and Enable Carbon Pricing................. 18 Carbon Pricing Leadership Coalition................................. 19 PMR Supports the INDC Preparation Process..................20 China: Putting a Price on Carbon, One Step at a Time.....22 Scaled-up Crediting Mechanisms......................................24 Networked Carbon Markets...............................................25 Carbon Finance Across the World..............................................26 2014 Highlights...........................................................................28 BioCarbon Finance Infographic.................................................32 Next Generation Carbon Market Initiatives.............................34 Carbon Partnership Facility................................................36 Partnership for Market Readiness.....................................38 Carbon Initiative for Development....................................42 Pilot Auction Facility for Methane and Climate Change Mitigation......................................46 Landscape Approaches.......................................................48 Forest Carbon Partnership Facility.....................................49 BioCarbon Fund Initiative for Sustainable Forest Landscapes...........................................................53 Who We Are.................................................................................54 CLIMATE AND CARBON FINANCE 2014 ANNUAL REPORT l 5 In 2014, the World Bank Group’s Carbon Finance Unit was split into the Climate and Carbon Finance Unit (GCCCF) and the Forest and Landscape Climate Finance Unit (GCCGT), merging with climate change staff at the IFC. Both units are part of the Climate Change Group. 6 l CLIMATE AND CARBON FINANCE 2014 ANNUAL REPORT INTRODUCTION FROM THE MANAGERS Vikram Widge Neeraj Prasad Manager Manager Climate and Carbon Finance Forest and Landscape Climate Finance World Bank Group World Bank Group S ustainable development to fight poverty provide client countries with opportunities to pricing efforts. The Partnership for Market and finance for climate action are pursue a low emissions development pathway. Readiness brings together 30 of the world’s inextricably linked. This is particularly true These include innovative financial products major emitters—representing over 80 percent in our most vulnerable client countries, that can help countries convert mitigation and of global emissions—and helps those in where the poorest are most impacted by sequestration outcomes into much needed developing countries design and implement climate change. Meeting the climate financing financing. Such instruments include the Carbon domestic efforts to reduce emissions, whether commitments to mobilize $100 billion a year by Partnership Facility, created to scale up through market-based mechanisms or taxes. 2020 is a tremendous challenge. And even that emission reductions programs, and the Carbon As countries implement their choice of carbon is not enough. Initiative for Development, which supports pricing, we will continue to play an important innovative and transformative business models At the World Bank Group, mobilizing climate role in catalyzing the transition from preparing that facilitate low-carbon energy access projects finance is at the top of our agenda. The for market-based carbon pricing approaches in least developed countries (mainly Africa). decisions taken now on how to use scarce to piloting their implementation. In addition to public resources and leverage financing and The World Bank Group’s most recently the initiatives and financial products already action from others will lay the foundation for launched climate finance initiative, the Pilot mentioned, this also involves discussions climate action for decades to come. Auction Facility for Methane and Climate on a facility that will help convert outcomes Change Mitigation, will support private sector from scaled-up crediting mechanisms—or Within the broader climate agenda of the investment initially in methane abatement large-scale approaches to emission reductions, World Bank Group, we have been working in projects by setting a floor price for future including those induced through the policy carbon markets for well over a decade. We carbon credits via an auction, thus creating a measures of the host country—into much have launched 18 carbon initiatives that have predictable revenue stream. needed development cash. mobilized both public and private funds to lower greenhouse gas emissions through technical Furthermore, two of our carbon initiatives are As various countries develop heterogeneous advisory services and about 145 mitigation supporting sustainable landscape management: approaches to carbon pricing that best suit projects across the world. As we move toward the Forest Carbon Partnership Facility and the their development needs, it will be important to scaled-up national mitigation efforts and a BioCarbon Fund’s Initiative for Sustainable avoid fragmentation of future carbon markets. network of carbon markets, we build on the Forest Landscapes. These funds continue The World Bank Group’s Networked Carbon lessons learned along the way. to pioneer work in more than 50 countries to Markets initiative is looking ahead to see what ensure that both countries and private sector institutions and services will likely be needed to In 2014, the World Bank Group’s support actors adopt integrated solutions that support ensure fungibility and liquidity in an international for carbon markets grew, and several new sustainable landscapes, climate-smart land carbon market with a long-term, transparent, innovative financial products were launched. use, and green supply chains. Both funds had and robust price on carbon. In the course of 2014, verbal pledges and a significant year, with over a dozen countries commitments were made to the tune of $300 Such technical support and financial products entering their carbon fund pipelines, each million. By the end of the year, the total fund can ultimately be meaningful only if they have submitting proposals to address reducing allocation had reached almost $3 billion. political support. In 2014, the Carbon Pricing emissions from deforestation at the sub- Leadership Coalition was launched to rally The next generation of carbon markets faces national level and, in time, becoming eligible for governments, private sector, and civil society many challenges, including the lack of a global large-scale, results-based finance transactions. behind putting a price on carbon and bending climate agreement and a pervasive low price on We also continue to provide advisory services the arc of greenhouse gas emissions. carbon. At the World Bank Group, we continue to support countries with their carbon to support and develop instruments that Carbon finance explores the financial implications of living in a carbon-constrained world, a world in which emissions of CO2 and other GHGs carry a price. Climate finance refers to financing channeled by private sector as well as national, regional, and international entities for climate change mitigation and adaptation projects and programs. CLIMATE AND CARBON FINANCE 2014 ANNUAL REPORT l 7 CIF-Infographic_5_1.pdf 1 5/4/15 4:42 PM 331 BILLION $ FORTY-TWO PERCENT FIFTY-EIGHT PERCENT 137 BILLION 193 BILLION 302 25 92 8 35% 22% 12% 9% 3% 2% 8 l CLIMATE AND CARBON FINANCE 2014 ANNUAL REPORT 11.3 $8.4 BILLION $3 BILLION ratio 1:7 more than $33 BILLION in the first ten months of 2014 Source: This infographic was published by the World Bank Group on September 5, 2014, and adjusted for this report based on data from 2013. CLIMATE AND CARBON FINANCE 2014 ANNUAL REPORT l 9 OVERVIEW: NEXT GENERATION CARBON MARKET INITIATIVES The World Bank Group (WBG) has taken the lead in shaping the domestic carbon pricing plans, use auctions to put a price on next generation carbon initiatives for the post-2012 period by carbon, increase access to energy in least developed countries developing new approaches to performance-based payments (LDCs), and reduce emissions from deforestation and forest and piloting carbon instruments. degradation. These carbon initiatives had a total fund allocation of $1.6 billion as of December 31, 2014, and commitments In its portfolio, the WBG has six different carbon initiatives that totaled close to $275 million in 2014. aim to scale up emission reductions (ERs), build readiness for Carbon Partnership Facility Partnership for Market Readiness Forest Carbon Partnership Facility Tranche 1 of the Carbon Partnership Facility The Partnership for Market Readiness (PMR) The Forest Carbon Partnership Facility (CPF) became operational in May 2010 and was launched in December 2010 and includes (FCPF) was launched in 2008 and focuses the CPF’s Carbon Asset Development Fund more than 30 countries. PMR supports on reducing emissions from deforestation became operational in January 2009. The CPF market readiness capacity building, promotes and forest degradation, forest carbon stock uses scaled-up, programmatic approaches market instruments, and provides a platform conservation, sustainable management of to enable carbon finance to support partner for sharing knowledge and experiences. It is a forests, and enhancement of forest carbon country initiatives aimed at moving toward country-led initiative that builds on individual stocks (REDD+). The FCPF demonstrates low-carbon economies. It targets such areas countries’ mitigation priorities. how REDD+ can be applied at the country as renewable energy, energy efficiency, and level. waste management. Facility Capital1 $142 million* Facility Capital $127 million Facility Capital $828 million Date Operational May 2010 Date Operational April 2011 Date Operational June 2008 Participants 10** Participants 33 Participants 64* * Note that the reduction in fund capital from last year’s * 17 financial contributors and 47 REDD+ participants. $165 million merely reflects an exchange rate adjustment. ** Three buyer participants and seven seller participants. Carbon Initiative for Development Pilot Auction Facility for Methane and BioCF Initiative for Sustainable The Carbon Initiative for Development Climate Change Mitigation Forest Landscapes (Ci-Dev) was launched in December 2011 to In 2014, the Pilot Auction Facility for Methane The BioCF Initiative for Sustainable Forest increase access to low-carbon energy in the and Climate Change Mitigation (PAF) was Landscapes (ISFL) was launched in world’s poorest countries by offering carbon- launched. PAF is an innovative climate finance December 2011 and aims to create a portfolio linked results-based finance (RBF) using the model to stimulate investments in projects of programs that promote sustainable CDM. Ci-Dev supports initiatives that deliver that reduce GHG emissions—initially only agriculture, forestry, and smarter land-use strong development benefits in LDCs, using methane—while maximizing the impact of practices in an integrated way. ISFL programs performance payments based on ERs while public funds and leveraging private sector cover a variety of geographies and transform building capacity and developing tools and financing. It uses auctions to set a floor price large rural areas by protecting natural forests, methodologies to help the poorest countries for future carbon credits. restoring degraded lands, and enhancing access carbon finance. agricultural productivity, using RBF to incentivize changes at the landscape level. Facility Capital $123 million Facility Capital $18 million* Facility Capital $361 million Date Operational April 2014 Date Operational Novemberl 2014 Date Operational November 2013 Participants 4 Participants 1 Participants 6 * As of December 31, 2014, both pledges and contributions totaled $53 million. 1 This year’s facility capital includes legal commitments. Previous years included both pledges and legal commitments. 10 l CLIMATE AND CARBON FINANCE 2014 ANNUAL REPORT KYOTO FUNDS AND FACILITIES The WBG launched the first global carbon fund, the increased the number of participants. Prototype Carbon Fund, in April 2000. In the following In 2014, the Netherlands European Carbon Facility fulfilled seven years, another 11 Kyoto Funds and Facilities were its mandate to its facility participants and was closed. The launched at the World Bank Group to pioneer a full range Kyoto Funds and Facilities’ success is now informing the of flexibility mechanisms.2 The first generation of carbon GCCCF in preparing and piloting the next generation of funds successfully harnessed private sector funding, carbon finance initiatives. amounting to 56 percent of total capital contributions. By the end of 2014, the Kyoto Funds and Facilities had delivered 196 million tCO2e, reaping the fruits of their Peak Capitalization $2.76 billion work over the past decade. This figure includes ERs of Date Operational April 2000 5 million tCO2e that were generated by the IFC funds, Participants 74 which are included in this report now that carbon finance Private Capital Invested 56% activities across the WBG have been merged. This also 2 Flexibility mechanisms, mechanisms defined under the Kyoto Protocol, such as the Clean Development Mechanism (CDM), Joint Implementation (JI), or emissions trading, intended to lower the overall costs of achieving its emissions targets. NCDMF BioCarbon Fund Prototype Carbon Fund CDCF Netherlands Clean Community Development Development Carbon Fund Mechanism Facility Danish Carbon Fund Italian Carbon Fund Netherlands European Spanish Carbon Fund Carbon Facility Umbrella Carbon Facility Carbon Fund for Europe IFC Post-2012 IFC-Netherlands European Carbon Facility Carbon Facility CLIMATE AND CARBON FINANCE 2014 ANNUAL REPORT l 11 12 l CLIMATE AND CARBON FINANCE 2014 ANNUAL REPORT STATE AND TRENDS OF CARBON PRICING 2014 Significant progress has been made over the last 10 years in establishing national and subnational carbon pricing schemes. About 40 national and over 20 subnational jurisdictions are putting a WARMEST YEAR ON RECORD price on carbon. Together, these carbon pricing instruments cover 7 GtCO2e or about 12 percent of the annual global The State and Trends of GHG emissions, which represents a Carbon Pricing 2015 report will be launched in October 2015. A threefold increase over the past decade. preview of the report, the Carbon The total value of the Emissions Trading Price Watch, will be released at Scheme (ETS) and carbon tax markets Carbon Expo in May 2015. is estimated to be $50 billion in 2015. CLIMATE AND CARBON FINANCE 2014 ANNUAL REPORT l 13 Figure 1: Summary map of existing, emerging, and potential regional, national, and sub-national carbon pricing schemes (ETS and tax) * Source: State and Trends of Carbon Pricing 2014 - adjusted for this publication to show data from December 31, 2014. * RGGI refers to Regional Greenhouse Gas Initiative. Developments in 2014 and the delay in linking the Swiss and EU Parties (COP) 20 in Lima, Peru in December ETS. Allocation modalities of allowances 2014, were to decide on what information Notable developments in 2014 include the within ETS and spending of carbon pricing is required in the Intended Nationally implementation of carbon taxes in France revenues were topics of increasing Determined Contribution (INDC) documents and Mexico, and the passing of legislation importance in the carbon pricing discourse. and to consider the elements of the draft for a carbon tax in Chile. In addition, two negotiation text in preparation for COP21 new carbon pricing mechanisms entered The prices in these existing carbon pricing in Paris. On both fronts, progress was into force on January 1, 2015: the Korean instruments are diverse and varied. Prices limited and the lack of pre-2020 ambition ETS and Portugal’s carbon tax. are a reflection of the national or regional remains an issue. The agreement reached As new carbon pricing instruments emerge, context of the instrument. They have shown in Lima on INDCs was not as ambitious as existing national and regional carbon pricing little movement over the last year and most some had hoped for, as it made a series instruments have continued to develop. of the emissions are priced at a rather low of recommendations rather than detailing Structural reform to improve market stability level. Governments commonly use funds requirements for the contents of the was the top priority of the European raised through carbon taxes and the sale of INDCs. It is likely that the ambition level Union (EU) ETS agenda, with the debate allowances in ETSs to lower other taxes on of INDCs will need to be revised following on the market stability reserve reaching a businesses and households or to finance COP21 in order to limit global warming to consensus on a 2019 start date. emission mitigation projects. In 2014, over 2°C. Furthermore, the Doha amendment to $15 billion in government revenue was the Kyoto Protocol is currently not legally In addition, California and Québec raised in this manner—50 percent higher binding, since to date it has been ratified by successfully linked their ETSs and expanded than the $10.2 billion currently pledged to only 28 Parties out of the required 144. their GHG coverage, while China’s seven the Green Climate Fund. pilot schemes expanded in scope. China Kyoto Credits and Results-Based Finance continued preparing for a national ETS, and International Carbon Pricing explored possibilities of cooperation with The market trend for Kyoto credits (Certified Despite progress on the national and Emission Reductions (CERs) and Emission other regions. subnational level, the world is still waiting Reduction Units) continued downward in for a break-through at the international level. 2014. Total residual demand between 2015 Some setbacks in 2014 include the repeal The key objectives of the Conference of the and 2020 is expected to be substantially of Australia’s carbon pricing mechanism 14 l CLIMATE AND CARBON FINANCE 2014 ANNUAL REPORT Figure 2: Prices in existing carbon pricing schemes lower than the potential supply of Kyoto credits for the same period. In order to support the Clean Development Mechanism (CDM) and Joint Implementation (JI) through these challenging market conditions, recent policy has focused on the promotion of voluntary CER cancellations, and procedures for voluntary deregistration of projects. Following deregistration from the CDM, projects can seek alternative financing by generating offsets in national crediting schemes, such as the offset mechanism in China used by its pilot ETS. Results-based finance (RBF) provides financial support after ERs have been verified. RBF can provide a mechanism to value or absorb ERs, including CERs and ER units. Several programs have been built using a RBF approach, while others are currently considering RBF as a funding mechanism. Corporate Carbon Pricing Carbon pricing is spreading beyond government implementation, and has become an increasingly common tool in private sector decision making. Last September, over 1,000 companies and investors publicly expressed their support for carbon pricing at the New York Climate Summit. Private sector firms are adopting internal carbon prices, even in jurisdictions without legislated carbon pricing, to prepare for future regulatory risks, and to benefit from potential opportunities from carbon pricing and incentivise ERs in the short and longer term. Globally, internal carbon pricing is used by at least 150 companies, with disclosed prices ranging from $6 to $89 per tCO2e. Carbon pricing is only one instrument out of a portfolio of approaches which can be used for emissions mitigation. Other policy instruments, such as renewable energy portfolio standards and energy efficiency standards, also have an important role to play in achieving emission reductions. CLIMATE AND CARBON FINANCE 2014 ANNUAL REPORT l 15 16 l CLIMATE AND CARBON FINANCE 2014 ANNUAL REPORT NEW APPROACHES IN CARBON FINANCE The World Bank Group challenge. The WBG continues overview of various efforts (WBG) creates and pilots to develop carbon and climate within the institution centered innovative financial products finance solutions and to on carbon pricing and that find new ways to put a offer technical assistance to presents a selection of six new price on carbon and make developing countries as they climate and carbon finance financing for climate change explore their options and approaches developed in 2014 action available to client develop mechanisms that can at the WBG. countries. Thinking outside bring mitigation to scale. the box is instrumental to This section provides an addressing the climate change MAKING THE CASE AND EVIDENCE FOR CARBON PRICING • Carbon Pricing Leadership Coalition • State and Trends of Carbon Pricing reports CONNECTIVITY, GLOBAL TRADE Enabling connectivity of carbon pricing efforts for a long-term, stable price IMPLEMENTATION, on carbon SCALE-UP • Networked Carbon Enabling scale-up of Markets initiative carbon pricing efforts for PLANNING, a meaningful price on carbon DESIGN • Carbon Partnership Facility Innovating and building • Partnership for Market readiness for carbon pricing Readiness • Pilot Auction Facility • Partnership for Market • Scaled-Up Crediting Readiness Mechanisms CLIMATE AND CARBON FINANCE 2014 ANNUAL REPORT l 17 New Approaches in Carbon Finance FOCUS ON EFFORTS TO PROMOTE AND ENABLE CARBON PRICING The WBG is focused on the design and implementation of carbon pricing schemes worldwide and in the The World Bank Group promoting carbon pricing that has the potential to negotiations leading to the COP21 in Paris. supports carbon bring down GHG emissions. The PMR is helping countries build a technical foundation for the design, pricing to bring down The institution has embarked development, and implementation emissions and drive of carbon pricing and other cost- on several efforts to enable effective instruments. Ensuring the investment to cleaner carbon pricing across all essential readiness components for these options. stages of development. instruments—such as data management, Measuring, Reporting and Verification (MRV) systems, and the creation of policy and implementing carbon pricing systems The Carbon Pricing Leadership Coalition and regulatory frameworks—is a crucial in ways that best suit their unique contexts. (CPLC) builds the case for carbon pricing part of the PMR. The PMR also provides While these unilateral efforts are to be by making the business case for a a platform for technical discussions and commended, the resulting regulatory steadily rising carbon price—through the policy analysis, which in turn can spur fragmentation has made it increasingly development of robust future carbon price innovation and help integrate carbon pricing difficult to compare and connect efforts scenarios with a set of global experts. into national low-carbon development plans across jurisdictions. The NCM initiative It is also working with key knowledge and strategies. creates the conditions for a connected partners like the Organisation for Economic Co-operation and Development and the Through market-based mechanisms international carbon market. International Monetary Fund to develop and RBF , the GCCCF and GCCGT units “Principles for Effective Carbon Pricing” provide funding and encourage client endorsed by business, government, countries as well as the private sector Looking Ahead academia, and civil society. The CPLC to scale up mitigation ambition. This All of these efforts support the WBG’s will use this evidence to bring together is in response to the fact that a growing position that carbon pricing is a necessary government and business leaders to number of countries are preparing ER way to reduce GHG emissions and lower address key issues and challenges in programs. In the absence of clear signals climate risks. They also leverage the WBG’s developing carbon pricing policies that from the international climate regime, accumulated experience, knowledge, and cut across the political, corporate, and carbon funds and facilities, like the CPF, analytical capacities. technical spectrums. will play a key role in enabling these programs to transition from readiness to The State and Trends of Carbon Pricing implementation, by supporting purchases report provides insight into market of ERs on a larger scale, using carbon and policy developments. As the finance. international community works on effective and practical solutions to mitigate GHG Through the Networked Carbon Markets emissions on a large scale, it is imperative (NCM) initiative, the WBG is developing that full use is made of accumulated the services and institutions needed experience, knowledge, and capacity. The to enable a connected international State and Trends of Carbon Pricing Report carbon market that is liquid and provides critical technical input to inform delivers climate-smart financing more public and private stakeholders engaged in efficiently. Governments are designing 18 l CLIMATE AND CARBON FINANCE 2014 ANNUAL REPORT New Approaches in Carbon Finance FOCUS ON CARBON PRICING LEADERSHIP COALITION At the UN Climate Leadership Summit held in September 2014, WBG President Jim Yong Kim invited public and private actors to join a growing coalition to put a price on carbon. This group came to be known as the Carbon Pricing Leadership Coalition, consisting of 74 national governments, 23 state, provincial, and city governments, and over 1,000 company leaders. The CPLC’s objective is to bring carbon pricing supporters together and lay an pricing, and supplement the technical in boardrooms, and will provide a focus analytical foundation for climate change support offered by the PMR and other to G7 and G20 leaders, as well as mitigation that includes future carbon price programs. The countries, regions, and ministers, as they prepare for the climate scenarios and best practice principles for cities that have introduced carbon pricing or conference in Paris in December, and pricing carbon. Its work complements that are in the process of doing so are pockets develop their Intended National Determined of the PMR and NCM initiative. of the future. The role of the coalition is Contributions (INDCs). The CPLC held its first meeting in to identify those who are pioneering the conjunction with the WBG Annual future of carbon pricing. Meetings in October 2014 and has To encourage business to do more Looking Ahead embarked on three streams of work: in their own use of carbon prices in Myriad conversations are taking place To understand the business case for operations and to be transparent about around the world about how carbon pricing putting a price on carbon as different how they use a carbon price. By revealing should fit into INDCs and what it would prices emerge across the world in a carbon price, the true cost of emissions take to adopt more effective carbon prices different forms. Countries need to shift will become evident. Leadership in this over the next few years. their economies toward zero net emissions area can build momentum and produce in the second half of this century and this the signals to get the basics right. The forceful effect of business and involves pricing carbon, sending signals to government leaders voicing their support To pull all this together, the coalition investors, and decoupling carbon intensity for carbon pricing will be essential in the is working on principles to guide the from growth, jobs, and competitiveness. run-up to COP21 to building confidence introduction of carbon pricing. These that a Paris package will materialize. To work with jurisdictions that are principles will stand countries, regions, considering moving forward with carbon and states in good stead, will be helpful CLIMATE AND CARBON FINANCE 2014 ANNUAL REPORT l 19 New Approaches in Carbon Finance FOCUS ON PMR SUPPORT FOR INDC PREPARATION PROCESS In the run-up to COP21 in Colombia is one of the countries using PMR analytical support as part of its INDC December, countries will publicly preparation. While the formulation of its INDC outline what actions they intend is a larger effort, the PMR support is critical to take under a global climate to filling gaps and addressing questions that emerge in its ongoing modeling work. This agreement. These pledges support includes: on mitigation are known as • Understanding the opportunities and Intended Nationally Determined challenges of various options for Contributions. Their form and national mitigation objectives; rigor will largely determine • Strengthening Colombia’s modeling capacity to analyze alternative whether the world achieves an mitigation pathways; and ambitious post-2020 climate • Conducting technical analyses of the agreement toward a low-carbon, macroeconomic and social impacts climate-resilient future. of different post-2020 emissions scenarios. The PMR is supporting countries that are developing their INDCs. This involves helping them develop post-2020 mitigation scenarios Looking Ahead and analyzing effective and cost-efficient policy In 2015, the WBG will finalize common instruments to achieve their climate change ” which technical guidance, a “checklist, mitigation targets. provides a menu of analytical tools to help countries establish and assess various Policy analysis is an important step to assess mid- and long-term emissions pathways. the impacts of adopting different carbon The checklist is intended to help make the pricing instruments. Many countries are at a analytical approaches, methodologies, and crossroads in their decision to adopt specific processes used by countries to set their post- pricing instruments, such as an ETS or a carbon 2020 mitigation scenarios more transparent tax, as a means to deliver mitigation objectives. and comparable. In 2014, the PMR initiated an Upstream Policy Analysis work stream to help countries with Furthermore, the checklist can be used to this. One activity under this work stream is to help countries identify important gaps or support countries in their INDC preparation shortfalls in their own methods and tools, as process. well as foster a better understanding of the approaches and basic principles used. This work supports the development of common technical guidance on analytical The checklist is a valuable tool for countries approaches, methodologies, and processes to refine their analyses, performance tracking, for setting post-2020 mitigation scenarios. and results assessment of mitigation It also provides analytical support for select PMR outcomes, beyond their actual INDC countries in their INDC preparation process. submissions. 20 l CLIMATE AND CARBON FINANCE 2014 ANNUAL REPORT Colombia is one of the countries using PMR analytical support as part of its INDC preparation process. CLIMATE AND CARBON FINANCE 2014 ANNUAL REPORT l 21 New Approaches in Carbon Finance FOCUS ON CHINA: PUTTING A PRICE ON CARBON, ONE STEP AT A TIME In 2011, the National Development or sell carbon. Lack of intermediation of emissions allowance trading may result in high transaction and Reform Commission costs for firms, and in liquidity and price issues, announced that China would with negative implications for future emissions introduce emissions trading on a trading across China. Current regulations only allow for spot trading of carbon but it is paramount that pilot basis to put a price on carbon futures contracts and other derivatives also become and reduce the country’s growth available in the market. of GHG emissions. Pilots are being IFC will help financial institutions expand their implemented across the provinces capacity and experience in the carbon market. Financial institutions, in turn, need to provide of Guangdong and Hubei, and companies with advice on risks and opportunities in the cities of Beijing, Shanghai, in emissions trading. While China has benefited Shenzhen, Chongqing, and Tianjin. significantly from the sale of ERs in the carbon market linked to the Kyoto Protocol, Chinese These pilots will provide the financial institutions have gained little experience groundwork for a nationwide ETS, that could be useful for an emerging ETS. expected to be rolled out in 2016. IFC will also help build knowledge and analytical tools for carbon pricing for financial institutions. The emissions trading pilots mark a major With mandatory regulation of CO2 emissions milestone in China’s climate and energy policy. They currently being phased in, CO2 is becoming represent the world’s second largest ETS (after a potential liability for companies. Financial the EU’s). The first phase has focused on technical institutions will need to understand the implications aspects and on allocation of emission allowances of CO2 regulation for their core lending activities (caps) for companies. But, as a market-based tool and portfolios, analyze client exposure to carbon to curb emissions in a cost-effective and flexible price risks, and explore possible risk mitigation way, emissions trading poses new challenges strategies. for companies, financial institutions, emissions exchanges, policy makers, and regulators in China. How is this being resolved? Looking Ahead The International Finance Corporation (IFC) Emissions trading is an important policy tool for is working with local emissions exchanges to the Chinese government to limit future growth enhance their capacity. These exchanges are of GHG emissions, reduce the economy’s expected to lead the development of the emissions dependence on heavy industry, achieve energy trading pilots. To achieve this, they need a strong security, protect the national environment, and business focus, space for innovation, and a clear control local pollution. The emissions pilots business vision, in addition to professional trading are already providing important lessons for experience and qualified staff. the designers of a future national ETS. It is encouraging that Chinese decision makers are IFC is addressing regulatory issues, under increasingly paying attention to the dynamics of advice of the Chinese government, that prevent allowance markets and the trading aspects per se or unduly limit banks and other financial institutions of the emerging carbon market. that offer market access to clients who want to buy 22 l CLIMATE AND CARBON FINANCE 2014 ANNUAL REPORT China is the world’s second largest ETS (after the EU’s). CLIMATE AND CARBON FINANCE 2014 ANNUAL REPORT l 23 New Approaches in Carbon Finance FOCUS ON SCALED-UP CREDITING MECHANISMS There is value and strong interest from a number of countries, including PMR participants, in piloting crediting mechanisms that can generate very large quantities of ERs at a low cost. These mechanisms could support sectoral or other large-scale mitigation programs. They could also support policy interventions that reduce emissions, such as energy efficiency standards. A piloting effort of this kind would also lead to the development of new methods The new These mechanisms would assist and tools to account for ERs on a much methodologies would developing countries in making larger scale than has been achieved through long-term contributions to CDM projects or programs. The new include approaches global mitigation targets and methodologies would include approaches to quantify and monitor ERs from policy to quantify and building their carbon pricing measures—an innovation from existing monitor ERs from infrastructure. carbon standards. They would keep an emphasis on environmental integrity and policy measures— The experience gained through this piloting transparency and improve efficiency by lowering transaction cost. an innovation effort could be used to inform global standards and international climate finance Piloting outside of an existing from existing agreements as well as future national, regional, and international carbon market international set of rules would allow carbon standards. for methodological approaches mechanisms. These new instruments would tailored to specific country and sector They would keep also support the development of GHG accounting methodologies and MRV tools, circumstances. This would maximize innovation and learning, while feeding an emphasis on with a potential for application in a broad lessons back to international climate environmental range of contexts. negotiations. Piloting new instruments would take the integrity and form of supporting individual programs transparency and in developing countries through results- based payments for independently Looking Ahead improve efficiency by The WBG is in dialogue with a range of verified ERs. These national, subnational, stakeholders on shaping an impactful lowering transaction sectoral or citywide programs would be developed against the backdrop of piloting effort for these new mechanisms. This includes looking at the scope, cost. the implementing countries’ INDCs, objectives, and modalities of such a work aim to have a lasting impact, and lead program. These conversations will guide to transformational change. They would the WBG’s next steps in its engagement in leverage large volumes of financing from scaled-up crediting mechanisms. international financial institutions, private investors, and domestic sources. 24 l CLIMATE AND CARBON FINANCE 2014 ANNUAL REPORT New Approaches in Carbon Finance FOCUS ON NETWORKED CARBON MARKETS The WBG launched the The Networked Carbon Markets initiative seeks to enable a connected international carbon market that comprises Pilot Program wide range of heterogeneous aphoto NCM initiative to support climate change mitigation efforts. a connected international carbon market that is liquid and delivers climate-smart Price instruments financing more efficiently. • Carbon tax • Capital subsidies Around the world, countries are developing • Feed-in tariffs • Energy efficiency tariffs ways to put a price on carbon to fight climate change. Depending on their national circumstances, about 40 national and more than 20 subnational jurisdictions are participating or preparing to participate Quality instruments in an ETS today, and other countries are Regulatory instruments • Cap-and-trade considering other climate change mitigation • GHG performance standards • Offsets efforts. • Offsets • Credit and baseline • Clean energy standard • Technology standards These domestic initiatives are crucial to • Renewable Energy • Fuel standards lowering GHG emissions; however, this bottom-up development of climate change Certificates mitigation efforts has led to a certain amount of regulatory fragmentation and heterogeneity across jurisdictions. Networking domestic efforts can help Also, by connecting with different The NCM initiative responds to the fact countries achieve their climate change carbon pricing systems, countries that governments are designing and mitigation objectives in a more cost- can tap into other abatement options, implementing climate change mitigation effective way. When different carbon which can help reduce costs. The efforts in ways that meet their needs and pricing systems are connected, they create cost and efficiency benefits that result targets. While these domestic efforts are a larger, potentially more liquid, market. from networking may, therefore, enable to be encouraged, it leads to regulatory The larger the market, the more the price countries to increase the ambition of their fragmentation, which makes it increasingly of carbon is resilient to extreme volatility. climate change mitigation efforts. difficult to track progress, compare achievements, and connect efforts across jurisdictions. Looking Ahead The NCM initiative aims to develop a NCM complements the WBG’s ongoing low-carbon development activities and its efforts framework for enhancing transparency, to promote carbon pricing as critical to achieving climate change mitigation on a greater comparability, and fungibility of scale in an effective and cost-efficient way. heterogeneous climate change mitigation While countries are developing custom-made answers to the climate change problem, efforts. The ultimate goal is to determine stakeholders from the private and public sectors, research communities, and civil society trading ratios for carbon units (carbon are working on ways to compare them so that all climate action is accounted for and exchange rates) and a mechanism to accommodated by a more efficient and networked international carbon market. The support carbon market-related functions. economies of scale that are expected to result from networking may enable countries to This is intended to facilitate connectivity of increase the ambition of their climate change mitigation efforts and provide the basis for carbon pricing systems through networking a long-term, stable, and influential price on carbon in the future. so that they have liquidity, scale, and the foundation for a long-term stable price on carbon. CLIMATE AND CARBON FINANCE 2014 ANNUAL REPORT l 25 CARBON FINANCE ACROSS THE WORLD The World Bank Group supports carbon finance operations A total of 21 governments support the carbon funds and and programs in more than 75 countries. These comprise facilities by purchasing ERs as carbon fund participants and/or activities undertaken by the FCPF, BioCF ISFL, and the PMR, contributing donor resources to readiness activities. as well as CDM and JI projects and programs by Kyoto Funds Moreover, 59 private sector firms and three civil society and Facilities, as shown on the map. organizations (CSOs) also support the Units’ activities and, In 2014, operations expanded into three new countries: Belize, together with the public sector, purchase ERs through the Sudan, and Zambia. Also, nine new programs were launched, carbon funds and facilities. some of which are highlighted on the map. RECIPIENTS DONORS/CARBON FUND PARTICIPANTS Information as of December 31, 2014. These charts depict the regional and sectoral distribution of the GCCCF’s and GCCGT’s 142 carbon projects active in 2014. The project shares include both the number of active Emission Reductions Purchase Agreements (ERPAs) and closed ERPAs (that is, those that have fully delivered ERs per their contracts). Note that these figures do not include FCPF , BioCF ISFL, and PMR activities. Regional Distribution (by project) 4% 13% n Africa 29% n East Asia and Pacific n Europe and Central Asia 14% n Latin America and the Caribbean n Middle East and North Africa n South Asia 21% Belize, Sudan, and Uruguay: 19% FCPF Expands In July 2014, the FCPF accepted Sectoral Distribution (by project) Belize, Sudan, and Uruguay into the partnership, bringing the number 2% 1% of REDD+ country participants n Renewable Energy 6% to 47. In Uruguay, the REDD+ 35% project will be executed by the n Waste Management/ Methane Avoidance Ministry of Livestock, Agriculture, 17% and Fisheries and is looking at n Energy Efficiency expanding silvopastoral activities and n Forestry/Agriculture controlling invasive species, while n Fugitive Emissions preparing the means to measure forest degradation. n Transport n Fossil Fuel Switch 18% 21% 26 l CLIMATE AND CARBON FINANCE 2014 ANNUAL REPORT Kazakhstan: Implementation of a Carbon Pricing Scheme In May 2014, the PMR created a new category of participants, Technical Partners, and Kazakhstan was the first country admitted as such. Kazakhstan can now benefit from financial assistance for targeted technical support to complement the country’s domestic actions as it develops and implements its national ETS. California and Québec joined as Technical Partners in November 2014. India: Innovation in Crediting The CPF has begun to prepare a carbon finance program to replace inefficient light bulbs in households with super-efficient LEDs, starting with pilots in a few cities. The resulting carbon revenue will be used to attract private sector investment to scale up the program, with potential distribution of up to 51 million LED lamps. RECIPIENTS DONORS/CARBON FUND PARTICIPANTS Information as of December 31, 2014. Zambia and Ethiopia: ISFL Launches Programs In September 2014, the BioCF’s ISFL programs were started in Ethiopia and Zambia, which allows funding to flow into new programs. This helps public-private partnerships scale up financing and have a positive impact through zero-deforestation commodity supply chains, in particular working with cotton farmers to develop smarter land use practices. GSDPM Map Design Unit IBRD 40031R1 | APRIL 2015 This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other information shown on this map do not imply, on the part of The World Bank Group, any judgment on the legal status of any territory, or any endorsement or acceptance of such boundaries. CLIMATE AND CARBON FINANCE 2014 ANNUAL REPORT l 27 2014 HIGHLIGHTS Tunisia and Kazakhstan Develop Strategies for Climate Action At the 8th PMR Partnership Assembly meeting, two new countries—Tunisia and Kazakhstan— The NCM initiative joined the PMR. Tunisia will use PMR support Complements to design and test scaled-up ER crediting mechanisms in the cement and energy Kenyans Earn Ongoing Low-Carbon sectors, while Kazakhstan, the PMR’s first First Ever Carbon Development Activities Technical Partner, is seeking technical support Credits From In February, representatives for the implementation of its national ETS. from private sector and industry Sustainable Farming associations, developed and Supported by the BioCarbon developing country governments, 8TH Fund, the Kenya Agricultural think-tanks and academia, non- PMR Carbon Project involves 60,000 governmental organizations (NGOs), PARTNERSHIP smallholder farmers on 45,000 and multilaterals discussed how ASSEMBLY MEETING hectares, promoting farming that different carbon markets can be TUNISIA is more productive, sustainable, compared. This international working Implementing KAZAKHSTAN Country and climate-friendly. In January, group promotes the connectivity of Technical Partner Participant the project issued its first carbon carbon markets as being critical to credits for sequestering carbon achieving climate change mitigation in soil. The credits represent a on a greater scale in an effective and reduction of close to 25,000 cost-efficient way. metric tons of CO2. CH MAR UARY FEBR ARY JANU Delivering Ground-Breaking Action in 2014 THE NEPAL BIOGAS MONTH PROJECT COUNTRY PROJECT TYPE CARBON PIONEERING RESULTS PROGRAM ISSUED CREDITS (CERs) 235,000 February Improving Kiln Bangladesh Brick 17,403 First project in brick sector in Efficiency in the Bangladesh to deliver carbon credits Brick Making Industry in Bangladesh CERs AND BENEFITS June Kenya Optimization Kenya Hydro 47,309 First hydro rehabilitation project of Kiambere Power in Kenya and in Africa to deliver 60,000 Station carbon credits October The Nepal Biogas Nepal Biogas 234,550 First household biogas project to deliver HOUSEHOLDS, Program carbon credits generating largest issuance in Nepal and in an LDC REPLACING TRADITIONAL October The Rwanda CFL Rwanda Compact 23,491 First CDM project in Rwanda and Distribution Project Flourescent first CFL project in Africa to deliver FUEL SOURCES FOR Lamps (CFL) carbon credits COOKING-FUEL WOOD WITH BIOGAS PLANTS Total of more than 320,000 CERs in total carbon reduction 28 l CLIMATE AND CARBON FINANCE 2014 ANNUAL REPORT Ci-Dev Hosted the Carbon Expo First Meeting of in Cologne the CDM Reform New Carbon Initiative Focuses on Working Group More than 1,700 participants Energy Access in LDCs from about 70 countries gathered The working group brings The Ci-Dev became operational on April 1, 2014, in Cologne, Germany, for the together key carbon and with funding closed at $123 million, and has started 11th Carbon Expo to learn about climate finance stakeholders building a pipeline of energy access programs in recent developments in carbon to improve, exchange views LDCs as well as knowledge products that will identify markets. on, and promote shared successful examples of RBF . understanding of the CDM. It State and Trends of serves as a forum for generating Bold Ideas from Pioneering Global Carbon Pricing knowledge, promoting CDM REDD+ Countries 2014 reform and mitigation activities The 9th meeting of the FCPF Carbon Fund focused that yield high sustainable on launching some of the REDD+ proposals on a The WBG published its annual development benefits, and path to become reality, in order to show global and carbon pricing report. The report raising awareness of carbon local stakeholders that REDD+ is moving forward describes key domestic carbon RBF . not only in the UNFCCC negotiations but also on the initiatives around the world, and ground. Ten countries presented concepts for REDD+ is one of the reports downloaded programs at the landscape level and were selected most often from the World Bank website. into the Carbon Fund pipeline, which now totals 11 JUNE countries (Chile, Costa Rica, Democratic Republic of Congo, Ghana, Guatemala, Indonesia, Mexico, Nepal, Peru, Republic of Congo, and Vietnam). The REDD+ proposals are each expected to receive between $50 and $70 million in results-based payments. MAY L APRI State and Trends of Carbon Pricing 2014 CLIMATE AND CARBON FINANCE 2014 ANNUAL REPORT l 29 2014 HIGHLIGHTS ...continued 74 Countries and Over 1,000 Businesses Speak Out in Support of a Price on Carbon At the UN Climate Leadership Summit, the states, provinces and cities, and over 1,000 private companies and investors who signaled their support for carbon pricing. Together, these countries represent 54 percent New Managers Announced of global GHG emissions and 52 percent of global GDP . Vikram Widge and Neeraj Prasad were appointed as new managers of the Climate and Carbon Finance Unit (GCCCF) and the Forest and Landscape Climate Finance Unit (GCCGT), respectively. Africa Carbon Forum The 6th Africa Carbon Forum in Windhoek, Namibia, brought together public and private sector representatives of African nations to discuss climate change mitigation and domestic climate action. The WBG team gave a presentation on how RBF can support Watch video online: worldbank.org/carbonpricing energy access programs in Africa and discussed which CDM reforms are necessary to make it happen. The team also discussed the future of carbon ER markets in the context of ongoing UNFCCC negotiations. EMB SEPT U ST AUG The World Bank Group Stands behind the New York Declaration on Forests JULY A coalition of over 150 stakeholders—including 32 national governments, 18 subnational governments, 40 companies, 16 Indigenous Peoples groups, and 49 Celebrating 10 Years of the BioCarbon Fund civil society organizations—endorsed the New York In August, the BioCarbon Fund celebrated its 10th anniversary. The Declaration on Forests, with the shared goal of ending BioCF has paved the way for land-based carbon innovation and been natural forest loss by 2030. The FCPF is working with at the heart of linking carbon finance, sustainable land use, and rural 11 forest countries on large-scale ER programs and communities. building public-private partnerships with companies to take action on the collective commitments. 2030 NEW YORK DECLARATION ON FORESTS GOAL OF ENDING NATURAL FOREST LOSS BY 2030 Watch video online: wbcarbonfinance.org/BioCF 30 l CLIMATE AND CARBON FINANCE 2014 ANNUAL REPORT Simplifying CDM Rules Using Auctions to Benefits Africa Discussion of Net Combat Climate Mitigation: an Effort Change The GCCCF Policy and Methodology Team provided capacity building and engagement of Countries to Go In November, the WBG Board of with African negotiators through Ci-Dev on beyond Offsetting Directors approved the Pilot Auction streamlining the Programme of Activities A workshop on net mitigation Facility for Methane and Climate (PoA) process. This led to a request to was organized in Paris to help Change Mitigation (PAF). The PAF the CDM Board at the COP20 in Lima negotiations on UNFCCC market is an innovative instrument that will for an evaluation of options to simplify mechanisms. It brought together use auctions to support projects that the validation process for projects and Ci-Dev and CPF participants as reduce emissions—starting with programs that are considered additional. well as key African and European methane—by guaranteeing a floor climate negotiators. The WBG price on their carbon credits. presented early-stage concepts on how net mitigation can be operationalized within CPF pilot activities. R MBE DECE ER EMB NOV BER OCTO “By supporting a price on carbon, leaders from across the political and business world have come together to send a strong signal that they will build their Watch video online: pilotauctionfacility.org economies for a safer, cleaner, and more prosperous planet. Today we see a real momentum.” Dr. Jim Yong Kim President, World Bank Group CLIMATE AND CARBON FINANCE 2014 ANNUAL REPORT l 31 BIOCARBON FINANCE FOREST CARBON TRANSACTIONS 32 l CLIMATE AND CARBON FINANCE 2014 ANNUAL REPORT SILVOPASTORAL, 1% Source: This infographic was published on April 4, 2014. CLIMATE AND CARBON FINANCE 2014 ANNUAL REPORT l 33 34 l CLIMATE AND CARBON FINANCE 2014 ANNUAL REPORT NEXT GENERATION CARBON MARKET INITIATIVES With the end of the Kyoto Protocol’s These carbon funds and facilities are developing several approaches that support ERs in client first commitment period, the WBG countries, and have been divided into two continued to grow its portfolio of groups: one under the Climate and Carbon next generation innovative carbon Finance Unit (GCCCF), and the other one under market initiatives in 2014 by the Forest and Landscape Climate Finance Unit (GCCGT). launching the Pilot Auction Facility for Methane and Climate Change Momentum to take domestic mitigation action is building in developing and emerging Mitigation (PAF) in September. economies and the carbon market initiatives mentioned above support and leverage this. This builds on previously launched The GCCCF funds and facilities include building next generation initiatives, technical capacity and readiness for market- based instruments such as cap-and-trade and including the Carbon Partnership carbon taxes, scaling up mitigation activities Facility (CPF), the Partnership from projects to programs, using auctions to for Market Readiness (PMR), the put a price on carbon, and increasing access to Carbon Initiative for Sustainable energy for the poorest. Development (Ci-Dev), the Forest The GCCGT works at the landscape level and ensures that different uses of land—such as Carbon Partnership Facility (FCPF), agriculture, energy, and forest protection—are and the BioCarbon Fund Initiative duly considered and that integrated solutions for Sustainable Forest Landscapes that serve multiple objectives are implemented (ISFL). at scale. The goal is to meet the social, economic, cultural, and spiritual needs of present and future generations. CLIMATE AND CARBON FINANCE 2014 ANNUAL REPORT l 35 $140+ MILLION By the end of 2014, the Carbon Fund had $127 million in commitments and another $14.5 million in donor contributions to the Carbon Asset Development Fund. BUYER PARTICIPANTS SELLER PARTICIPANTS DONORS Fonds d’équipement Communal Government of Spain of Morocco Government of Norway Caixa Econômica Federal of Brazil Government of Italy GOVERNMENT OF SPAIN European Commission Ministry of Industry and Trade of Vietnam Provincial Electricity Authority of Thailand HOST COUNTRY PARTNER Tanzania Rural Energy Agency Ministry of Finance of Egypt Government of China Land Bank of the Philippines 36 l CLIMATE AND CARBON FINANCE 2014 ANNUAL REPORT http://cpf.wbcarbonfinance.org Carbon Partnership Facility The Carbon Partnership work on the ground and be mutually other sources of funding to provide beneficial. more comprehensive approaches to Facility (CPF), operational in financing clean technologies. May 2010, helps its partner The CPF draws on the WBG’s countries use carbon finance financial and knowledge resources Low-Carbon Technology to strategically integrate carbon to implement systematic The CPF focuses on finding ways finance with sustainable development to support country policies and approaches to low-carbon plans by aligning it with country initiatives to catalyze public growth. assistance programs—and often and private investment in clean linking it to lending operations. It technologies. The CPF specifically The CPF’s primary objective is facilitates the implementation of targets areas that have not been to innovate in scaling up carbon low-carbon programs across an array reached effectively by mechanisms in finance. The CPF is designing ER of sectors and technologies—energy the past, such as energy efficiency and programs for investments that deliver generation and distribution, energy urban programs. The fundamental goal carbon assets after 2012. It consists efficiency, and waste management— of the CPF is to help client countries of the Carbon Asset Development in situations where governments use carbon finance to implement Fund, which supports the preparation are welcoming policy measures or systematic approaches to sustainable of the ER programs, and the Carbon investments. development. Fund, which will purchase the ERs generated by these programs. The Scaled-Up CPF collaborates with governments The key objective of the first set of and market participants on investment Looking Ahead CPF programs is to scale up carbon programs and sector-based finance through the CDM PoA The next step for the CPF is to interventions that are consistent with approach. The aim is to generate ERs develop and pilot a new generation low-carbon economic growth and the that will provide benefits to both Buyer of scaled-up crediting modalities. sustainable development priorities of and Seller Participants. The lessons learned from initial developing countries. efforts will set the stage for CDM has historically operated further contributions to the The CPF was established as a largely on a project-by-project basis. design and implementation of partnership, where both Buyer and The CPF uses scaled-up approaches new international carbon crediting Seller Participants, together with to enable carbon finance to support approaches envisaged under the Donors and Host Country Partners, sit partner country initiatives for low- UNFCCC. together at the table, learn from each carbon growth. These programs are other, and design solutions that will aligned with WBG operations and Methodology The CPF supports conceptual the India Energy Efficiency Program titled “Lowering cities’ carbon work to develop innovative (household LED bulb distribution). emissions: examining new carbon methodologies and to test these The next step is to turn these pilots crediting options” is underway to approaches through concrete pilot from ideas into concrete programs, explore options for cities and programs. The conceptual work together with country counterparts. suggest a design framework for targets broad segments of the Preparations for the first pilots will piloting city wide mitigation economy with substantial potential begin in 2015. actions under the NMM. for GHG mitigation, like the power In addition to the conceptual work • Economy-wide policy MRV. sector, and where opportunities to being undertaken, work programs The CPF is exploring innovative develop programs have been have been developed in two more approaches to GHG monitoring identified. areas: and accounting for economy-wide In 2014, the CPF team identified policies, such as the introduction • New market-based mechanisms two initial pilots: the Sri Lanka of a carbon tax and the reform of (NMMs) for mitigation actions Renewable Energy Program (small- fossil fuel subsidies. in cities. A multidisciplinary study scale hydro, wind, and solar) and CLIMATE AND CARBON FINANCE 2014 ANNUAL REPORT l 37 $127MILLION PMR funding at the end of 2014 stood at $127 million CONTRIBUTING COUNTRY IMPLEMENTING COUNTRY PARTICIPANTS PARTICIPANTS TECHNICAL PARTNERS Australia the Netherlands Brazil Morocco California Denmark Norway Chile Peru Kazakhstan European Spain China South Africa Québec Commission Sweden Colombia Thailand Finland Switzerland Costa Rica Tunisia OBSERVERS Germany United Kingdom India Turkey Japan United States Indonesia Ukraine New Zealand Jordan Vietnam Republic of Korea Mexico Italy Singapore France 38 l CLIMATE AND CARBON FINANCE 2014 ANNUAL REPORT www.thepmr.org Partnership for Market Readiness The PMR supports countries which receive funding for the The PMR also supports countries’ assessment, technical ground work, efforts to determine post-2020 to assess, prepare, and design, and piloting of market-based mitigation scenarios and identify implement carbon pricing approaches to GHG mitigation. effective and cost-efficient instruments in order to scale policies—including carbon pricing up GHG mitigation. It also In 2014, the PMR created a new instruments—to achieve climate participant category—the Technical change mitigation. Much of serves as a platform for Partner—to include countries and this support contributes to the countries to share knowledge subnational jurisdictions who have Implementing Countries’ work to and work together to shape made significant progress with the prepare the mitigation component the future of cost-effective implementation of a carbon pricing for their INDCs under the UNFCCC instrument, and who can benefit process. climate change mitigation. from technical support in the form of funding and/or expert advice, and Through its Technical Work Program, An increasing number of middle- the PMR promotes best practices learn from experiences of other PMR income countries are in the process and facilitates efforts to establish Participants. of introducing carbon pricing common standards and approaches and other economic instruments for GHG mitigation. Drawing on The WBG serves as the PMR to reduce GHG emissions in a country experience, global industry Secretariat, trust fund manager, cost-effective way. While there is experts, and in-house resources, the and principal delivery partner to the a growing array of policy options PMR Secretariat generates a host Implementing Country Participants. and instruments that countries of knowledge products on various can draw on to shift toward a low- Support for Domestic Action economic policy instruments and carbon pathway, tailoring these to technical elements related to carbon a country’s unique circumstances Implementing Country Participants follow a two-phased pricing. and development priorities is a challenge. The PMR is a key process: a Preparation Phase in platform to help countries prepare which they formulate a Market Readiness Proposal (MRP), and an for such policy choices and their Looking Ahead future implementation, by focusing Implementation Phase in which they agree on implementation In response to new domestic and on improving their technical and international developments, the PMR institutional readiness. arrangements and carry out the activities identified in their MRP. has broadened its membership to include a new participant category Partnership to Foster Innovation and expanded its areas of focus. Countries are allocated $350,000 The PMR brings together more than each to formulate an MRP . As of For example, in 2014 the PMR scaled 30 countries, various international December 2014, all 17 Implementing up activities on upstream policy organizations, and technical experts Countries had been allocated this analysis and private sector readiness, to facilitate country-to-country Preparation Phase funding. among others. In order to ensure that exchange and knowledge sharing as the PMR’s impacts are maximized well as to enable cooperation and Final MRPs are presented to the and sustained over time, discussions innovation. Partnership Assembly (PA) for on the PMR’s strategic direction for allocation of Implementation Phase the future are ongoing. The PMR includes 13 Contributing funding in the amount of $3 million, $5 Participants, which provide financial million, or $8 million. As of December support to the PMR trust fund, and 17 2014, 12 countries had been allocated Implementing Country Participants, Implementation Phase funding. CLIMATE AND CARBON FINANCE 2014 ANNUAL REPORT l 39 PMR’s Knowledge Products and Exchanges The PMR serves as a forum for countries to share technical knowledge and experiences in order to inform the design and implementation of innovative instruments to ramp up GHG mitigation. To maximize these country-to-country exchanges, the PMR organizes PA meetings, workshops, technical training and meetings, as well as public events and e-learning courses to help raise the profile of action by Implementing Countries. In addition, the PMR generates knowledge products such as technical notes, handbooks, and training materials on various economic policy instruments and technical elements related to carbon pricing. PA Meetings Technical Trainings and Meetings E-learning The PA is the governing body of the Technical trainings are designed as E-Learning presents tremendous PMR. It consists of all Contributing hands-on learning events featuring opportunities for capacity building and Implementing Country case studies and group exercises to by connecting practitioners Participants. PA meetings are held examine the practical considerations to just-in-time sources of three times a year to provide strategic of a topic, such as MRV. Also, the knowledge and learning and operational guidance, confirm the PMR holds technical meetings that communities of practice which participation of new countries, are tailored to specific country needs is not just affordable but also and approve the allocation of PMR or programs and use country-to- convenient to access. resources. country exchanges on a specific subject matter. Technical Notes Technical Workshops Drawing upon country PMR Technical Workshops provide Events experience, global industry an important platform for countries PMR organizes public events to experts, and in-house resources, and private sector representatives facilitate discussions on topics the PMR publishes a series to engage in discussions on carbon ranging from progressive domestic of Technical Notes to provide pricing instruments—from baseline climate action to showcasing the insight and guidance on an array setting to how to design a domestic experiences and lessons learned of technical aspects associated ETS to providing peer feedback on from the use of carbon pricing with market readiness and innovative policies. Workshops also instruments. These events are carbon pricing. The publications harness momentum to spur action a valuable platform for audience contribute to the ongoing work toward post-2020 GHG mitigation interaction beyond the PMR, of the PMR as well as to the efforts using innovative and cost- including with the private sector. general debate on market effective instruments. readiness and carbon pricing. MAY CH MAR ARY Cologne, Germany F E B RU Mexico City, Mexico 8 PA Meeting: th 9th PA Meeting: Thailand was allocated $3 million to Colombia and Morocco were allocated implement its PMR project; Colombia $3 million each to implement their PMR and Morocco presented their draft projects; Brazil, Ukraine, and Vietnam MRPs. The new Technical Partner presented their draft MRPs; upstream category was created and Kazakhstan policy work on post-2020 mitigation was endorsed as such and allocated scenarios was endorsed. funding for targeted technical support; Tunisia was confirmed as Carbon Tax Technical Workshop Implementing Country Participant. Preparing for Carbon Pricing Policies: Developing Domestic Offset Schemes A Business-Government Dialogue Second Regional MRV Technical Mexico City, Mexico Training—Latin America & Caribbean International Experiences and Lessons Lessons Learned from Linking to Inform the Development of Stepping Up to the Challenges: Mexico’s ETS Emissions Trading Systems: Domestic Climate Action and Carbon General Principles and Pricing Instruments Applications 40 l CLIMATE AND CARBON FINANCE 2014 ANNUAL REPORT Watch video online: thepmr.org Set of training materials on MRV Preparing for Carbon Pricing: Case Studies from Company Experience E-Learning: ETS Izmir, Turkey Third Regional MRV Technical Training—Europe & Central Asia, and Middle East & North Africa Washington D.C., USA Overview of Carbon Offset Programs: Approaches and Tools to Similarities and Differences Setting Mitigation BER Scenarios OVEM N Bonn, Germany MRV-ing GHG Emissions under Existing and Developing Pricing Santiago, Chile Mechanisms 10th PA Meeting:* Brazil, Ukraine, and Vietnam were allocated R $3 million each to implement their PMR BE projects; South Africa presented its draft EM MRP; California and Québec5 were confirmed PT SE as Technical Partners. JUNE Different Market-Based Approaches and JULY Implications for a Future Carbon Market Interactions between Energy and Carbon Pricing Policies Getting Ready for Carbon Pricing Policies: PMR Technical Notes DE Challenges and Opportunities for are available in CE A Survey of the the Energy Sector different languages. MB MRV Systems ER for China’s ETS Pilots * The PA allocated Implementation Phase funding during inter-sessional period between PA9 and PA10. CLIMATE AND CARBON FINANCE 2014 ANNUAL REPORT l 41 $123 MILLION Ci-Dev became operational in 2014, and it includes a $27 million Readiness Fund and a $96 million Carbon Fund. 42 l CLIMATE AND CARBON FINANCE 2014 ANNUAL REPORT www.ci-dev.org Carbon Initiative for Development The Carbon Initiative for Development Ci-Dev tests specific business models in its own portfolio to demonstrate engagements that are most (Ci-Dev) seeks to increase low-carbon viable and that can be most beneficial to energy energy access in the world’s poorest access technology sectors as a whole. Ci-Dev is countries by offering carbon-linked RBF actively seeking partners who wish to engage in these to lower GHG emissions using the CDM. learning activities and share knowledge. Ci-Dev supports initiatives that deliver solid Capacity Building, Learning, and Unlocking the CDM development benefits in LDCs, using performance The Readiness Fund will provide capacity building, payments based on ERs. It also builds capacity and technical assistance, and grants to sponsors of develops tools and methodologies to help the poorest programs supported by Ci-Dev in the areas of carbon countries of the world access carbon finance. and methodology monitoring and supervision, as well as general business model support. The Readiness Ci-Dev seeks to support innovative business Fund will also support Ci-Dev administration and models and pilot programs that leverage private operations, program management, monitoring of sector finance and that could transform energy development benefits, and execution of its knowledge access to clean and efficient technology sectors like management strategy. household solar and biogas, micro-hydro, mini-grids, water purification, and cook stoves. By learning In 2014, Readiness Fund activities included research from its portfolio of pilots and other engagements, and studies to establish a baseline of the current and by distilling and disseminating these lessons status of carbon RBF in energy access technology learned, Ci-Dev contributes to the further scaling sectors. Findings are expected in 2015 and will up and replicating of models that have been proven include: (i) a study on business models with potential successful. for innovative and transformative impacts on energy access, (ii) a study on how carbon finance has been The first tranche of Ci-Dev closed for further used in energy access to date, and (iii) a study on capitalization and became operational in April 2014. MRV procedures to identity improvements that could It includes a $27 million Readiness Fund and a $96 be made to methodologies currently applied in energy million Carbon Fund supported by the United Kingdom, access programs. This work will help to inform and the Swedish Energy Agency, and the Switzerland- launch Ci-Dev’s knowledge management efforts based Climate Cent Foundation. in 2015. Energy Access and Results-Based Finance The Readiness Fund also supports Ci-Dev’s About 1.3 billion people live without access to methodology work program, which delivered several electricity and 2.6 billion people are without clean key achievements in 2014 that will help unlock the cooking facilities—of which 85 percent live in rural CDM for LDCs—particularly those in Africa. These areas. Achieving universal access to electricity by 2030 include three Ci-Dev proposals agreed by the CDM will require an additional average annual investment of Executive Board (EB) to streamline the project cycle, $35-40 billion. Given this figure, neither Ci-Dev nor the namely: international donor community can tackle the energy access challenge on its own. 1. Allowance for batched issuance of Certified Emission Reductions (CERs) for PoAs; Ci-Dev focuses on identifying carbon RBF business 2. Simplified sampling rules for monitoring surveys; models in energy access that could be scaled and up and replicated by governments, NGOs, and in particular by the private sector. By supporting a 3. Definition of default eligibility criteria for some portfolio of programs, Ci-dev is seeking to test the energy access methodologies for cook stoves, usefulness of carbon RBF in the field of energy access. biogas digesters, and rural electrification. CLIMATE AND CARBON FINANCE 2014 ANNUAL REPORT l 43 Ci-Dev has reviewed over 220 project proposals and narrowed these down to 15 for further consideration. 44 l CLIMATE AND CARBON FINANCE 2014 ANNUAL REPORT Building a Pipeline now comprises 15 programs from 11 To be accepted into the Ci-Dev countries in Africa—of which nine are Looking Ahead LDCs and 10 are eligible for financing Ci-Dev will continue to perform due portfolio, projects must be or from the International Development diligence on its pipeline programs become registered CDM programs Association. in 2015 and hopes to sign ERPAs that will result in CERs that are recognized by the UNFCCC. Ci-Dev by the end of the year. It will also These pipeline programs are continue its efforts to make the CDM supports CDM PoAs and component undergoing rigorous due diligence more accessible via its methodology project activities. Subsequently, the assessments to identify potential work program. Moreover, it will build Carbon Fund will support energy social and environmental risks capacity in its portfolio programs access programs by providing as well as risk mitigating actions. through readiness grants and technical performance-based payments for the Further, Ci-Dev is evaluating whether assistance. resulting CERs. and how each of the programs offers 2015 will be an important year for viable business models that could be In 2014, Ci-Dev focused on building Ci-Dev to develop and execute a scaled and replicated to help transform a pipeline of programs that will robust knowledge management energy access technology sectors. eventually form a portfolio of pilot strategy—in conjunction with internal programs. In the past year, Ci-Dev has and external partners—that is built reviewed over 220 proposals, including around the initiative’s unique ability to 165 received from the public in two test carbon RBF research questions calls for project ideas. The pipeline on actual pilot programs. Methodology and Policy Work Ci-Dev has contributed with significant progress in the CDM › Second, the CDM EB simplified The new methodology, if approved, is especially useful in cases where monitoring procedures for rural methodology work dedicated to multiple technologies are used. grid extension projects based on rural electrification. The relevant Ci-Dev contributions. These Finally, during the COP20 in Lima, CDM methodologies have been improvements allow consumers to Ci-Dev supported African countries simplified and strengthened mainly to use and account for energy use in putting forward ideas to simplify improve access to carbon financing through prepaid electricity meters, the CDM project cycle. The COP for LDCs. and allows utilities to apply a recognized the ideas, which include › First, Ci-Dev supported a revision sampling approach for non-metered adjusting the qualification thresholds for of the off-grid rural electrification consumers, which could decrease the micro-scale activities and streamlining methodology in order to more transaction costs associated with the validation process of projects and accurately track the site-specific carbon monitoring. PoAs that qualify as automatically additional. It also requested the amount of time off-grid technologies produce electricity › Furthermore, Ci-Dev submitted a CDM EB to explore options for their new consolidated rural (called site-specific availability implementation. If accepted, these electrification methodology to the factors). The revision may yield more changes—to which Ci-Dev will continue CDM EB. This methodology broadens ERs, as the methodology previously to contribute—may help to lower the coverage of current underestimated these availability transaction costs for small projects. methodologies and reduces their factors. complexity and transaction costs. CLIMATE AND CARBON FINANCE 2014 ANNUAL REPORT l 45 $53 MILLION in pledges and commitments as of December 31, 2014 The PAF is a pay-for- performance facility: The very nature of the put option means that the facility’s resources will only be disbursed after the ERs have been independently verified. 46 l CLIMATE AND CARBON FINANCE 2014 ANNUAL REPORT www.pilotauctionfacility.org Pilot Auction Facility for Methane and Climate Change Mitigation The Pilot Auction Facility for global warming by 2050. Implementation of the bond, the bondholders will have the of technically feasible and cost-effective right, but not the obligation, to sell the ERs Methane and Climate Change methane reduction measures would not generated by the underlying projects to the Mitigation (PAF) is an innovative only slow down the rate of climate change PAF at a pre-agreed price, the put option mechanism that pioneers the over the next decades, but also contribute strike price. use of auctions to allocate to improvements in local air quality and food security. Additionally, captured This optionality allows put option public finance for climate action methane can be burned for cooking or owners to benefit if carbon prices in efficiently. electricity generation, contributing to international markets rise above the increased access to clean energy. strike price. In such a case, the PAF will The PAF plans to demonstrate a new, have achieved its objective (to stimulate cost-effective climate finance mechanism Over the next 20 years, methane private sector investment in mitigation) at that incentivizes private sector investment emissions are expected to grow by 19 no cost to it. If carbon prices fall, however, and action in climate change in developing percent, accounting for nearly half of all the put option owner has the right to sell countries by providing a guaranteed floor warming over this period. In its Global the carbon credits to PAF at the strike price on carbon reduction credits. Non-CO2 GHG Emissions 1990–2030 price. Either way, the price guarantee has report, the U.S. Environmental Protection provided the private investors with the The PAF was created as a result of a Agency estimates that about 7 ,000 million financial incentive to fund projects. report from the Methane Finance Study tCO2e of methane was emitted globally in Group,6 an international group of experts 2010. In the absence of concerted action, Additionally, the PAF will disburse its convened in 2012 at the request of the G8 this figure is expected to grow to close to resources only against independently to review innovative financing approaches 8,000 million tons by 2020 and more than verified ERs, using existing carbon auditing to methane abatement. Through its 8,500 million tons by 2030. standards such as the CDM or voluntary work, the Study Group identified 1,200 standards such as the Verified Carbon methane projects that were at risk of being Price Guarantee on Carbon and Auction Standard or Climate Action Reserve. This decommissioned due to the low price of pay-for-performance feature is attractive To respond to this opportunity, the carbon credits. Yet the additional revenue for governments facing expanding funding PAF will take advantage of existing required to unlock these investments, and/ needs and scrutiny on achievements. tools and experience from the CDM or to allow them to continue their operation The combination of an auction process and related carbon markets to deliver was considered small. The Study Group and payments based on performance financing, in the form of a price estimated that, across all developing maximizes value for public money. guarantee, to projects that mitigate countries, methane-reducing opportunities climate change. The guaranteed floor price could entail a reduction of as much as will be delivered through an auction of 8,200 million tCO2e at less than $10 per put options supported by donor funding. Looking Ahead ton in incremental cost financing. In its The competitive nature of the auction design and development phase, the facility The PAF’s first auction is targeted to be used to allocate the price guarantee will benefited from the support of Partners in completed in the first half of 2015 after reveal the minimum price required by the the Climate and Clean Air Coalition. bidders have been trained on how to use private sector to invest in climate change an online auction platform. It will focus on mitigation projects, thereby maximizing the Initial Focus on Methane methane reduction projects such as landfill impact of public funds and achieving the Reducing methane emissions is gas, animal waste, and wastewater. highest possible volume of climate benefits attractive because methane, a by- per dollar. The very nature of the put option The PAF is backed by several government product of a range of industrial and means that the facility’s resources will donors—Germany, Sweden, Switzerland, agricultural processes, is a highly potent only be disbursed after the ERs have been and the United States—and has a GHG with a global warming potential about independently verified, making the PAF a capitalization target of $100 million. The 25 times that of CO2. Thus, the reduction pay-for-performance facility. facility has a strong potential for replication of one ton of methane is equivalent to the and quick scaling up in methane or other reduction of 25 tons of CO2. The PAF’s put options will be embedded sectors. into puttable bonds issued by the WBG. Methane reduction actions alone could The institution’s obligation under the bonds lead to approximately 0.3°C in avoided will be backed by the PAF . Under the terms Methane Finance Study Group Report: Using Pay-for-Performance Mechanisms to Finance Methane Abatement, April 2013. 6 CLIMATE AND CARBON FINANCE 2014 ANNUAL REPORT l 47 LANDSCAPE APPROACHES “ To Get to Net Zero Emissions, We Need Healthy Landscapes At the World Bank Group, our strength has been the ability to offer multiple levers of support for landscape transformation by strengthening policy environments and institutions, investing in development action, and providing economic incentives for low-carbon development benefits.” Rachel Kyte, World Bank Group Vice President and Special Envoy, Climate Change Group 48 l CLIMATE AND CARBON FINANCE 2014 ANNUAL REPORT www.forestcarbonpartnership.org Forest Carbon Partnership Facility The FCPF became operational in June bring public and private sector partners together around forest conservation and sustainable 2008 and is a global partnership land use. As the Carbon Fund is moving toward focused on reducing emissions from operationalization and eventually implementation of deforestation and forest degradation, programs, its role will become even more relevant forest carbon stock conservation, in generating on-the-ground insights for piloting performance-based mechanisms for REDD+ and sustainable management of forests, and informing international negotiations in the UNFCCC enhancement of forest carbon stocks process. (REDD+). Remarkable progress was made under the The FCPF complements the UNFCCC negotiations Readiness Fund as well. Eight Readiness on REDD+ by demonstrating how REDD+ can be Preparation Proposals (R-PPs) were assessed by applied at the country level and by drawing lessons the Participants Committee, allocating a total of from this early implementation phase. The FCPF just over $30 million of readiness grant funding to has created a framework and processes for REDD+ REDD+ countries. In 2014, the FCPF grew to 47* readiness, which helps countries get ready for REDD+ Country Participants, 45 of which have future systems of financial incentives for REDD+. endorsed R-PPs. This demonstrates countries’ high interest to benefit from the partnership’s track Achievements record of cross-country collaboration and capacity In its sixth year of operation, the FCPF made building, and to participate in the partnership’s progress shaping a diverse portfolio of inclusive governance structure. It also confirms the landscape-level programs for the Carbon Fund. partnership’s cooperative spirit and central role in These programs can generate high-quality and the REDD+ community. sustainable ERs at scale, deliver environmental and community benefits, and yield important lessons. The caliber of new R-PPs presented also demonstrated to what extent new countries The adoption of the Methodological Framework are able to build on the wealth of knowledge for the Carbon Fund in December 2013 marked generated by countries with more advanced an important milestone that spurred competition REDD+ readiness. Three more of these front- from REDD+ countries to present early ideas and runner countries advanced to the mid-term stage full-fledged Emission Reduction Program Idea Notes in 2014, providing a wealth of lessons on REDD+ (ER-PINs). In 2014, 10 new and diverse ER-PINs readiness implementation. Across the portfolio of were selected, bringing the total to 11 ER-PINs in REDD+ countries, substantial progress was made the Carbon Fund pipeline. to advance from R-PP endorsement to readiness preparation grant signature and implementation. In 2014, the Carbon Fund attracted high interest An additional 10 grants were signed, including five from REDD+ countries, and additional country through new Delivery Partners (the Inter-American observers joined meetings to benefit from the Development Bank and the United Nations unique opportunity these provide—to learn about Development Programme), almost doubling the countries’ experiences in designing large-scale, total number of countries that have reached this cross-sectoral, multi-institutional programs that second readiness milestone. * Bolivia and Gabon are inactive. 45 REDD+ countries have endorsed their readiness plans CLIMATE AND CARBON FINANCE 2014 ANNUAL REPORT l 49 The Readiness Fund The Carbon Fund Looking Ahead With assistance from the Readiness Fund, The FCPF Carbon Fund, a $458 million Looking ahead to 2015, REDD+ a $370 million fund committed by 15 fund committed by 11 public and private countries will focus on operationalizing public donors, each participating country contributors, became operational in May their emerging REDD+ strategies and develops policies and systems for REDD+. 2011. It will provide payments for verified their proposals for large-scale REDD+ This involves adopting national strategies, ERs from REDD+ programs in up to 12 programs. At the readiness stage, this developing reference emission levels, countries that have made considerable means building multi-sectoral national designing MRV systems, and setting up progress toward REDD+ readiness. The REDD+ strategies that prioritize key REDD+ national management arrangements, readiness, investment, and performance- drivers of deforestation and forest including proper safeguards. based payment phases are not purely degradation, and proposing actionable sequential but will overlap to a large extent. strategy options to address the As of December 2014, 45 countries had Nevertheless, to ensure that carbon finance underlying barriers such as natural prepared R-PPs. Approximately $200 builds on readiness achievements, the FCPF resource rights, land tenure, and million had been allocated to them, and 24 Participants Committee must have assessed governance. For Carbon Fund countries, countries had signed grants to implement a country’s Readiness Package before the this means turning ER-PINs into their proposals. country can enter into an ERPA with the actionable programs, which can leverage Carbon Fund. public and private sector expertise as well as financial support, thus building The Carbon Fund will deliver ERs to the investment packages that generate ERs financial contributors of the fund pro rata and ultimately RBF . based on their share of capital. Meanwhile, the FCPF facility management team will focus on finalizing the legal and business standards and processes to support carbon finance transactions at scale and providing customized technical support to countries. In April 2014, the Carbon Fund In June 2014, at the 10th meeting In October 2014, the Carbon Fund hosted its 9th meeting in Brussels, of the Carbon Fund in Bonn, hosted the 11th meeting in CARBON Belgium, in which Participants Germany, Participants selected Washington, D.C., where the selected programs in the programs in Chile, the Republic Participants selected Guatemala, FUND Democratic Republic of Congo, of Congo, and Vietnam into the Indonesia,* and Peru’s proposals Ghana, Mexico, and Nepal Carbon Fund pipeline. for ER programs into the Carbon into the Carbon Fund pipeline. Fund Meetings Held in 2014 In July 2014, the Participants Committee In November 2014, at the 18th Participants hosted its 17th meeting in Lima, Peru, Committee meeting hosted in Arusha, Tanzania, where three countries—Belize, Sudan, the Participants Committee approved the General PC/PA and Uruguay—were accepted into the Conditions for a future ERPA—the legal underpinning partnership, expanding it to 47 countries. for large-scale carbon transactions. Liberia presented Five countries (Belize, Madagascar, Paraguay, its mid-term progress report and was allocated Sudan, and Uruguay) received initial grant additional funding of $5 million to support readiness. allocations. Costa Rica, Ghana, and Indonesia presented their mid-term progress reports and were each allocated an additional $5 million. * Invitation into the CF pipeline was conditional based on the presentation of a revised ER-PIN. 50 l CLIMATE AND CARBON FINANCE 2014 ANNUAL REPORT READINESS FUND PARTICIPANTS CARBON FUND PARTICIPANTS European Commission Government of Australia Government of Australia BP Technology Ventures Government of Canada Government of Canada Government of Denmark European Commission Government of Finland Government of France Government of France Government of Germany Government of Germany Government of Norway Government of Italy Government of Switzerland Government of Japan The Nature Conservancy Government of the Netherlands Government of the United Kingdom Government of Norway Government of the United States of America Government of Spain Government of Switzerland Government of the United Kingdom Government of the United States of America CLIMATE AND CARBON FINANCE 2014 ANNUAL REPORT l 51 $185 MILLION In 2014 alone, commitments to the ISFL totaled $185 million. 52 l CLIMATE AND CARBON FINANCE 2014 ANNUAL REPORT www.biocarbonfund-isfl.org BioCarbon Fund Initiative for Sustainable Forest Landscapes The BioCarbon Fund Initiative Adopting a landscape approach means Results-Based Finance implementing a development strategy for Sustainable Forest The ISFL will provide countries with the at scale that is climate-smart, equitable, Landscapes (ISFL) seeks to following types of financing: productive, and profitable while striving promote the reduction of GHG for positive environmental, social, and 1. Grant funding and technical emissions from the land sector, economic impacts. assistance (BioCFplus) to support transformational change in deforestation, and forest Public-Private Partnership developing countries, leading degradation in developing Another key design feature that sets ISFL to implementation of their countries (REDD+) and apart from previous forest initiatives is REDD+ strategies and to enabling sustainable agriculture, as well the important role that the private sector environments that change the way plays in spurring innovation; leveraging land-use decisions are made. as smarter land-use planning, Grants will be disbursed through cutting-edge expertise and knowledge; policies, and practices. and mobilizing the capital necessary to BioCFplus based on performance scale up successful land-use practices and milestones. This multilateral facility deploys RBF accelerate the greening of supply chains. to incentivize changes at the landscape 2. Results-based payments for level. Taking a landscape approach, the achieved ERs (BioCF T3). Global and local companies in ISFL is building a diverse portfolio of The main metric for results-based the agricultural and food sectors programs that have a significant impact and payments will be carbon ERs, but increasingly recognize the value of transform rural areas by protecting forests, other economic, environmental, prioritizing sustainability within their restoring degraded lands, enhancing and social indicators may be operations to secure long-term supply agricultural productivity, and improving monitored as well. Carbon chains and reduce investment risks— livelihoods and local environments. payments (including some upfront evidenced by public commitments to zero- deforestation supply chains, including those payments) will be made through In September 2014, ISFL programs in the BioCF T3. made in the UN Declaration on Forests Ethiopia and Zambia were officially endorsed during the UN Climate Summit opened, allowing funding to flow The ISFL aims to test carbon accounting in 2014. and program activities to commence. at a landscape level, including forest, Programs in Colombia and Indonesia are agriculture, and possibly energy into a The initiative is designed to work currently being considered for inclusion in comprehensive methodological approach alongside a wide range of private the ISFL. on which payments will be based. actors; from multinational corporations to large national entities, small and medium Established in 2013, the governments of enterprises, and smallholder farmers. the United Kingdom, Norway, Germany, These private sector actors are incentivized Looking Ahead and the United States have made The ISFL builds on a decade’s worth of to accelerate forest-proof sourcing of commitments to the ISFL totaling about experiences from pilot projects under commodities and to redirect market forces $380 million. In 2014 alone, commitments the BioCarbon Fund. These earlier pilots toward more sustainable and equitable land to the ISFL totaled $185 million. created knowledge on how to quantify management practices. ERs from different land-use activities as Landscape Approach An example of such an effort is the well as lessons on land tenure issues, Operating at the jurisdictional landscape partnership between ISFL and Cargill financing arrangements, and benefit- scale is considered one of the key design in Zambia. Cargill endorsed the UN sharing schemes that are essential for features of the ISFL. It is a prerequisite Declaration on Forests, committing to the long-term success of the ISFL. that national or jurisdictional governments improved management practices, which is Going forward, the ISFL will apply this consider the trade-offs and synergies expected to result in reduced deforestation body of knowledge from project-level between different uses of land that across supply chains. ISFL is collaborating interventions to large-scale programs may compete in a jurisdiction—such as with Cargill Zambia on cotton supply chains that partner with the private sector to agriculture, energy, and forest protection— to reduce emissions from deforestation in incentivize transformative change across and successfully identify integrated the country. the landscape. solutions that serve multiple objectives. CLIMATE AND CARBON FINANCE 2014 ANNUAL REPORT l 53 WHO WE ARE 54 l CLIMATE AND CARBON FINANCE 2014 ANNUAL REPORT ACKNOWLEDGMENTS Managing Editor Isabel Hagbrink Production Editor Maria Ekman Copy Editor Inge Pakulski Design Corporate Visions Printer World Bank Group Photos courtesy of World Bank Group photo collection, Leon Biaou, Carlos F. Pardo, Creative cowboy films and UN Photo Yubi Hoffman. CLIMATE AND CARBON FINANCE 2014 ANNUAL REPORT l 55 1818 H Street, NW Washington, DC 20433 www.worldbank/climatefinance