63623 2010 annual report carbon �nance for sustainable development 1818 H Street, NW Washington, DC 20433 www.carbon�nance.org carbon �nance for sustainable development 10 2010 ANNUAL REPORT carbon �nance for sustainable development 10 2010 ANNUAL REPORT Acronyms AAU Assigned Amount Unit CDM Clean Development Mechanism CER Certi�ed Emission Reduction CFU Carbon Finance Unit (World Bank) COP16 Conference of Parties in Cancun, Mexico ER Emission Reduction ERPA Emission Reductions Purchase Agreement EU ETS European Union Emissions Trading Scheme EUA European Union Allowance GHG Greenhouse Gas GIS Green Investment Scheme ha Hectare IDA International Development Association IETA International Emissions Trading Association IFC International Finance Corporation IPCC Intergovernmental Panel on Climate Change JI Joint Implementation LDC Least Developed Country LULUCF Land Use, Land-Use Change, and Forestry MW Megawatt NAMA Nationally Appropriate Mitigation Action NGO Non-Governmental Organization PA Purchase Agreement PDD Project Design Document PoA Programme of Activities REDD Reducing Emissions from Deforestation and Forest Degradation REDD+ REDD plus conservation, sustainable management of forests, and enhancement of forest carbon stocks R-PP Readiness Preparation Proposal tCO2e Tonne of carbon dioxide equivalent UN United Nations UNFCCC United Nations Framework Convention on Climate Change WBI World Bank Institute Table of Contents Carbon Finance at the World Bank .................................................................................. 4 Innovating Climate Finance ....................................................................................... 6 Exchanging Experiences ............................................................................................ 8 Navigating the Carbon Market................................................................................ 10 Working in our Regions .......................................................................................... 12 Putting Least Developed Countries First .................................................................. 18 Report on Business......................................................................................................... 20 Summary of Operations .......................................................................................... 21 The Prototype Carbon Fund .................................................................................... 23 The Community Development Carbon Fund ........................................................... 29 The BioCarbon Fund ............................................................................................... 36 The Netherlands Clean Development Mechanism Facility ........................................ 48 The Netherlands European Carbon Facility .............................................................. 50 The Italian Carbon Fund.......................................................................................... 52 The Danish Carbon Fund ........................................................................................ 56 The Spanish Carbon Fund ....................................................................................... 59 The Carbon Fund for Europe................................................................................... 66 The Forest Carbon Partnership Facility ..................................................................... 70 The Carbon Partnership Facility ............................................................................... 75 The Way Forward ........................................................................................................... 78 The Partnership for Market Readiness ..................................................................... 80 REDD+: Exploring the Role of Forests ...................................................................... 83 Early Lessons from the Forest Carbon Partnership Facility ........................................ 85 CDM in the Poorest Countries ................................................................................ 86 Future Directions in Carbon Finance ........................................................................ 88 Who We Are .................................................................................................................. 90 Glossary ......................................................................................................................... 92 Carbon Finance for Sustainable Development 2010 iii Joelle Chassard Manager, Carbon Finance Unit The World Bank From the Carbon Finance Unit 2010 was a tumultuous year for carbon �nance requires stakeholder consultations and participation, and is new but the year ended on a positive note: at the and challenging to many participants. However, seeing how Conference of the Parties in Cancun negotiators REDD+ has become an increasingly important part of the climate negotiations, we are thankful that the Partnership started these put in place important building blocks for a post- discussions in 2008 and that it has contributed to helping forested 2012 climate agreement. Progress was made on nations fully engage in the international dialogue on REDD+. reforming the CDM, such as through changes to Building on the lessons we have learned from working in the the registration process, standardized baselines and poorest countries and with rural communities, we plan to expand the additionality concept, in an effort to facilitate carbon �nance in areas such as soil conservation and work on access to the CDM of low-income countries. We standardized baselines. We are also exploring innovative �nancial are heartened to see countries take the climate instruments to bridge the capital �nancing gap by front-loading change challenge seriously, pledge funds, extend future carbon revenues. While the �rst phase of the Kyoto Protocol their commitments beyond 2012 and start to has focused on project-based mitigation, the future must include recognize the full mitigation and adaptation potential new approaches, whereby the cost of implementing emission of forests. We also see innovative proposals and reductions decreases, and actual mitigation increases dramatically. commitments by developing countries and national One of our facilities, that became operational in 2010—the Carbon Partnership Facility—is applying the CDM Programme of Activities initiatives take shape. approach to increase the scale of mitigation activities, including The Carbon Finance Unit of the World Bank has continued to through the �rst city-wide carbon �nance program. focus on the commitments made to its ten Kyoto Funds. Together At the end of 2010, we launched the Partnership for Market with fund participants, project entities, the UNFCCC and auditors, Readiness, an initiative that is different from our previous activities we are working very hard to ensure that the projects in our in that it is not designed to purchase emission reductions, portfolio deliver emission reductions. This is not an easy task but but rather seeks to provide funding and technical assistance we are happy to see projects, even in dif�cult sectors and using to developing countries for the innovation of market-based cutting-edge technologies, come to fruition. instruments for emission reductions. The Partnership brings At the same time, our carbon �nance team is looking to the together developed and developing countries as well as experts future to develop the potential of the carbon market further. and stakeholders, to provide a platform for discussions on market- A number of sectors and countries need particular attention— based instruments and piloting. including least developed countries and forested nations which We have the strong foundation of a decade’s body of work to date have not seen the full bene�ts of the mechanisms. on which to build. We are con�dent that our commitment, in The Forest Carbon Partnership Facility is entering a challenging partnership with others, will help in the battle to reduce the effects phase where discussions are being translated into plans, and of climate change. plans are being converted into national REDD+ strategies. It Carbon Finance for Sustainable Development 2010 1 PCF CDCF BioCF In early 2010, the Prototype Carbon Fund (PCF) The Community Development Carbon Fund The BioCarbon Fund (BioCF) has signed 22 successfully completed its �rst transfer of Kyoto (CDCF) now has 29 Emission Reductions contracts to purchase ERs from afforestation assets from its Joint Implementation (JI) projects Purchase Agreements (ERPAs) with a value of and reforestation activities, seven of which have to Participants. At the close of 2010, nearly all $83 million. Fifty-�ve percent of its portfolio is been registered under the Kyoto Protocol’s CDM projects in the PCF portfolio had generated committed to projects in the world’s poorest up to the end of 2010, with the remainder in Emission Reductions (ERs), and a large share countries, as de�ned by the World Bank Group’s advanced stages of preparation. In addition, the of the PCF’s Clean Development Mechanism International Development Association (IDA) BioCF is innovating with REDD+ and sustainable (CDM) projects had successfully completed the and the United Nations’ Least Developed land management projects currently excluded CDM project cycle and issued Certi�ed Emission Country designation. from the Kyoto Protocol. Reductions (CERs). Fund Capital $219.8 million Fund Capital $128.6 million* TRANCHE 1 Date Operational April 2000 Date Operational March 2003 Fund Capital $53.8 million Participants 22 Participants 25 Date Operational May 2004 Private Capital Invested 58% Private Capital Invested 45% Participants 14 * Includes $5 million total participation of the Danish Carbon Fund. Private Capital Invested 51% TRANCHE 2 Fund Capital $36.6 million Date Operational March 2007 Participants 7 Private Capital Invested 44% NCDMF NECF Italian Carbon Fund The Netherlands Clean Development The Netherlands European Carbon Facility With a capitalization of $155.6 million, the Italian Mechanism Facility (NCDMF) has a mature (NECF) is co-managed with the International Carbon Fund (ICF) has signed seven ERPAs portfolio that includes the �rst project ever Finance Corporation (IFC) and supports carbon totaling $131.6 million and 15.5 million tonnes registered under the Kyoto Protocol’s CDM. market operations in Ukraine, Russia, and of carbon dioxide equivalent (tCO2e). The The NCDMF portfolio includes a signi�cant Poland. portfolio includes projects operating under the number of registered projects and others with Kyoto Protocol’s CDM and JI mechanisms. signed ERPAs that are in the process of being registered. Fund Capital * Fund Capital * Fund Capital $155.6 million Date Operational May 2002 Date Operational August 2004 Date Operational March 2004 Participants 1 Participants 1 Participants 7 Private Capital Invested 0 Private Capital Invested 0 Private Capital Invested 30% * Not disclosed. * Not disclosed. 2 From the Carbon Finance Unit Danish Carbon Fund Spanish Carbon Fund Umbrella Carbon Facility The Danish Carbon Fund (DCF) consists of nine Divided into two tranches since 2008, the Consisting of 11 private sector participants plus ERPAs with a total carbon reduction volume of Spanish Carbon Fund Tranche 1 (SCF T1) �ve carbon funds administered by the World 6.1 million tCO2e. At the end of 2010, the Fund consists of 19 signed ERPAs. With total Bank, the Umbrella Carbon Facility (UCF) holds had three additional projects in its pipeline, on commitments of €110.0 million, the Fund a capital of €799.1 million, 78 percent of which track for ERPA signature in 2011. has invested 50 percent of its total capital represents private investment. In 2010, the pledged. In addition to acquiring project-based facility delivered 13.13 million tCO2e in CERs, ERs, Tranche 2 (SCF T2) participates in Green bringing the total amount of emissions delivered Investment Schemes (GIS). SCF T2 had invested since inception up to 61.58 million tCO2e almost $20 million in the purchase of CERs in CERs. Tranche 2 of the UCF was open to and Assigned Amount Units (AAUs) as of participation in 2010 and fully capitalized December 2010. in 2011. Fund Capital €90 million TRANCHE 1 Fund Capital €799.1 million* Date Operational January 2005 Fund Capital €220 million Date Operational August 2006 Participants 5 Date Operational March 2005 Participants 16 Private Capital Invested 78% Participants 12 Private Capital Invested 78% Private Capital Invested 23% * Includes €224.54 million total participation of carbon funds administered by the World Bank. TRANCHE 2 Fund Capital €70 million Date Operational April 2008 Participants 1 Private Capital Invested 0% Carbon Fund for Europe Forest Carbon Partnership Facility Carbon Partnership Facility With total capitalization of €50 million, the Operational since June 2008, the capital for The First Tranche of the Carbon Partnership Carbon Fund for Europe (CFE) has signed seven the Forest Carbon Partnership Facility (FCPF) Facility (CPF) became operational on May 15, ERPAs with a total amount of 3.1 million tCO2e. currently stands at $100 million. In 2010, 2010 and by end-2010 had €140 million in The fund currently has two additional projects in 10 REDD Countries had submitted formal commitments and an additional €11 million in its pipeline. Readiness Preparation Proposals to the Facility, contributions to the Carbon Asset Development which is the �rst step in allowing them to build Fund. capacity to tap into incentives under REDD+. Fund Capital €50 million Fund Capital $100 million Fund Capital €140 million Date Operational March 2007 Date Operational June 2008 Date Operational May 2010 Participants 5 Participants 52* Participants 9* Private Capital Invested 20% Private Capital Invested 10% Private Capital Invested 25% * 15 �nancial contributors and 37 REDD Country Participants. * 4 Buyer Participants and 5 Seller Participants. Carbon Finance for Sustainable Development 2010 3 Carbon Finance at the World Bank 4 Carbon Finance at the World Bank Inger Andersen Vice President, Sustainable Development The World Bank The World Bank has remained steadfast in helping countries pursue We have started to build on the commitments coming out of their climate change mitigation and adaptation efforts, despite Cancun and will continue to respond to the needs of our partners. the lack of clarity on a climate regime beyond 2012 and a global This includes ful�lling our commitments under the World Bank- economic slowdown. From our perspective, climate change and managed Carbon Finance Unit’s Kyoto funds and it also means development are unequivocally linked. Our work tackles these developing new facilities and �nancial instruments that will bridge global issues from multiple angles, covering a broad spectrum of the gap between the Kyoto Protocol and future mitigation regimes. interventions that promote sustainable development. In this year’s Annual Report, we report on the status of The Carbon Finance Unit at the World Bank approaches carbon �nance activities at the World Bank and illustrate some sustainable development from a unique perspective, facilitating key themes of our work such as the challenges associated with climate change mitigation action through carbon markets. For over developing innovative carbon �nance solutions that focus on low- 10 years, the Carbon Finance Unit has been a global leader and income countries and scaling up mitigation. We are engaged with innovator in this market space. It has worked through triumphs governments, international organizations, indigenous peoples, civil and challenges, emerging as a dedicated team and network with society and the private sector to build capacity in these countries, a wealth of knowledge and experience. The World Bank supports especially in sectors such as forests and agriculture, to expand the the development of methodologies and ground-breaking �nancial bene�ts of the Clean Development Mechanism. mechanisms linked to carbon �nance. It is also committed to The World Bank is committed to supporting climate mitigation creating an environment that supports discussions that help through market mechanisms and preparing for the next generation accelerate work on climate change mitigation. of sustainable development activities. We take our role as a pioneer 2010 was an eventful year for the carbon �nance market. We in this space very seriously. With our network of carbon �nance have observed the consequence of the global economic slowdown, actors, we must continue to work towards deepening carbon speci�cally on the carbon market which remained flat. However, markets, achieving scaled up emission reductions, and supporting we also witnessed encouraging signals at the United Nations new sectors in an effort to mitigate the effects of climate change. Framework Convention on Climate Change Conference of the Parties in Cancun. Carbon Finance for Sustainable Development 2010 5 Innovating Climate Finance The Big Picture: Carbon Finance A range of barriers hamper low-carbon investment. and Climate Finance There are signi�cant risks related to the carbon market and its Financing and implementing low-carbon investment is often structure, including market fragmentation (i.e., the variability challenging, especially in Least Developed Countries (LDCs). in valuation of ERs depending on where, how, and when they Although the sale of emission reductions (ERs) provides were created), lack of predictability of future carbon regimes, revenues once the project is operational, carbon �nance and uniformly high preparation costs. Low-carbon projects also does little to provide up-front �nancing or other early-stage tend to experience technology and location risks, particularly implementation support. As a result of implementation and related to unconventional technologies, the local business �nancing hurdles, a number of good projects fail to materialize. environment, and politics. Taken together, these market The World Bank is leveraging its multi-disciplinary expertise failures hinder investment from flowing to some of the least- to tackle this problem. The Carbon Finance Unit has taken a cost sources. Another hurdle is that, in general, low-carbon number of steps to help address implementation constraints, investments have dif�culty securing adequate, affordable, and such as putting in place screening and risk management suf�ciently long-term �nancing. The possibility of receiving tools, as well as mechanisms that facilitate or (in a few cases) carbon revenues cannot mobilize commercial �nancing unless provide �nancing. The climate �nance challenge is a big- the revenues are relatively certain and free from risks related to picture issue requiring innovative solutions, and the Funds and possible changes in carbon regulations. Facilities at the World Bank are actively involved in developing Financing increasingly will need to go to areas that these solutions. have historically attracted limited investment funding. European markets increasingly turn to LDCs for sourcing CERs. The Climate Finance Challenge However, these countries present a number of barriers to Reducing emissions costs money. Stabilizing GHG investment, including typically small market size, weak business concentrations below climatically dangerous levels is estimated environments, high levels of perceived risk, relatively low to require a low-carbon investment in developing countries of competitiveness, and dependence on foreign direct investment $139-175 billion per year by 2030. In an ideal world, a global for a large proportion of their capital formation. Many of the carbon market would channel �nancing to investments that sectors under exploration for a post-2012 market, notably in would reduce emissions at least cost. In reality, the investment the REDD+ space, use new methodologies or may not be is dif�cult to bring to fruition, as evidenced by the large amenable to conventional �nancing. Organizing and �nancing volumes of potential ERs from unrealized investments. carbon projects in areas such as low-tillage agriculture and sustainable land management will require the development of new models for program implementation and �nancing. 6 Carbon Finance at the World Bank Working Towards S olutions with broader World Bank Group interventions. At the We have addressed project non-performance risk through program level, the Carbon Partnership Facility (CPF) is limiting screening and risk management. Tools were put in place its pipeline to initiatives supported through World Bank Group to screen out, at an early stage, projects that clearly did not operations. In this way, the full array of World Bank support— have the necessary �nancing and implementation capacity. including project development, capacity building, institutional Standard provisions were included in ERPAs that enabled development, safeguards, and �nancing—is available to the buyers to reduce purchase commitments if certain project programs from which CPF develops and purchases carbon milestones were not met, allowing funds to be released and assets. We hope to dovetail with the steadily increasing re-committed elsewhere. To promote �nancing, ERPAs were volumes of funding for low-carbon investments, such as from structured to be “bankable,� creating a cash flow against which the Climate Investment Funds and the Global Environment �nancial institutions could lend. In limited cases, Carbon Facility. The ability to align carbon �nance with World Bank Funds and Facilities provided a small share of the contract up Group �nanced operations reduces preparation costs and front (subject to adequate security, typically in the form of an improves the likelihood of successful project implementation. irrevocable letter of credit from a highly rated bank). We are also exploring ways to bring carbon �nance to the early We are taking a proactive approach to supporting stages of project development. project �nancing and implementation by linking our work Carbon Finance for Sustainable Development 2010 7 Exchanging Experiences developed and developing countries, and players involved in the carbon market on local, national, regional, and global levels. An important activity every year at CARBON EXPO is the release of the World Bank’s State and Trends of the Carbon Market report. In 2010, State and Trends again provided an overview of economic conditions and developments in the global carbon market. In addition, the World Bank launched two other major publications: the Carbon Finance Unit’s Annual Report and a study chronicling the World Bank’s �rst decade in carbon �nance, 10 Years of Experience in Carbon Finance – Insights from working with the Kyoto mechanisms. A number of ceremonies also took place during the event CARBON EXPO 2010: with World Bank partners, celebrating various milestones in Putting the Carbon Market Front and Center the life of carbon project development. For example, two CARBON EXPO 2010 took place in Cologne, Assigned Amount Unit Purchase Agreements (AAU PAs) under Germany on May 26-28, 2010. Around a Green Investment Scheme (GIS) were signed between the World Bank, as trustee of the Carbon Fund for Europe and 3,000 participants from 110 countries and the Spanish Carbon Fund, and the Ministry of Environment of 240 exhibitors attended the carbon market’s the Czech Republic. They are the �rst AAU transactions for the leading global trade fair and conference for World Bank’s carbon funds and the �rst GIS supported by the emissions trading, carbon abatement solutions, World Bank. The Carbon Partnership Facility, focused on large- and new mitigation technologies, organized scale emission reduction (ER) programs, celebrated the signing of a Participation Agreement with His Excellency Eng. Omar by the World Bank, the International Emissions Ma’ani, the Mayor of Amman, Jordan for the Amman Green Trading Association (IETA), and Koelnmesse. Growth Program. CARBON EXPO gave attendees an opportunity to hear the latest news on the carbon market and form important Carbon Projects in Africa: News from the 2010 partnerships, a crucial element in tackling climate change. Africa Carbon Forum These include partnerships between public and private actors, The Africa Carbon Forum took place in Nairobi, Kenya on March 8 Carbon Finance at the World Bank 3-5, 2010. It was the second of its kind and a great success, reluctance of most African governments to take a strong with a large number of participants, well-attended seminars, initiative, and the general unwillingness of local banks to and engaged audiences. Over a thousand people attended provide �nancing because they are not familiar with evaluating from across the region, representing the public sector, private the risk of carbon projects. Another issue mentioned by sector, and civil society. participants was the general “brain-drain� from the public to the The World Bank participated actively with speakers private sector. Technical assistance tended to be concentrated representing the Carbon Finance Unit, the Africa Region, on one or two government of�cials per country, who leave and the World Bank Institute (one of the event organizers). for better opportunities in the private sector or international While the topics covered in the sessions were varied, ranging organizations once they become experts in from forestry to Programmes of Activities, there was one the �eld. underlying central theme. Delegates wanted to understand the The next Africa Carbon Forum will take place in Marrakesh obstacles to implementing carbon projects in Africa and how on July 4-6, 2011. By then, many in the audience hope to have to overcome them. Discussions revolved around the lack of addressed the particular challenges they were struggling with, �nancing, experience, and technical skills, as well as the Clean including identifying �nancing, lack of technical knowledge, and Development Mechanism rules, regarded as unnecessarily challenges such as land titling and monitoring. complex considering the reality of low-emitting African nations. To date, these issues have resulted in a low number of African projects: only 2 percent of CDM projects registered by the United Nations Framework Convention on Climate Change (UNFCCC) are located in Africa. However, there was a sense of optimism and accomplishment. Project developers enthusiastically shared success stories with audiences. At a press conference, World Vision and the World Bank presented the Ethiopian Humbo Regeneration Project, the �rst large-scale CDM forestry project registered with the UNFCCC in Africa. Interviews with a number of participants emphasized the unique challenges Africa faces, particularly the fact that the continent’s relatively low levels of greenhouse gas (GHG) emissions have hindered large numbers of CDM projects. Project developers have understandably concentrated on other regions with “low-hanging fruit� before going to Africa. The late start has resulted in a general lack of exposure to discussions regarding GHG emission reductions and project experience. There are numerous challenges hampering the development of CDM projects: the lack of private sector involvement, the Carbon Finance for Sustainable Development 2010 9 Navigating the Carbon Market State and Trends of the Carbon Market resulted in a slightly positive market sentiment. However, this was partially offset by various disruptions in the EU ETS After 5 consecutive years of robust growth, market shortly thereafter. Similarly, optimistic news from the total value of the global carbon market California was delivered alongside bearish news at the national remained stable in 2010 at about $142 level in the United States, Japan, and Australia. While nation- billion. The value of the primary CDM market wide regulatory environments remain uncertain, low-carbon fell by double digits for the third year in a initiatives in developing economies have gained increasing support and offer the potential to collectively overcome the row, ending lower than its 2005 level, the �rst international regulatory gap. These initiatives signal that, one year of the Kyoto Protocol. The AAU market, way or another, solutions that address the climate challenge which grew in 2009 with strong sovereign will emerge. support, also shrank in 2010. Finally, the Despite signs of economic recovery and rising greenhouse market segment that had grown most in gas emissions, the overall residual demand for Kyoto assets over the next 2 years remains low, at about 136 million tCO2e, 2009—allowances under the US Regional virtually all from European governments. Greenhouse Gas Initiative (RGGI)—saw that Moving forward, regulation and predictability will support year’s gains erased in 2010. the full recovery of market con�dence in the viability of carbon markets as an effective tool for low-carbon growth. As these segments declined, the dominance of the European Union Allowance (EUA) market became more pronounced than ever. EUAs accounted for 85 percent of global carbon State and Trends of the Carbon Market market value in 2010. This share, primarily driven by the EU Report, 2011 Emissions Trading Scheme (EU ETS), rises to 97 percent if the The State and Trends of the Carbon Market value of the secondary CDM transactions is also taken into report is produced each year by the Carbon Finance Unit of the World Bank. The 2011 account, dwar�ng all other segments of the market. report, released at CARBON EXPO 2011 in What was particularly interesting in 2010 was the role Barcelona, describes the carbon markets in played by politics and regulation in the carbon market. 2010. It will be available in June 2011 in Although it was a flat year from the perspective of transactions, print and online at www.carbon�nance.org. both positive developments and challenges affected the market. The successful outcomes of negotiations in Cancun 10 Carbon Finance at the World Bank Financial Performance of the World Bank’s Also in 2010, the CFU launched the Partnership for Market Carbon Finance Unit Readiness (PMR), a new partnership among policy makers The capital managed by the World Bank’s Carbon Finance Unit from government agencies and other relevant stakeholders. (CFU) continues to expand as the CFU broadens its initiatives The Partnership will help countries build their capacity for to include activities beyond the end of the Kyoto Protocol’s using market instruments to scale up mitigation efforts, such �rst commitment period in 2012. In 2010, the CFU launched as domestic trading schemes and new mechanisms. The PMR the second tranche of its Umbrella Carbon Facility (UCFT2), is aiming for a capitalization of $100 million, and became capitalized at €105 million. It will purchase ERs generated operational in April 2011. between 2013 and 2018. The UCFT2 has 17 projects under Looking ahead, the CFU will continue to innovate and consideration from a variety of sectors, including solid waste, pioneer carbon funds and facilities that �ll identi�ed gaps in the wind, ef�cient lighting, and transport. Together, they have the carbon market. potential to reduce emissions of carbon dioxide and other GHGs by up to 26 million tonnes over the purchasing period. Funds and Facilities under Management (in US$ million)* 2500 2,388 2,358 2,245 2000 1,867 1,621 1500 1000 643 500 315 217 180 145 145 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 * Funds and facilities under management, excluding the NCDMF, NECF and capital invested by Internal Carbon Funds, were converted to US$ million using the prevailing exchange rate at the conclusion of the given year. In 2010, funds and facilities under management grew by €45.4 million and US$80.5 million. Carbon Finance for Sustainable Development 2010 11 Working in our Regions Africa Geothermal energy holds great potential in Africa, as it reduces the need for costly fossil fuel imports and supplements “While a new architecture is to be de�ned decreased hydroelectricity production caused by droughts. In under the international post-2012 climate Uganda, the �rst PoA in Africa was signed for the Municipal regime, Africa has already shown its strong Waste Compost Program in Kampala, with the Community Development Carbon Fund (CDCF) purchasing the ensuing determination to make carbon �nance a carbon credits. South-south exchanges were encouraged, and transformational tool that supports low-carbon solid waste management of�cials in both Uganda and Kenya growth on the continent.� bene�ted from on-site training sessions hosted by sponsors Obiageli Ezekwesili, Regional Vice President, Africa Region of the Mariannhill/La Mercy Land�ll Gas to Energy project in Durban, South Africa. Africa has continuously expressed a strong interest in Despite great successes, events in 2010 served as a bene�tting from Carbon Finance instruments, either through reminder that there is still work to be done. The high level the CDM or through the voluntary markets. Last year saw of expectations attached to carbon �nance in Africa has not many carbon project successes in the region, such as the yet been matched with an equivalent level of achievement, BioCarbon Fund’s Humbo Assisted Natural Regeneration particularly with regards to delivery of CERs and their associated project in Ethiopia, the Ibi Bateke Agroforestry project in the revenues. The methodologies and procedures under the Democratic Republic of Congo, and the Biodiversity Corridor CDM have proved inadequate for the speci�c challenges Conservation REDD+ project in Madagascar. These projects faced in Africa. Out of the 17 ERPAs signed in Africa to date, also demonstrated poverty alleviation, social gains, and only seven projects have been registered under the CDM. biodiversity preservation. Most strikingly, only two projects have received payments There were also important developments for the future for Veri�ed ERs. African countries have given strong signals of carbon �nance in the Africa region, including the signing that any future carbon �nance regime must respond to the of unprecedented contracts to purchase carbon credits and particular development needs of the continent, calling upon the dissemination of knowledge between countries. In Kenya, the international community to think beyond the current CDM the �rst project to purchase ERs from carbon sequestered in structure and open carbon markets to LDCs. The CFU is already soils was �nalized (see Kenya: Sustainable Agricultural Project, pioneering the next generation of carbon �nance to better page 19). Also in Kenya, the Olkaria Geothermal project was serve these needs (see The Way Forward, page 78). registered, pioneering geothermal energy projects bene�tting from the CDM and other carbon �nance mechanisms. 12 Carbon Finance at the World Bank South Asia low-carbon growth. The World Bank continues to play a key role in facilitating South Asia’s transition to a low-carbon “During the last decade, the South Asia region economy while promoting climate-resilient development. has played a catalytic role in climate change Relative to 2009, the level of carbon market activity declined somewhat in 2010—with only two new ERPAs signed mitigation and sustainable development. and two more under negotiation. Delays in validation and We have supported projects that build the registration of CDM projects, due to the limited availability capacity of our countries, allowing us to of Designated Operational Entities in the region, continued access the Clean Development Mechanism to plague the CDM portfolio. Despite these setbacks, the and bene�t from emissions markets, such as South Asia Carbon Finance Portfolio remains strong: it has 21 the European carbon market. As we move carbon mitigation operations in four countries (Bangladesh, India, Nepal, and Pakistan), and three new projects were forward to the post-2012 era, the region will added to the regional pipeline in 2010 (Bangladesh Brick be putting greater emphasis on programs that Kiln, Bangladesh National Solar, and India National Ganga help South Asian countries scale up carbon River Basin Authority Project). The ERPAs that have been �nance in support of low-carbon growth, signed or are on track to be signed before 2012 amount to particularly through public and private sector 10.7 million tCO2e. partnerships.� Isabel Guerrero, Regional Vice President, South Asia Region As the South Asia region strives to meet its development goals, there is an enormous risk of growth in GHG emissions. For example, over 500 million people in South Asia have no access to electricity. The methods used to meet future demands for energy and economic prosperity will have far- reaching consequences for global GHG emissions. In this respect, an important objective of the World Bank’s South Asia Region is to support development by addressing climate change-related risks and harnessing opportunities that promote Carbon Finance for Sustainable Development 2010 13 East Asia and Paci�c “Carbon Finance has helped our clients in the East Asia and Paci�c region tremendously, supporting the adoption of new technologies that reduce the carbon intensity of their economies and respond to climate change challenges. Following the success in Cancun, we must continue to help our clients prepare for a future beyond the Kyoto Protocol and 2012. We must keep inventing ways to use both carbon �nance and other �nancing tools to raise and invest the billions of dollars needed to signi�cantly lower greenhouse gas emissions. We continue to strive to ensure that our clients have full access to the emerging architecture of market-based climate �nancing.� James W. Adams, Regional Vice President, East Asia and the Paci�c Region The World Bank’s work in carbon �nance has grown rapidly in The East Asia Region is now piloting a combination of the East Asia and Paci�c region, driven by high population and carbon �nance and new lending instruments, such as the Clean GDP growth rates, rapid technology uptake, and the region’s Technology Fund. It is deeply involved in exploring the latest ability to secure project �nancing under the CDM. Since the initiatives in carbon �nance, such as scaling up through PoAs inception of the World Bank’s carbon funds, the East Asia and and protecting forests through the Forest Carbon Partnership Paci�c region has continuously contributed a number of CDM Facility. Furthermore, through the Partnership for Market projects. Many of these projects are in China, and there are Readiness, the Region is working with client countries to de�ne also signi�cant and innovative project portfolios in Indonesia, new market-based mitigation instruments, provide advice on Malaysia, the Philippines, Thailand, and Vietnam. economic and �scal policy, and implement new �nancing strategies that target climate change and GHG mitigation. In addition, the East Asia and Paci�c Region is working with WBI to provide capacity building, dedicated training, and South- South Experience Exchanges drawing from China’s success with CDM and PoAs. In 2010, three ERPAs were signed in the region: the Manila Bus Dispatch and Tracking System project, the Yingkou Economic Development Zone Heating project, and the Daishiqiao District Heating project. These new ERPAs will reduce GHG emissions by the equivalent of 1,592 kilotonnes of carbon dioxide. At the end of the year, the region had projects in the pipeline in China, Indonesia, Malaysia, Philippines, Thailand, and Vietnam. 14 Carbon Finance at the World Bank Europe and Central Asia The World Bank has implemented carbon �nance projects in 11 countries across Eastern Europe and Central Asia. Its work “The World Bank is focused on helping countries has focused on a variety of sectors, including energy ef�ciency in the Europe and Central Asia region promote in district heating, ef�cient steel and coke production, biomass sustainable growth through climate action. In fact, and geothermal heat and electricity production, wind and we have made Climate Action one of the three hydropower generation, land�ll gas and petroleum gas capture, and carbon sequestration through land use and forestry. pillars of the World Bank’s Europe and Central Moving forward, the region is working on a number of projects Asia regional strategy. There is ample opportunity designed to promote energy ef�ciency in public buildings and need for action on both adaptation and and industry. mitigation. Accordingly, we have initiated a pilot program on adaptation, and we are working with our client countries to make signi�cant improvements in energy ef�ciency. To support these efforts, the World Bank has been able to offer a wide range of instruments, from analytical work and investment lending, to new forms of climate �nance. Carbon �nance is an important and innovative instrument we will continue to use when implementing our strategy and helping our countries grow in a sustainable manner.� Philippe Le Houerou, Regional Vice President, Europe and Central Asia Region In 2010, the World Bank signed two Assigned Amount Units Purchase Agreements for a Green Investment Scheme (GIS) in the Czech Republic. These Purchase Agreements were the �rst of their kind for the World Bank’s Carbon Funds. Revenue from these transactions will be transformed into grants for energy ef�ciency measures and renewable heat production in residential buildings throughout the Czech Republic. Also in 2010, Russia approved its �rst Joint Implementation (JI) projects, one of which was supported by the Spanish Carbon Fund (the ERPA was signed 2 years earlier). Carbon Finance for Sustainable Development 2010 15 Middle East and North Africa “With three Programmes of Activities in preparation, the Middle East and North Africa region has been at the forefront of the effort to scale up carbon �nance in a post-2012 setting. One of these programs, developed by the Greater Amman Municipality with the support of the World Bank, boasts a novel approach that targets the reduction of greenhouse gas emissions from entire cities. This is of particular interest for a region expecting the urban population to grow 65 percent by 2030.� Shamshad Akhtar, Regional Vice President, Middle East and North Africa Region In the Middle East and North Africa region, the World Bank currently holds a portfolio of 12 carbon �nance projects in Egypt, Jordan, Morocco, Tunisia, and Yemen. The projects cover a broad range of sectors, including renewable energy generation, energy distribution, methane avoidance, and transport. When faced with the challenge of an uncertain international climate regime post-2012, the region responded quickly with the preparation of three PoAs under the Carbon Partnership Facility. As a result, the region is positioned to have a strong portfolio after 2012. One of the PoAs under development addresses a new climate change challenge: cities are the fastest growing source of global GHG emissions. In May 2010, the Carbon Partnership Facility and the Greater Amman Municipality signed a Seller Participation Agreement for the Amman Green Growth Program, representing the �rst city-wide PoA in the world (see Jordan: Amman Green Growth Program, page 76). 16 Carbon Finance at the World Bank Latin America and the Caribbean “Latin America and the Caribbean continue to be on the forefront of climate mitigation. We are seeing some very encouraging developments, especially in energy ef�ciency and renewable energy. The UN climate negotiations in Cancun put the spotlight on the climate challenges facing the region, but also highlighted the considerable efforts that are being undertaken. Under the skillful stewardship of Mexico, important commitments were made that laid the foundation for a successful conference in South Africa in 2011.� Pamela Cox, Regional Vice President, Latin America and the Caribbean Region Currently, the World Bank has 34 carbon �nance projects in 14 countries across the Latin America and Caribbean region. This work has focused on improving the ef�ciency of industries, such as iron and steel, energy generation, waste management, and reforestation. In 2010, the World Bank signed an ERPA with Uruguay to reduce emissions through wind electricity generation. The project involves the installation of a 10 megawatt (MW) wind farm, which will provide a revenue stream of ensuing carbon credits. The project will also assist Uruguay in gaining experience with grid-connected renewable energy. Through the Partnership for Market Readiness, launched in December 2010, the region engaged in national mitigation activities in �ve countries in the region: Chile, Costa Rica, Brazil, Mexico, and Colombia. The PMR will provide a platform for technical discussions on new market instruments, such as new, international scaled-up mechanisms, for example, sectoral or Nationally Appropriate Mitigation Action (NAMA) crediting, and domestic emissions trading schemes. Furthermore, it will provide technical assistance to these countries to build their capacity for market readiness and pilot market instruments for scaling up their mitigation efforts. Carbon Finance for Sustainable Development 2010 17 Putting Least Developed Countries First Building Capacity with Carbon Fina nce Assist (iii) strengthening carbon �nance for low-carbon development. Carbon Finance Assist (CF-Assist) is the World In combination with the four WBI business lines (Structured Bank’s flagship capacity-building program for carbon �nance, operated through the World Bank Institute (WBI). Its primary objective is priorities form the conceptual and operational framework for CF-Assist activities. to ensure that developing countries are able Key accomplishments of CF-Assist in 2010 include delivering to fully participate in the mechanisms de�ned the CDM/JI e-learning course and co-organizing numerous under the Kyoto Protocol. dissemination events, such as the annual CARBON EXPO in Cologne, Programme of Activities (PoA) workshops in Tunis, Through structured and customized initiatives, CF-Assist Bogotá, and Montevideo, and Regional Carbon Forums in supports client countries and cities in their efforts to strengthen Africa, Latin America, and Asia. In 2010, CF-Assist gave more their institutional capacity. The goal is to enable clients to: than 5,000 stakeholders around the world exposure to carbon �nance capacity-building programs. Looking forward, CF-Assist has initiated the development of more e-learning courses on CDM PoAs, Cities and Climate Change, and Low-Carbon Development (to be launched in 2011). A future goal is for courses and knowledge products to be offered by regional partners. This will support the CF-Assist mandate by building networks of practitioners, promoting the action programs. development of innovative platforms, and fostering identi�cation CF-Assist has supported more than 60 countries during and implementation of projects in the �eld. CF-Assist is also the �rst 5 years of the program (2005-10), and it has working on new initiatives, such as the Carbon Finance adjusted its strategic directions to best meet clients’ needs. In Capacity Building Program for Emerging Mega-Cities of the 2010, CF-Assist worked on three new program priorities: (i) South. Initial reports for the four focus cities (Dar es Salaam, Jakarta, Quezon City, and Sao Paolo) are expected mid-2011. 18 Carbon Finance at the World Bank Soil carbon projects represent a “triple win�: development, enhanced climate change resilience, and climate change mitigation. Improving Rural Livelihoods with Soil Carbon farming communities in developing these projects, including methodology development, and giving them compensation In 2010, a groundbreaking project in Kenya brought the in the form of carbon credits for providing important potential for carbon sequestration in soils to the forefront of environmental services. The opportunity for soil carbon projects carbon �nance. The Kenya Sustainable Agricultural Project is the is vast, as 70 percent of the climate mitigation potential in �rst project in Africa that sells soil carbon credits, improving the agriculture is found in developing countries. livelihood of rural communities while at the same time tackling Soil carbon projects represent a “triple win�: development, climate change. New farming techniques capture carbon in enhanced climate change resilience, and climate change the soil while increasing crop yields and improving resilience mitigation. Healthy and fertile croplands increase the to droughts. productivity of farms and the incomes of farming communities. With nearly two times as much carbon in the soil than in the In addition, cropland management techniques promote atmosphere, small changes in the level of soil carbon can drive resilience to variations in climate, thereby raising stability and large changes in atmospheric carbon concentrations. The recent food security. Finally, the sequestration of carbon in soils is a droughts in Kenya have scathed the landscape and severely viable and quanti�able way to reduce atmospheric carbon. For hindered agricultural production. Now, Kenyan farmers are a sector that is so often deemed a climate change problem, regenerating the land and promoting carbon sequestration. soil carbon has made the agricultural sector part of the climate The World Bank’s BioCarbon Fund is leading the way, change solution. working with NGOs and national governments to support Kenya: Sustainable Agricultural Land Management Project Implemented by the Swedish NGO Vi Agroforestry, the Kenya Sustainable Agricultural Project is located on over 40,000 hectares in the Nyanza Province and Western Province of Kenya. Small-holder farmers and small- scale business entrepreneurs are trained in diverse cropland management techniques, including crop covering, crop rotation, compost management, and agro-forestry. These farming practices both increase the yield of the land and sequester carbon in the soil. The farmers are able to generate additional sources of income by selling carbon credits, purchased by the World Bank’s BioCarbon Fund. The direct bene�t to local communities is over $350,000. The development potential is generating excitement, as Melzedeck Arimba from Vi Agroforestry explains: “These payments can assist [the community] to build facilities, like healthcare facilities, water, and other amenities within the region…the standard of living is going to be improved…� Carbon Finance for Sustainable Development 2010 19 Report on Business 20 Report on Business Summary of Operations In 2010, the Carbon Finance Unit’s carbon funds and Regional Distribution facilities signed about 20 new Emission Reductions Purchase Agreements (ERPAs). There were many important �rsts. Middle East and North Africa 3% Africa 2% South Asia 5% In Africa, the region’s �rst geothermal energy project, �rst Europe and Central Asia 6% Programme of Activities (PoA), and �rst soil carbon project Latin America and were signed. Groundbreaking ERPAs for a Green Investment the Caribbean 6% Scheme (GIS) in the Czech Republic were signed, and the �rst Joint Implementation (JI) project in Russia was approved. In addition, the Seller Agreement for the �rst city-wide PoA in the world was signed for Amman, Jordan. East Asia and Pacific 77% Projects Value Volume (tCO2e) ERPAs Signed 128 $1.7 billion 208 million and Active Pipeline Projects 27 — 32 million Sectoral Distribution Distribution by Region and Sector Cement 1% Fugitive 1% Solar 0.5% Transport 0.4% Geothermal 1% Energy Efficiency - Supply Side 0.4% The East Asia and Paci�c region held the largest percentage Biomass Energy 1% Energy Efficiency - Service 0.2% of the carbon �nance portfolio in 2010 by value (77 percent). Energy Efficiency - Own Generation 1% REDD+ 0.1% Energy Distribution 1% Sustainable Land Management 0.04% Due to the variety of challenges to implementing projects in Energy Efficiency - Industry 1% Afforestation/Reforestation 2% Africa, particularly in low-income countries, the percentage of Energy Efficiency - Households 2% the carbon �nance portfolio in the Africa region was a mere Wind 3% Coal Bed/Mine Methane 3% Methane Avoidance 3% of Project Design Documents (PDDs), 12 percent of projects Fossil Fuel Switch 4% are in the Africa region. As in past years, HFC-23 Destruction Landfill Gas 6% represented the largest share of the carbon �nance portfolio by value (61 percent), though accounted for by only two projects. Hydro 8% The value additions in 2010 were largest in the household HFC-23 Destruction 61% energy ef�ciency and energy distribution sectors, and in the Europe and Central Asia and the East Asia and Paci�c regions. Carbon Finance for Sustainable Development 2010 21 22 Report on Business Martin Lawless Chair, Prototype Carbon Fund Global Head, Environmental Financial Products Deutsche Bank The Prototype Carbon Fund Another year has passed and, more than ever, the PCF continues to Diverging interests among PCF Participants surrounding the reflect the successes and frustrations of the wider carbon market. extension of the PCF Instrument beyond 2014 were overcome to The PCF experienced a number of important successes in 2010. reach a mutually bene�cial solution. In December 2010, the PCF The �rst transfers of JI assets were completed, delivering emission Instrument was extended to the end of the last signed ERPA (to reductions (ERs) from projects in the Czech Republic, Hungary, and 2023, at the latest). The controversy surrounding HFC-23 projects Bulgaria. The Brazil Plantar Forestry project was �nally registered also posed a challenge for the Fund this year, causing issuance in July 2010. The latter project and the Moldova Soil Conservation delays that have since been resolved. project are the �rst Land Use, Land-use Change, and Forestry While the international negotiations and reforms within the CDM (LULUCF) projects in the PCF portfolio to undergo an of�cial Clean and JI procedures are progressing far slower than we would all Development Mechanism (CDM) veri�cation. In addition, several hope, the carbon markets continue to consolidate and expand. As projects, including the China Xiaogushan Hydropower project and always, we should look forward to the success of this market and the Colombia Jepirachi Wind Power project, are now regularly the PCF, while preparing ourselves to meet the challenges we will issuing good volumes of Certi�ed Emission Reductions (CERs). face in the future. Carbon Finance for Sustainable Development 2010 23 The Prototype Carbon Fund Projects Value Volume (tCO2e) www.prototypecarbonfund.org ERPAs Signed 24 $172,068,262 28,249,889 Operational since 2000, the Prototype Carbon Fund (PCF) is and Active a public-private partnership involving six governments and 16 companies. The PCF is uniquely designed to be a “learning-by- Regional Distribution doing� instrument. Over the past 11 years, it has demonstrated Africa 3% the potential of carbon �nance to act as a powerful tool for Europe and Central Asia 15% �nancing sustainable development projects. The PCF’s work in low- and middle-income countries has entailed development bene�ts while reducing (or sequestering) greenhouse gas Latin America and (GHG) emissions. the Caribbean 17% In 2007, the PCF reached an important milestone: it ful�lled the allocation of all initial capital and closed its portfolio to new projects. This allowed the PCF to move from an initial phase East Asia and Pacific 65% of committing resources to a mature phase focused on the implementation of projects. PCF Portfolio Status Sectoral Distribution The PCF portfolio consists of 24 projects with a total value Afforestation 2% Fugitive 1% of $172 million and a total volume of 28.2 million tCO2e. Landfill Gas 3% Geothermal 1% Most of the portfolio’s value is linked to projects in the East Energy Efficiency - Supply Side 3% Energy Distribution 3% HFC-23 Destruction 24% Asia and Paci�c region (65 percent), followed in turn by Latin Reforestation 4% American and the Caribbean, Europe and Central Asia, and Cement 5% lastly Africa. While the sectoral distribution is highly diversi�ed, it is most heavily concentrated in projects promoting mitigation Biomass Energy 8% of industrial GHG emissions, renewable energy technology, afforestation/reforestation, and energy ef�ciency. Wind 12% Hydro 18% Coal Bed/Mine Methane 16% 24 Report on Business 2010 Participants’ Committee Public Sector: Erik Bjornebye, Government of Norway Private Sector: Martin Lawless (Chair), Deutsche Bank Ulrika Raab, Government of Sweden Christine Fedigan, GDF Suez Ruri Hidano, Japan International Cooperation Agency Kenta Ozaki, Mitsui & Co., Ltd. Liv Rathe, Norsk Hydro Prototype Carbon Fund Participants Public Sector GOVERNMENT OF CANADA Japan International Cooperation Agency GOVERNMENT OF NORWAY www.cdm-ji.ca www.jica.go.jp/english www.carbonneutralnorway.no GOVERNMENT OF FINLAND GOVERNMENT OF THE NETHERLANDS GOVERNMENT OF SWEDEN formin.�nland.� www.swedishenergyagency.se Private Sector BP ALTERNATIVE ENERGY INTL., LTD. FORTUM CORPORATION RWE www.bpalternativenergy.com www.fortum.com www.rwe.com/en GDF SUEZ www.gdfsuez.com CHUBU ELECTRIC POWER CO., INC. SHIKOKU ELECTRIC POWER CO., INC. www.chuden.co.jp/english/index.html www.yonden.co.jp/english/index.html KYUSHU ELECTRIC POWER CO., INC. www.kyuden.co.jp/en_index STATOIL ASA THE CHUGOKU ELECTRIC POWER CO., INC. www.statoil.com www.energia.co.jp/e/index.html MITSUBISHI CORPORATION www.mitsubishicorp.com/jp/en/index.html TOHOKU ELECTRIC POWER CO., INC. DEUTSCHE BANK www.tohoku-epco.co.jp/index-e.htm www.db.com MITSUI & CO., LTD. www.mitsui.co.jp/en ELECTRABEL TOKYO ELECTRIC POWER COMPANY (TEPCO) www.electrabel.com NORSK HYDRO www.tepco.co.jp/en/index-e.html www.hydro.com/en Carbon Finance for Sustainable Development 2010 25 Emission Reductions Purchase Agreements Signed Project Description tCO2e Brazil Alta Mogiana Bagasse Increase ef�ciency in manufacturing processes and install new facilities to 110,000 Cogeneration generate surplus electricity to be commercialized Lages Cogen Facility Installed capacity of 28 MW electricity plus 25 tons per hour of steam, fueled by 750,000 wood waste from the sawmill industries in the region Plantar Sequestration and Charcoal production from sustainably harvested plantation, replacing coke for pig 1,514,286 Biomass Use iron manufacture Bulgaria Pernik District Heating District heating system upgrades for the city of Pernik 157,000 So�a District Heating District heating system upgrades for the city of So�a 1,084,000 Svilosa Biomass 11 MW biomass-based boiler to utilize wood waste produced at the Svilosa pulp 450,000 and cellulose plant, to replace coal Chile Chacabuquito Hydro 26 MW run-of-river hydro to replace coal or gas in the grid 610,000 China HFC-23 Destruction Installation of an incineration facility to decompose HFC-23 generated by the 5,000,000 existing HCFC-22 manufacturing facility into carbon dioxide and hydrogen fluoride Huitengxile Wind Farm Construct and operate a 100 MW wind farm in Inner Mongolia in China. The 1,600,000 project consists of around 50 to 100 wind turbines of 1 to 2 MW capacity with a net annual generation of 245 gigawatt-hours per year Jincheng CMM Capture of coal mine methane (CMM) associated with coal mining operation 3,341,507 and utilization of the gas to generate power through a 120 MW combined cycle power plant Xiaogushan Hydropower 98 MW run-of-river hydroelectric plant located on the Heihe River in the Sunan 3,000,000 Yugur province to replace coal in the grid Colombia Jepirachi Wind Farm 19.5 MW wind farm in the northern part of Colombia to displace a mix of coal- 433,694 and gas-based power generation Costa Rica Cote Hydro 6.8 MW hydro to be supplied to the national grid 74,974 Czech Republic CEA Energy Ef�ciency Energy ef�ciency measures and renewables through the Ministry of Industry and 500,000 (Umbrella) heating projects and 16 mini hydro projects Guatemala El Canada Hydro 43 MW run-of-river hydroelectric plant on the west coast of Guatemala to 1,724,400 displace energy produced from thermal power plants Hungary Pannonpower Pécs Fuel Conversion of Pécs Power plant’s existing coal-�red boilers to biomass 1,193,000 Conversion Indonesia Indocement Sustainable Energy ef�ciency measures in Indocement plants by reducing clinker content in 2,424,678 Cement Production power generation in three locations at Citeureup, Cirebon, and Tarjun Latvia Liepaja Solid Waste Methane capture and utilization from waste management providing electricity to 387,933 Management the national grid Moldova Soil Conservation Afforestation of 20,000 ha of degraded and eroded state-owned and communal 1,300,000 agricultural lands throughout Moldova Philippines NorthWind Bangui Bay Construction and operation of 25 MW capacity wind farm on a strip of land on 356,000 Project the foreshore of Bangui Bay in Ilocos Norte Poland Stargard Geothermal District heating system to utilize geothermal energy to replace coal in the city of 240,000 Stargard Romania Afforestation of Degraded Afforestation of 6,000 ha of public land 854,985 Agricultural Land South Africa Durban Municipal Solid Collection and generation of electricity at two land�ll sites. Initially electricity 700,000 Waste generation of 1 MW (0.5 MW at each site) with the potential to expand to 2 MWs Uganda West Nile Electri�cation Two 1.75 MW hydro to replace a number of diesel generator sets in the West 443,432 Nile region. The project is also installing a 1.5 MW generator 26 Report on Business Romania: Afforestation of Degraded Agricultural Land Degraded agricultural lands are a prevalent problem in The Project focuses on degraded lands that have been Romania. Under the Romania Afforestation of Degraded used intensively for agriculture since the 1960s and have been Agricultural Land Project, the National Forest Administration affected by the extension of drainage works in the Danube of Romania is planting trees on nearly 6,000 ha of state-owned floodplain. Initially, these lands produced a range of crops, degraded agricultural lowlands in the southwest and southeast including cereals, vegetables, fruits, and grapes. However, the of the country. In the southwest, the Project is stabilizing soils lands have since become degraded and subject to erosion, by planting semi-naturalized species. In the southeast, 10 islets making them uneconomic for crop production. Through and the Ramsar wetlands site in the Lower Danube are afforestation of these lands, the Project is expected to generate undergoing ecological reconstruction through the planting of ERs and improve the degraded landscape. native species. Carbon Finance for Sustainable Development 2010 27 28 Report on Business Anne C. Bolle Chair, Community Development Carbon Fund Managing Director, Statkraft Carbon Invest AS The Community Development Carbon Fund In its seventh �scal year, the Community Development Carbon of CDCFplus resources for risk mitigation in order to improve Fund has continued promoting its co-bene�t approach to climate delivery performance. In-depth assessments of the operations mitigation by linking carbon �nance to tangible poverty reduction. and achievements of the Fund have been presented. Based A large share of the Fund’s resources are allocated to small-scale on the rapidly approaching post-2012 era, in conjunction with projects in some of the world’s poorest countries, including those continued uncertainty on the future international regulatory of�cially designated as least developed countries. regime to combat climate change, the Trustee has thoroughly Also this year, the Fund has actively worked with adjustments assessed the impact of various delivery scenarios and alternative and amendments in the project portfolio in order to maximize mitigation actions for the participants. expected credit deliveries to participants as well as the bene�ts On behalf of the participants, I want to thank the World Bank’s to affected communities. During a site visit in Bangladesh, CDCF team for their hard work and commitment. With that, the participants have gathered lively and valuable impressions of Community Development Carbon Fund continues to be a pioneer emission reductions and aligned community bene�ts from several for small-scale projects, new methodologies and programmes of projects from which the fund is purchasing emission reduction activities, and is thereby paving the post-2012 road for continuous credits. emission reduction measurements in the poorest countries of A special effort has been made to enhance the utilization the world. Carbon Finance for Sustainable Development 2010 29 The Community Development Carbon Fund Projects Value Volume (tCO2e) www.communitycarbonfund.org ERPAs Signed 29 $82,552,770 7,158,684 and Active The Community Development Carbon Fund (CDCF) promotes a co-bene�ts approach to climate change mitigation by linking carbon �nance to tangible poverty reduction and sustainable Regional Distribution development outcomes. It strives to purchase ERs from small- Latin America and the Caribbean 4% Middle East and North Africa 2% Europe and Central Asia 4% scale projects that provide direct or indirect community bene�ts. With this focus, the CDCF has currently committed 55 percent of its capital to buy ERs from projects located in the world’s poorest Africa 22% South Asia 39% countries, speci�cally Least Developed Countries as designated by the United Nations and countries that qualify for lending from the World Bank Group’s International Development Association (IDA). In addition, the CDCF is helping to expand the reach of the carbon market by developing small-scale CDM methodologies. Most projects target communities that have a low per-capita East Asia and Pacific 29% income and lack essential services, such as electricity or basic health care. Bene�ts of project activities include upgraded roads, new schools, improved access to fuel for cooking and heating, Sectoral Distribution job creation, and increased access to electricity. Biomass Energy 3% Energy Efficiency - Supply Side 2% CDCF Portfolio Status Energy Efficiency - Services 4% In 2010, two new ERPAs were added to the CDCF portfolio. At Landfill Gas 5% Methane Avoidance 32% Energy Efficiency - the end of 2010, the Fund had 29 projects with a total value of Households 5% $82.6 million and a total volume of 7.2 million tCO2e. Most of Geothermal 7% the CDCF portfolio value is tied to projects located in the regions of South Asia (39 percent), East Asia and Paci�c (29 percent), Energy Efficiency - and Africa (22 percent). The portfolio supports a wide range of Industry 9% technologies, including methane avoidance, renewable energy Solar 10% Hydro 23% generation, and energy ef�ciency. 30 Report on Business 2010 Participants’ Committee Public Sector: Laura Fassio Canuto, Government of Italy Private Sector: Anne Bolle (Chair), Statkraft Carbon Invest AS Teresa Solana Méndez de Vigo, Government of Spain Nobutaka Ohki, FUJIFILM Corporation Hiroki Terao, Daiwa Securities Capital Markets Co., Ltd. Climent Sole Xam Mar, Gas Natural SDG, SA Community Development Carbon Fund Participants Public Sector GOVERNMENT OF AUSTRIA GOVERNMENT OF CANADA GOVERNMENT OF LUXEMBOURG www.ji-cdm-austria.at/en www.cdm-ji.ca www.environnement.public.lu/air_bruit/dossiers REGIONAL GOVERNMENT OF BRUSSELS- CAPITAL REGION (BELGUIM) GOVERNMENT OF DENMARK GOVERNMENT OF THE NETHERLANDS www.bruxelles.irisnet.be www.um.dk/en GOVERNMENT OF SPAIN GOVERNMENT OF THE WALLOON REGION GOVERNMENT OF ITALY Ministry of Environment, and Rural and Marine (BELGIUM) www.minambiente.it Affairs: www.mma.es/index_en.htm www.wallonie.be/en/ Ministry of Economy and Finance: www.meh.es Private Sector BASF GAS NATURAL FENOSA THE OKINAWA ELECTRIC POWER COMPANY, www.basf.com www.gasnatural.com INC. (OEPC) www.okiden.co.jp GOTEBORG ENERGI AB DAIWA SECURITIES CAPITAL MARKETS CO., LTD. www.goteborgenergi.se/english RAUTARUUKKI OYJ www.jp.daiwacm.com www.ruukki.com HC ENERGIA ELECTRICIDADE DE PORTUGAL (EDP) STATKRAFT CARBON INVEST AS www.hcenergia.com/en www.edp.pt www.statkraft.com IDEMITSU KOSAN CO., LTD. ENDESA www.idemitsu.com www.endesa.es/portal/en STATOIL ASA www.statoil.com KFW BANKENGRUPPE www.kfw.de/carbonfund FUJIFILM CORPORATION www.fuji�lm.com SWISS RE JX NIPPON OIL & ENERGY CORPORATION www.swissre.com http://www.noe.jx-group.co.jp/english/ Carbon Finance for Sustainable Development 2010 31 Emission Reductions Purchase Agreements Signed Project Project Description Community Bene�ts tCO2e Argentina Salta Solid Waste Install gas collection and flaring system Improved infrastructure and working 40,200 Management for the land�ll site in the municipality conditions for 100 people separating, of Salta classifying, storing, and recycling inorganic components of municipal waste Bangladesh Solar Home Systems Install Solar Home Systems (sizes Better quality of lighting and electricity for 372,700 30-85 watt-peak), and replace kerosene for household lighting industry of solar home installation, with rural women as technicians IDCOL Solar Home Same as above Same as above 192,000 Systems Improving Kiln Ef�ciency Build 20 new energy-ef�cient Hybrid The community bene�ts plan will support 189,000 of the Brick-Making Hoffman Kilns (HHK) and improve the the provision of ablution facilities, small Industry ef�ciency of existing kilns used in the multipurpose facilities that provide �rst aid, brick-making industry in Bangladesh. regular primary health care, safety gear, The HKK technology will reduce and appropriate clothing at each kiln. The greenhouse gases and air pollution by Environmental and Social Management reducing the amount of coal used per Framework is expected to raise occupational brick through recycling heat in the brick- health and safety standards in the sector, making process and mixing pulverized reduce the environmental burden of the coal into the brick clay sector and improve labor practices and create year-round employment. China Guangrun Hydropower Construct and operate three One-�fth of carbon revenue used for a 485,000 Development hydropower plants with total capacity of poverty alleviation fund, at disposal of 28 MW on the Guangrun River county government. Other bene�ts include increased water supply, upgraded flood control, and water for 1,000 ha of farmland Hubei Eco-farming Biogas Change traditional manure Biogas burners for household cooking 370,000 management and recover methane for and heating to reduce indoor pollution household cooking and lighting needs and respiratory diseases. Improved by developing biogas digesters manure management to reduce water contamination. Biogas recovery to help diversify energy sources and reduce deforestation Shandong Poultry Improve Animal Manure Management Construction of 6.3 kilometers of rural 465,000 Manure Biogas System at chicken farms with a total highways, and an irrigation and drinking of 5 million chickens. Capture biogas water project in the village of Qujiagou. for a cogeneration system, supplying Free fertilizer and training for community electricity and displacing conventional households to increase income energy sources Georgia Small Hydro Install at least 15 MW additional power A potable water supply system to bene�t 114,000 Rehabilitation through rehabilitation and construction of small hydropower stations of three small bridges, and construction of a social center, where one of the small hydropower stations is located Guyana Skeldon Bagasse Use bagasse as high-ef�ciency fuel for 165,000 Cogeneration a sugar factory and excess electricity for of electricity produced by GuySuCo for the the national grid economic activity Honduras La Esperanza Install 12.7 MW run-of-river hydropower Improved electricity service in the town of 54,345 Hydroelectric plant La Esperanza. Employment for 148 people during construction. Planting of 25,000 seedlings for reforestation 32 Report on Business Project Project Description Community Bene�ts tCO2e India FaL-G Brick Units in Micro 200 brick production units with FaL-G Improved working conditions: provision of 451,590 Sector technology saving energy and reducing safety gear such as shoes, gloves, masks, air pollution compared to traditional kilns drinking water on site. Health bene�ts include personal accident and health insurance for workers, mosquito nets, and HIV/AIDS sensitization programs Karnataka Municipal Reduce the energy required for water Improved consumer access to clean water, 55,000 Water Pumping service delivery in six municipalities in thus reducing water-borne diseases such as Improvements the State of Karnataka in Southern India dysentery and trachoma and reducing the time households (typically the women in a household) spend collecting clean water Street Lighting Energy Reduce electricity consumption and Training and education of the municipal 79,000 Ef�ciency Project greenhouse gas emissions by improving employees about ef�cient use of electricity. the street lighting network in eight Reduced energy bills making electricity more municipalities affordable for the poor Kenya Olkaira II Geothermal Expansion of geothermal plant from 70 650,000 Expansion MW to 105 MW upgrading of rural roads Optimization of Kiambere Expansion of hydropower station by Potential activities could include the 162,720 Hydro Power Station upgrading turbines to increase output provision of clean water, health bene�ts and by 20 MW improved access to markets, educational and health facilities Redevelopment of Tana Expansion of a hydropower station by Potential activities could include the 170,160 Power Station constructing two 4.3 MW and two 5.5 provision of clean water, health bene�ts and MW run-of-river dams improved access to markets, educational and health facilities Moldova Biomass Heating and Improve quality and ef�ciency in the Improved heating service and energy 348,502 Energy Conservation supply and distribution of heat in ef�ciency, increased number of days that almost 150 public buildings in 33 buildings are heated, and decrease in cost districts of heat. Reduced use of wood for fuel will reduce forest degradation Nepal Biogas Support Program Commercial dissemination of 200,000 1,000,000 household biogas plants using animal of women and children. Better sanitation waste in rural Nepal increased enrollment in schools. Creation of 12,000 rural jobs. Savings of 2,600 kilograms of �rewood per household annually Village Micro-hydro Installation of micro-hydro power plants Replace diesel power for agro-processing 191,220 (5 to 500 kilowatts) with cumulative mills and 142,000 households. Reduction capacity of 15 MW in batteries for radio and flashlights, and reduced environmental chemical pollution Pakistan Community-Based Install 103 run-of-river mini- and Supply electricity to remote rural community, 360,000 Renewable Energy micro-hydro electricity units in northern most of which have no access, helping Development in Northern Pakistan with a combined electricity displace the use of fossil fuels and fuelwood areas and Chithral generation capacity of about 15 MWs Peru Santa Rosa Hydroelectric Three run-of-river hydro projects in A trash rack cleaner for agricultural 88,300 Lima, Peru, in the Santa Rosa irrigation wastewater. Creation of 125 direct new jobs area (4.1 MW total) during construction and 15 new jobs during operation. A new fence for the school, two new classrooms, a computer room (with 10 computers), and a community center La Merced Carbon Finance for Sustainable Development 2010 33 Emission Reductions Purchase Agreements Signed (continued) Project Project Description Community Bene�ts tCO2e Philippines Laguna de Bay Solid waste and waste water Reduced pollution in rivers and lakes 40,614 Watershed Community management small-scale projects in from better wastewater and solid waste Carbon Laguna de Bay watershed management. Currently no wastewater treatment and limited treatment of pig-farm and industrial waste ROXOL Wastewater Construction and operation of a Capacity building of citizens’ cooperatives. 200,000 Treatment and Methane 100,000 liters/day ethanol production Gas Recovery plant with waste-to-energy recovery. existing pre-school/day care center. Support of the Reading Program and the Nutrition Education and Feeding Program. Provision of community medical service and health insurance. Implementation of micro lending program Rwanda Electrogaz Compact Expand the use of high-ef�ciency Providing affordable electricity to the poor 156,000 Fluorescent Lamp (CFL) lighting technology in Rwanda’s distribution residential sector through the distribution of high-quality CFLs. Senegal Lighting Energy Ef�ciency Low-energy consumption compact Use compact fluorescent bulbs instead of 120,000 in Rural Electri�cation fluorescent bulbs instead of kerosene lamps and batteries. Electricity for Program incandescent bulbs for domestic lighting productive uses, social services, and schools Thailand AEP: Livestock Waste Covered lagoons to capture and utilize Lighting on streets, access to safe drinking 230,000 Management Lighting methane for power generation water, scholarships for poor students, Energy mosquito spray equipment, working capital for the community cooperative shop, and capacity building. Uganda Municipal Waste Recover the municipal solid waste and Construction of schools, latrine pits, health 209,185 Compost use it to enrich soil conditions centers, and roads. Provision of scholastic materials. Provision of more ef�cient stoves to households to reduce number of trees cut. Establishment of training and education centers for agriculture, water- and energy- saving practices. Better access to clean water through wells, water storage tanks or rainwater-harvesting jars Kampala Land Fill Gas Develop and implement a land�ll gas Provision of health care services and 74,144 Project extraction and flaring scheme at the improvements to local infrastructure to Mperewe land�ll located in the North of provide mosquito nets to St. Stevens Kampala city drains along Mperewe Kiteezi Road and repair bore holes Yemen Loss Reduction in Reduce energy losses in Yemen’s Reduced amount of energy lost during 125,000 Electricity Distribution electricity distribution network. distribution process. More reliable electricity Systems Project Upgrade feeder cables and install new distribution network. Potential additional substations to lower the load on other substations throughout 18 regions in construction of primary school and health Yemen clinic 34 Report on Business Philippines: ROXOL Ethanol Plant Wastewater Treatment and Methane Gas Recovery Project Most ethanol distilleries in the Philippines allow untreated bene�ts will reduce respiratory illnesses and water-borne wastewater to flow into open anaerobic lagoons, giving diseases in the surrounding communities. off a noxious smell and emitting methane, a potent GHG. The project also aims to generate social bene�ts. An Furthermore, steam boilers in the distilleries are typically additional price premium is attached to each carbon credit powered with bunker fuel oil, which is readily available but sold to the CDCF, used to fund activities in four poor emissions-intensive. The ROXOL Ethanol Plant Wastewater communities near the project site. Furthermore, the project Treatment and Methane Gas Recovery Project aims to has been successful in leveraging these �nancial resources to curtail GHG emissions through the adoption of cleaner and generate interest among other potential investors interested more ef�cient wastewater treatment technology. Methane is in harnessing corporate social responsibility. As a result, captured and used to power the ethanol plant’s boiler, reducing community activities are implemented in partnership with the emissions from both methane and conventional bunker fuel. local government, NGOs, and private foundations. Activities The project is forecasted to generate over 156,000 tCO2e of include: a micro-lending program designed to spur new CERs per year. The CDCF would purchase 200,000 tCO2e of economic activities, such as opening Sari-Sari (small variety) the CERs up to December 2013. The project provides considerable environmental, health, supplying learning materials to primary school children, and and social bene�ts to the local community. The closed anaerobic wastewater treatment system, along with an medical and dental services as well as a nutrition program evaporator-drier and recirculation system, will limit bad odor and eliminate all wastewater currently discharged into the grassroots organizations. This unique public-private partnership nearby river. Displacing bunker fuel with captured methane will is gaining momentum, particularly in the education sector, also improve local air quality. Together, these environmental where activities have resulted in higher retention rates and improved performance of students. Carbon Finance for Sustainable Development 2010 35 The BioCarbon Fund www.biocarbonfund.org Operational since 2004, the BioCarbon Fund (BioCF) purchases ERs from projects that sequester or conserve GHGs in forests and agro-ecosystems. The Fund is designed to ensure that rural areas in developing countries have the opportunity to bene�t from carbon �nance. The BioCF consists of two tranches. A portion of both tranches focuses on the purchase of ERs from afforestation and reforestation activities eligible for crediting under the Kyoto Protocol. A second portion has been designed to test how agriculture, land use, and forestry activities currently excluded by the Kyoto Protocol may be used as climate change mitigation options. This includes REDD+ and carbon sequestration through the adoption of sustainable land management practices—activities that are being pursued through the voluntary carbon market. BEFORE AFTER 36 Report on Business Teresa Solana Méndez de Vigo Chair, BioCarbon Fund Tranche 1 Ministry of the Environment, Rural and Marine Affairs Government of Spain The BioCarbon Fund (BioCF) Tranche 1 The BioCarbon Fund continues to be a key instrument to experimentation with agriculture, forestry, and other land-use implement CDM forestry projects under the Kyoto Protocol. In activities as climate mitigation options is considered a cornerstone 2010, three additional projects supported by the BioCF were of REDD+. In fact, one of the main achievements in Cancun was registered. With these new registrations, seven of 18 afforestation the establishment of the REDD+ mechanism. and reforestation projects registered with the UNFCCC have come Nevertheless, important challenges remain. Scaled-up actions through the BioCF pipeline. under the CDM, as well as new activities and new accounting Forest-related activities in developing countries are an important options, need to be developed. The BioCF continues to be a tool for climate change mitigation. Some of the barriers faced key partner in this process by providing input to the UNFCCC by afforestation and reforestation projects developed under negotiations. Through its experience and knowledge, the BioCF the CDM have been overcome. A central contributor to this will help contribute to positive negotiation outcomes that success is the enormous work conducted by the World Bank, support mitigation actions through sustainable forest and land especially the BioCarbon Fund. In addition to its important role management. in CDM afforestation and reforestation activities, the BioCF’s Carbon Finance for Sustainable Development 2010 37 BioCF Portfolio Status Regional Distribution South Asia 5% Tranche 1 East Asia and Pacific 8% Latin America and the Caribbean 42% The BioCF Tranche 1 portfolio currently has 16 projects with a total value of $18.9 million and a total volume of 4.6 million Europe and Central Asia 14% tCO2e. Tranche 1 commitments are distributed globally. However, 31 percent of the portfolio value is in Sub-Saharan Africa, a region that holds a small percentage of the global carbon market. Project commitments are dedicated to the afforestation/reforestation and REDD+ sectors, representing 93 Africa 31% percent and 7 percent of the portfolio’s value, respectively. Projects Value Volume (tCO2e) ERPAs Signed 16 $18,910,267 4,595,087 Sectoral Distribution and Active Fuelwood 1% Pipeline Projects 1 $6,050,000 1,100,000 Agroforestry 1% Silvopastoral 1% Assisted Regeneration 6% REDD+ 7% Plantation 36% Forest Restoration 7% Land Restoration and Timber 18% Community Reforestation 22% 38 Report on Business 2010 Participants’ Committee Public Sector: Teresa Solana Mendez de Vigo, Private Sector: François Falloux, Eco-Carbone Government of Spain Kiminori Ishikawa, Sumitomo Joint Electric Laura Fassio Canuto, Government of Italy Power Company Masakazu Murakami, Sumitomo Chemical Co., Ltd. BioCarbon Fund Tranche 1 Participants Public Sector GOVERNMENT OF CANADA GOVERNMENT OF LUXEMBOURG www.cdm-ji.ca www.environnement.public.lu/air_bruit/dossiers AGENCE FRANÇAISE DE DÉVELOPPEMENT www.afd.fr GOVERNMENT OF ITALY GOVERNMENT OF SPAIN www.minambiente.it Ministry of Environment, and Rural and Marine Affairs: www.mma.es/index_en.htm Ministry of Economy and Finance: www.meh.es Private Sector ECO-CARBONE JAPAN PETROLEUM EXPLORATION CO., LTD. SUMITOMO JOINT ELECTRIC POWER CO., LTD. www.eco-carbone.com www.japex.co.jp/english/index.html www.sumikyo.co.jp IDEMITSU KOSAN CO., LTD. THE OKINAWA ELECTRIC POWER SUNTORY www.idemitsu.com COMPANY, INC. (OEPC) www.suntory.com www.okiden.co.jp/english JAPAN IRON & STEEL FEDERATION (JISF) SUMITOMO CHEMICAL CO., LTD. TOKYO ELECTRIC POWER COMPANY (TEPCO) www.jisf.or.jp/en/index.html www.sumitomo-chem.co.jp/english www.tepco.co.jp/en/index-e.html Carbon Finance for Sustainable Development 2010 39 Emission Reductions Purchase Agreements Signed Tranche 1 Project Description Environmental Bene�ts Social Bene�ts tCO2e Afforestation and Reforestation Albania Assisted Natural Restoration of 6,300 ha Regeneration of native forest, Employment generation, 230,360 Regeneration of severely degraded reduced soil erosion, reduced sustainable fuelwood and communal forest and siltation of watercourses other non-timber forest pastureland through assisted products (including fodder natural regeneration for livestock) Brazil AES Tiete Restoration of 13,900 ha of Enhanced plant biodiversity, Employment generation, 400,000 Reforestation forest on degraded pasture creation of vital animal stimulation of local tourism lands using more than 100 corridors, establishment of industry, environmental native species conservation area education China Pearl River Land restoration and timber Reduced soil erosion, Income generation from 462,014 Watershed production on 4,000 ha of biodiversity corridors, timber and non-timber Management severely degraded lands improved regulation of products, sustainable local directly involving multiple hydrological flows livelihoods and poverty farmers alleviation (targeting marginalized populations), improved regional economy and welfare Colombia San Nicolás Establishment of agroforestry Biodiversity conservation, Diversi�ed farm productivity, 120,000 Agroforestry systems on 1,100 ha of restoration of degraded increased local incomes degraded pasture lands pasture lands involving multiple farmers Caribbean Savannah Establishment of silvopastoral Increased productivity and Employment generation, 246,992 systems and production of soil quality of marginal and diversi�cation of local rubber and timber on 2,200 degraded lands, reduced economy, local food and ha of degraded pasture lands pressure on primary forests energy security, targeting involving multiple farmers marginalized populations Costa Rica Coopeagri Forestry Extension of national Natural habitat for Generation of additional 68,228 program of payments for biodiversity, reduced land incomes, improved local environmental services erosion, restoration of economy and livelihoods, through agroforestry, degraded pasture and improved regional economy natural regeneration, and agricultural lands and welfare reforestation on 1,300 ha of degraded pasture and agricultural lands Ethiopia Humbo Community Restoration of 2,700 ha of Regeneration of native forest, Poverty alleviation, 165,000 Managed Natural biodiverse natural forest reduced soil erosion and sustainable fuelwood Regeneration through farmer-managed local flooding, protection and other non-timber natural regeneration of fragile water catchment forest products (including areas, improved regional fodder for livestock), water supply, enhancement income generation, local of biodiversity development projects, improved access to land tenure rights India Improving Rural Timber production on 1,600 Improved soil productivity, Access to markets and 276,000 Livelihoods ha of degraded agriculture reduced erosion �nancial credit, income lands involving small and generation, poverty medium holding farmers alleviation Kenya Green Belt Restoration of 1,600 ha Enhanced ecological Income generation, 375,000 Movement of degraded forest and functions, improved water employment opportunities, community lands quality downstream, poverty alleviation, improved improved water in�ltration access to land tenure rights, targeting marginalized populations 40 Report on Business Project Description Environmental Bene�ts Social Bene�ts tCO2e Afforestation and Reforestation Madagascar Biodiversity Corridor Biodiversity conservation Fostering the establishment Local employment, sources 200,000 Restoration through reforestation with of native species, creation of income from non-timber more than 80 native species of biodiversity corridors, forest products, ecotourism, on degraded lands subject to conservation of water improved access to land shifting cultivation sources tenure rights Moldova Soil Conservation Restoration of 20,300 ha of Reduced erosion, enhanced Local employment, income 600,000 severely degraded public and soil productivity, enhanced from sale of timber and non- communal lands plant biodiversity, improved timber products, improved hydrological regime local institutions Nicaragua Precious Woods Timber production on 800 Soil regeneration of degraded Employment generation, 183,578 ha of degraded pasture lands pastures, reduced pressure improved regional economy with teak and valuable native on native forests and welfare wood species Niger Acacia Community Restoration of 7,900 ha of Increased vegetative cover, Local employment, income 500,000 Plantations severely degraded lands soil regeneration and erosion from arabic gum sale, involving multiple farmers control, dune �xing, wind and access to markets, improved sun protection access to land tenure rights, targeting marginalized populations Uganda Nile Basin Timber production on Reduced pressure on Local employment, 261,221 Reforestation 1,700 ha of degraded lands natural forests, reduced land source of income from involving multiple farmers degradation and erosion private woodlots, targeting marginalized populations, sustainable fuelwood, stimulation of secondary industries REDD+ Colombia San Nicolás Avoided deforestation and Conservation of natural Income generation, improved 76,694 induced regeneration of habitat and corridors for local livelihoods 4,500 ha biodiversity, sustainable watershed management Madagascar Biodiversity Corridor Establishment of a Establishment of a Local development projects, 430,000 Conservation sustainable use protected protected area, biodiversity promotion of alternatives to area in 425,000 ha, with conservation, controlling slash and burn agriculture, local conservation and illegal logging promotion of non-forest management activities revenue-generating activities (including ecotourism) Carbon Finance for Sustainable Development 2010 41 Colombia: Caribbean Savannah Carbon Sink Project Centro Internacional de Agricultura Tropical (CIAT), Corporación three interventions actively involve and bring bene�ts to the Colombiana de Investigación Agropecuaria (CORPOICA) and surrounding communities. Corporación Autónoma Regional de los Valles del Sinú y del The local population has an important stake in the project San Jorge (CVS) have partnered to stop land degradation in and is therefore a strong supporter of its implementation. the coastal plains of Colombia. Piloting the use of silvopastoral About 200 families from the Zenu indigenous community, 250 and reforestation systems, the Caribbean Savannah Carbon families relying on subsistence agriculture, and 3 medium- Sink Project restores and increases the productivity of 2,200 size farmers will be the project’s direct bene�ciaries. Project ha of degraded land through three interventions. First, the activities will restore the soil’s productive capacity and improve Zenu indigenous community is establishing forage shrubs and land productivity. Farmers will receive diversi�ed incomes from trees to recuperate 500 ha of degraded pastures, producing rubber production and improved dairy productivity, as well as fruit and feeding animals in the area. Second, local small- timber and seed sales. The broader local population will bene�t scale farmers are reforesting 1,500 ha with rubber trees on from employment generation, and higher incomes will help a degraded area traditionally used for cropping. Third, the stimulate sustainable development in the region. project reforests 200 ha with high-value timber species. All 42 Report on Business Pat Gernon Chair, BioCarbon Fund Tranche 2 Department of the Environment, Heritage and Local Government, Government of Ireland The BioCarbon Fund (BioCF) Tranche 2 It is hard to believe that four years have passed since our in our approach, particularly concerning any underperformance consortium of public and private investors, working in partnership identi�ed in the portfolio. We have all learned a lot about this with the World Bank team and using Tranche 2 of the BioCarbon segment of the global carbon market in the past four years, and Fund as our vehicle, set out into new and largely uncharted territory the experience gained has made us all more sure-footed in our of the forestry and land-use sector of the carbon market. Time dealings. passes quickly, and 2012 will soon be upon us. This deadline brings I am pleased to report that Tranche 2 progressed well during increased pressure to deliver credits to our Participants and fully 2010. Steady progress was made in terms of the number of realize the environmental and social bene�ts in countries where ERPAs signed, projects registered or submitted for registration, Tranche 2 operates. and projects currently in validation. Decisions and arrangements As with other funds in this sector, we have faced challenges established in 2010 will see the Fund’s capital almost fully committing the Fund’s capital and completing the portfolio of committed as we go forward into 2011, allowing for greater focus projects. A plethora of factors have shown to have unexpected on delivery management. I wish to express my thanks to both the influence on the performance of individual projects. The Trustee team at the World Bank and to my fellow Participants for all their and Fund Participants have cooperated well to �nd solutions to hard work this year in strengthening Tranche 2. these challenges. We have been innovative and open-minded Carbon Finance for Sustainable Development 2010 43 Tranche 2 Regional Distribution South Asia 10% The BioCarbon Fund Tranche 2 portfolio currently has six Latin America and projects with a total value of $11.6 million and a volume of the Caribbean 28% 2.6 million tCO2e. Similar to Tranche 1, the portfolio value East Asia and Pacific 14% is distributed globally, but with 25 percent in Sub-Saharan Africa. The lion’s share of the portfolio value currently goes towards afforestation/reforestation activities (96 percent) and a small portion is allocated to the innovative sustainable land management, agricultural soils sector, and REDD+ projects Europe and Central Asia 23% Africa 25% (4 percent). Projects Value Volume (tCO2e) ERPAs Signed 6 $11,604,000 2,624,790 Sectoral Distribution and Active Pipeline Projects 3 $3,622,500 825,000 Assisted Regeneration 3% Wetland Restoration 2% Sustainable Land Management 4% Fuelwood 5% Plantation 34% Agroforestry 5% Community Reforestation 16% Land Restoration and Timber 32% 44 Report on Business BioCarbon Fund Tranche 2 Participants Public Sector GOVERNMENT OF IRELAND GOVERNMENT OF SPAIN AGENCE FRANÇAISE DE DEVÉLOPPEMENT DEPARTMENT OF THE ENVIRONMENT, Ministry of Environment, and Rural and Marine www.afd.fr HERITAGE AND LOCAL GOVERNMENT Affairs: www.mma.es/index_en.htm www.environ.ie/en/Environment/Atmosphere/ Ministry of Economy and Finance: ClimateChange www.meh.es Private Sector DAVORINA LIMITED NATSOURCE BIOCF II INVESTMENTS ZEROEMISSIONS (CONSENSUS BUSINESS GROUP) CORPORATION www.zeroemissions.com/corp/web/en www.consensusbusiness.com www.natsource.com SYNGENTA FOUNDATION FOR SUSTAINABLE AGRICULTURE www.syngentafoundation.org Carbon Finance for Sustainable Development 2010 45 Emission Reductions Purchase Agreements Signed Tranche 2 Project Description Environmental Bene�ts Social Bene�ts tCO2e Afforestation and Reforestation Chile SIF Securitization and Timber production on 2,900 Restoration of severely Income generation from 850,000 Carbon Sinks ha of severely degraded degraded lands timber products and land- lands involving small and lease agreements, access to medium holding farmers markets China Reforestation on Land restoration and timber Control soil and water Generation of local income 440,000 Degraded Lands in production on 8,000 ha of erosion, enhance biodiversity through timber and non- Northwest Guangxi severely degraded lands conservation by increasing timber forest products, directly involving multiple forest cover and nature promotion of stronger farmers habitat connectivity community organizations, poverty alleviation targeting marginalized populations, improved regional economy Democratic Ibi Bateke Carbon Agroforestry on 4,200 ha Reduced pressure on native Creation of local 500,000 Republic of Sink Plantation of degraded savannah for forests, enhancement of employment, local Congo Project sustainable charcoal and biodiversity development projects, fuelwood production improved regional economy and welfare, access to sustainable energy sources Moldova Community Forestry Restoration of 10,600 ha of Reduction of erosion and Increased access to timber 550,000 Development Project severely degraded public and landslides, enhanced soil and non-timber forest communal lands productivity, improved products, improved local habitats for wildlife, increased institutions biodiversity Trinidad and Nariva Wetland Restoration of wetlands Increased vegetative cover Income generation, 134,790 Tobago Restoration Project through community in wetlands, enhanced employment opportunities, involvement biodiversity, improved water community-based quality, prevention of soil ecotourism water intrusion Sustainable Land Management Kenya Agricultural Carbon Adoption of sustainable Increased crop yields and Income generation, improved 150,000 Project agricultural land farm productivity, enhanced technology and management management practices on soil carbon sequestration, practices, improved local 45,000 ha by small-holder improved water harvesting institutions farmer groups and retention, improved ef�ciency of water use 46 Report on Business China: Reforestation on Degraded Lands in Northwest Guangxi In September 2010 the Guangxi Longlin Forestry Development largely due to high volumes of precipitation, frequent storms, Company Ltd, in association with the Forestry Department of complex landforms, steep valleys, and poor watershed Guangxi Zhuang Autonomous Region (GZAR), registered the management. Reforestation will control soil erosion and Reforestation on Degraded Lands in Northwest Guangxi restore degraded land in the project area. It will also enhance Project. This became the �rst project to be registered in biodiversity conservation by increasing forest cover and natural the BioCarbon Fund Tranche 2 portfolio. The project draws habitat connectivity. Most tree species selected for the project on GZAR’s experience from implementing the �rst CDM are native to the region (including a mix of birch, China-�r, afforestation/reforestation project ever registered (the Chinese red pine and sweetgum), with eucalyptus designated Facilitating Reforestation for Guangxi Watershed Management for some areas. The project involves local farmers directly in in Pearl River Basin Project in 2006, developed through BioCF reforestation activities, which generates income and promotes Tranche 1). local community development. The project is also under The project aims to reforest about 8,000 ha of degraded the umbrella of the World Bank-�nanced Guangxi Integrated lands in Northwest Guangxi with multi-purpose forests. The Forestry Development and Conservation Project. area along the Pearl River is subjected to severe soil erosion, Carbon Finance for Sustainable Development 2010 47 Lex de Jonge Chair, Netherlands CDM Facility Head of CDM Unit, Ministry of Infrastructure and the Environment, Government of the Netherlands The Netherlands Clean Development Mechanism Facility The Netherlands was an early mover in the Clean Development responsibility in this regard by actively contributing to the process Mechanism market. The CDM instrument has strongly developed of CDM improvements (see “Realizing the Potential of the Clean over time, and it is now serving a mature market. We are proud to Development Mechanism in Least Developed Countries�, page have contributed to the developments by participating in climate 86). change negotiations, establishing carbon funds at several banks, Through the Netherlands CDM Facility, our government has and deepening implementation-related policies and rules through contracted a considerable portion of our requirements to comply involvement with the CDM Executive Board. with the Kyoto Protocol. That work is almost completed, and the Though we are approaching the end of the �rst Kyoto focus has now shifted towards timely delivery. We are con�dent commitment period, there is much to be learned and further that our Kyoto targets will be met. improved. Examples are CDM Programmes of Activities, Together, we are preparing for the post-2012 period and the standardized baselines, streamlined methodologies, and challenges ahead. The World Bank is showing leadership in this benchmarking. It is good to see the World Bank continue to take area by launching the Partnership for Market Readiness, an initiative that is welcomed by the Netherlands. 48 Report on Business The Netherlands Clean Development Regional Distribution Mechanism Facility Latin America and the Caribbean 12% www.wbcarbonfund.org/ncdmf East Asia and Pacific 88% Operational since 2002, the Netherlands Clean Development Mechanism Facility (NCDMF) purchases ERs on behalf of its one Participant, the Ministry of Infrastructure and the Environment of the Government of the Netherlands. The diversity in the portfolio promotes the full potential of the CDM, while primarily ensuring delivery of emissions reductions through 2012. NCDMF Portfolio Status The value of ERs in the current Netherlands CDM Facility Sectoral Distribution portfolio is mostly concentrated in the East Asia and Paci�c region (88 percent), with the remaining value deriving from Geothermal 3% Hydro 7% HFC-23 Destruction 49% projects implemented in Latin America and the Caribbean (12 percent). Landfill Gas 8% Coal Bed/Mine Methane 8% Fossil Fuel Switch 25% Peru: Huaycoloro Land�ll Gas Recovery Project In Huaycoloro Valley in Peru, the Huaycoloro land�ll currently receives about 2,200 tons of waste each day, adding to the nearly 5.5 million tons of waste that has accumulated since it opened in 1994. The decomposing waste releases land�ll gas, which consists primarily of methane, a potent GHG. Anticipated to remain open until 2040, the land�ll would �ll its capacity of approximately 40 million tons of waste, making it a potentially signi�cant source of GHG emissions. In response to this threat, the Peru: Huaycoloro Land�ll Gas Recovery Project captures the land�ll gas and will use it to generate electricity. Up to 5.7 MW of renewable electricity will be supplied to the local power grid, reducing emissions caused by other forms of power generation. In addition, the project contributes to the local community by creating jobs and boosting economic development, helping the area around the project site become a better and safer place to live and do business. Carbon Finance for Sustainable Development 2010 49 Bert de Vries Chair, Netherlands European Carbon Facility Deputy Director-General, Energy, Telecom and Markets, Ministry of Economic Affairs, Agriculture and Innovation, Government of the Netherlands The Netherlands European Carbon Facility The Netherlands is a �rm believer that market instruments was implemented with a unique co-management arrangement have to play a crucial role in �ghting climate change. In fact, the between the Netherlands, the World Bank, and the International Dutch government played a pioneering role in the creation of an Finance Corporation. The NECF reached an important milestone international market for carbon credits. in 2008 and closed its portfolio of emission reductions purchase For over ten years, the Ministry of Economic Affairs has agreements. been active in implementing Joint Implementation projects in Now we are harvesting what has been planted in the past Eastern European countries. In close partnership with the World years. Efforts and investments in JI are paying off, and veri�ed Bank Group, the Netherlands has been involved in developing emission reduction units and pre-2008 emission reductions are procedures and guidelines in this challenging area, as well as being delivered to the Dutch JI account. We are all getting more institution-building in several Eastern European countries. experienced: sellers, veri�ers, and buyers. We have con�dence in In 2004, the Netherlands European Carbon Facility was both the 2011 results and the overall performance of the NECF. created to develop JI projects for the Netherlands. The Facility 50 Report on Business The Netherlands European Carbon Facility Regional Distribution www.wbcarbonfund.org/necf Poland 22% The Netherlands European Carbon Facility (NECF), operational Ukraine 78% since 2004, is co-managed with the International Finance Corporation.1 The NECF purchases ERs on behalf of its one Participant, the Ministry of Economic Affairs, Agriculture and Innovation of the Government of the Netherlands. The portfolio consists of JI energy ef�ciency and renewable energy projects located in Eastern Europe. NECF Portfolio Status The NECF portfolio is entirely in Eastern Europe, with projects in the Ukraine and Poland (representing 78 percent and 22 Sectoral Distribution percent of the portfolio value, respectively). The portfolio’s Wind 11% Energy Efficiency - Industry 57% value comes from projects related to energy ef�ciency (57 percent) and renewable energy technologies (43 percent). 1 This report covers only the portion of the NECF managed by the World Bank. Hydro 32% Poland: Puck Wind Power Plant Project The Polish power sector is the largest in Central Europe, and many of the generation facilities are old and in dire need of refurbishment or replacement. Moreover, over 90 percent of the power-generation capacity in Poland requires combustion of coal or lignite, fuels that are emissions-intensive. As a result, power and district heating contribute about 70 percent of the total carbon emissions in the energy sector, the largest source of emissions in Poland. On the plains of northwestern Poland, 11 turbines harness the wind to supply approximately 51,000 MW-hours of renewable electricity each year to the local grid. This project, the Puck Wind Power Plant, has provided a clean-energy alternative since December 2006, displacing the emissions- intensive electricity currently dominating the power mix in Poland. The project is owned and operated by the private company Polish Energy Partners (PEPSA), and the power plant is expected to have a lifetime of 20 years. The NCDMF is pleased to support the project by purchasing the ERs it will generate through 2012. Carbon Finance for Sustainable Development 2010 51 Corrado Clini Chair, Italian Carbon Fund GOVERNMENT OF ITALY Director General, Ministry for the Environment, Land and Sea MINISTRY FOR THE ENVIRONMENT, Government of Italy LAND AND SEA The Italian Carbon Fund The Government of Italy recognizes that combating climate distribution. The ICF works to support developing countries in change is becoming increasingly urgent. This global problem achieving sustainable development and capacity-building goals requires the engagement of all major emitting economies in by leveraging considerable investments in low-carbon services both the developed and developing world. There is a clear and technologies. Carbon �nance is also playing an important need to make progress towards a low-carbon economy based role in helping Italy meet its 2012 targets under the Kyoto on the long-term sustainable management of natural resources Protocol. and energy inputs. The Government of Italy would like to express its gratitude The Italian Carbon Fund, a public-private partnership, to the World Bank and the ICF members for their diligent maintains a diversi�ed portfolio with the simultaneous work in developing carbon markets. We strongly believe that objectives of reducing greenhouse gas emissions and similar successful collaborative partnerships will contribute to eradicating poverty around the world. The projects are fairly global efforts to resolve the climate change crisis in the coming branched out, both in terms of technology and regional decades. 52 Report on Business The Italian Carbon Fund Regional Distribution www.italiancarbonfund.org Europe and Central Asia 2% The Italian Carbon Fund (ICF) was created in 2004 to purchase Middle East and North Africa 16% ERs from projects in developing countries recognized under the East Asia and Pacific Kyoto Protocol’s CDM and JI mechanisms. Its Participants are the Government of Italy and six Italian private entities. In addition to helping Italy meet its Kyoto commitments, the ICF helps developing countries achieve sustainable development by leveraging substantial investments in modern South Asia 24% energy services and technologies. Participants’ payments are used for project identi�cation and preparation activities, such as capacity building, outreach, and research. Thus, the Fund goes beyond GHG mitigation to encourage the creation of supportive project approval systems in host countries. Sectoral Distribution ICF Portfolio Status The Italian Carbon Fund holds a portfolio of seven projects. Fugitive Emissions 1% Geographically, most of the portfolio’s value is linked to Energy Efficiency - Own Generation 7% Hydro 39% projects in the East Asia and Paci�c region (58 percent), but some of it is associated with projects in the regions of South Asia, Middle East and North Africa, and Europe and Central Landfill Gas 16% Asia. The portfolio is centered on hydro energy generation and HFC-23 destruction (39 percent and 37 percent of the portfolio’s value, respectively). Projects Value Volume (tCO2e) ERPAs Signed 7 $131,571,710 15,509,225 HFC-23 Destruction 37% and Active Carbon Finance for Sustainable Development 2010 53 2010 Participants’ Committee Public Sector: Corrado Clini (Chair), Government of Italy Private Sector: Stefano Apuzzo, E.ON Italia S.p.A. Federica Fricano, Government of Italy Fabio Di Benedetto, ERG S.p.A. Emanuela Sardellitti, Government of Italy 2010 Participants Public Sector Private Sector GOVERNMENT OF ITALY CEMENTERIE ALDO BARBETTI S.P.A. ERG S.P.A. MINISTRY FOR THE ENVIRONMENT, www.barbetti.it www.erg.it LAND AND SEA www.minambiente.it E.ON ITALIA S.P.A. IREN MERCATO S.P.A. www.eonitalia.it www.irenmercato.it ENEL TRADE S.P.A. ITALCEMENTI GROUP www.enel.com www.italcementigroup.com 54 Report on Business Emission Reductions Purchase Agreements Signed Project Description tCO2e China HFC-23 Destruction Installation of an incineration facility to decompose HFC-23 generated by the 6,000,000 existing HCFC-22 manufacturing facility into carbon dioxide and hydrogen fluoride Nanjing Steel Converter Gas Recover the converter gas produced by the converters of the Nanjing Iron 1,293,495 Recovery & Steel Co., Ltd., in the steel production process and utilize the gas for electricity generation, thus partially meeting the company’s power needs for daily production, replacing some grid electricity, and reducing carbon dioxide emissions Yunnan Whitewaters Three run-of-river hydro power stations on the Baishuijiang River with an 2,200,000 Hydropower Development installed capacity of 78 MW India Allain Duhangan Hydro A 192-MW run-of-river hydro power plant in the lower reaches of the Allain 2,820,250 and Duhangan Rivers Russia Associated Gas Recovery for Construction of a booster compressor station with a gas conditioning unit and 145,480 the Komsomolskoye Oil Field a gas pipeline to the national gas transmission system, which will result in recovery of gas currently burnt during flaring Tunisia Djebel Chekir Land�ll Gas Installation of gas recovery and flaring systems in Cells 1-5 of the Djebel Chekir 1,930,000 Recovery and Flaring Land�ll, which receives all of the waste from the capital, Tunis Gas Recovery and Flaring for Installation of gas recovery and flaring systems of nine land�lls distributed 1,120,000 Nine Land�lls throughout Tunisia China: Yunnan Whitewaters Hydropower Development A major development challenge in China is meeting increasing electricity demand in the China Southern Power Grid (CSPG), which feeds China’s fast-growing Pearl River Delta region. This rising demand has stimulated the development of coal- �red power plants, which aggravate the harmful effects of air pollution on human health and raises the emission of GHGs. The Yunnan Whitewaters Hydropower Development Project helps satisfy the growing electricity demand in the CSPG by using China’s untapped clean and renewable energy resources. Located on the White Waters River in southwestern China, the development is a set of three cascading hydropower stations, with an installed total capacity of 78 MW. The expected annual average electricity sale to the grid is 369 gigawatt-hours, displacing an average of 274,560 tCO2e per year. The project also has additional developmental bene�ts, as it will introduce much-needed investment capital and employment to a poverty-stricken, remote mountainous region of the Yunnan Province. Carbon Finance for Sustainable Development 2010 55 Gavin Green Chair, Danish Carbon Fund Carbon Credit Portfolio Manager, Dong Energy Danish Carbon Fund Since 2005, the Danish Carbon Fund has been an important and the India Punjab High Voltage Distribution System Project. part of the effort to reach Denmark’s emission reduction As with other players in the carbon market, the DCF was targets. The Fund has worked successfully as a public-private affected by the regulatory changes and delays in the CDM partnership, with Participants from both the Danish industrial process, but it swiftly adapted to these realities. The DCF sector and the Danish Energy Agency. As we move towards the continues to demonstrate its commitment to sustainable end of the Kyoto period, the emphasis of our work is shifting development. towards the successful delivery of carbon credits from the On behalf of the Participants, I wish to thank the World Fund’s projects. Bank’s Danish Carbon Fund team for their hard work this year. In 2010, there were successes and challenges for the We are con�dent that the World Bank will continue to be Danish Carbon Fund. Three new ERPAs were signed for DCF successful in meeting the challenges ahead, and together we projects, including the Bangladesh Energy Ef�cient Lighting are preparing for opportunities in the post-2012 carbon market. Program, the Egypt Vehicle Scrapping and Recycling Program, 56 Report on Business The Danish Carbon Fund Regional Distribution www.danishcarbonfund.org Middle East and North Africa 4% The Danish Carbon Fund (DCF) became of�cially operational Europe and Central Asia 5% East Asia and Pacific 50% in January 2005, and it plays a pivotal role in Denmark’s Latin America and emission reduction goals. The Fund is a partnership consisting the Caribbean 17% of representatives from the Danish industrial sector and the Danish Energy Agency. In 2008, the original capitalization of the DCF was increased by € 32 million to reach its current level of € 90 million. The additional capitalization acted partly South Asia 24% as a means of hedging against the risk of under delivery of ERs, but it also provides the DCF with added possibilities. As of December 2010, the DCF was closed to new projects. DCF Portfolio Status Sectoral Distribution In 2010, the DCF added three ERPAs to its portfolio, bringing the number of projects to nine with a total value of € 48.9 Transport 4% million and a total volume of 6.1 million tCO2e. Geographically, Energy Distribution 4% HFC-23 Destruction 25% Fugitive Emissions 5% half of the portfolio’s value is concentrated in the East Asia and Paci�c region. The portfolio supports a variety of sectors, Methane Avoidance 8% including HFC-23 destruction (25 percent by value), land�ll gas (23 percent by value), and energy ef�ciency (31 percent by value). Energy Efficiency - Households 13% Projects Value Volume (tCO2e) Landfill Gas 23% ERPAs Signed 9 ˆ 48,882,931 6,078,715 Energy Efficiency - Own Generation 18% and Active Pipeline 3 ˆ 4,496,524 532,655 Projects 2010 Participants Public Sector Private Sector GOVERNMENT OF DENMARK AALBORG PORTLAND A/S MAERSK OLIE OG GAS A/S www.ens.dk/en-us www.aalborgportland.com www.maerskoil.com DONG ENERGY NORDJYSK ELHANDEL A/S www.dongenergy.com www.neas.eu Carbon Finance for Sustainable Development 2010 57 Emission Reductions Purchase Agreements Signed Project Description tCO2e Bangladesh Energy Ef�cient Lighting Approximately 30 million household incandescent lamps will be replaced by 725,000 Program energy ef�cient compact fluorescent lamps. Bene�ts include reduced energy bills, improved quality of lighting, and signi�cant energy savings, which is projected to reduce load shedding China Baotou Energy Ef�ciency Two components: the �rst uses coke dry quenching to recover sensible heat 900,000 from red-hot coke ovens. The recovered waste heat is used to generate electricity and to supply additional heat, thereby displacing coal-�red power generation for the grid and coal-�red boilers in the plant. The second component involves the installation of dry type dust removal equipment in the blast furnace gas to increase the recovered gas pressure for power generation in the top-gas recovery turbine HFC-23 Destruction Installation of an incineration facility to decompose HFC-23 generated by the 2,000,000 existing HCFC-22 manufacturing facility into carbon dioxide and hydrogen fluoride Egypt Vehicle Scrapping and Implementation of a mechanism through which owners of taxis, microbuses, 232,274 Recycling Program trailer trucks, and buses may voluntarily surrender their vehicles for managed scrapping and recycling in exchange for incentives used to purchase vehicles that are more ef�cient India Punjab High Voltage Reduce technical losses in the electricity distribution system by converting 251,963 Distribution System the agricultural feeders in the state of Punjab from a low-voltage distribution system (400 volts) to a high-voltage distribution system (11 kilovolts). Mexico Monterrey II Land�ll Gas Captured land�ll gas to be flared and used in power generation, thereby 1,022,598 reducing methane emissions Pakistan Lahore Composting The construction and operation of a waste processing and composting plant in 310,000 Lahore, Pakistan Russia Associated Gas Recovery for Construction of a booster compressor station with a gas conditioning unit and 261,880 the Komsomolskoye Oil Field a gas pipeline to the national gas transmission system, which will result in recovery of gas currently flared Thailand Sapthip Wastewater Reduce emissions by recovering and using as fuel the methane produced by 375,000 Management Project the wastewater from the Sapthip Company’s bioethanol plant Bangladesh: Energy Ef�cient Lighting Program Household lighting, often a luxury taken for granted in developed countries, can vastly improve the quality of life in a number of ways, from increasing safety to allowing students to study in the evening. However, electricity can be expensive and carbon-intensive if produced from fossil fuels. The Bangladesh Energy Ef�cient Lighting Program will address this issue by replacing approximately 30 million traditional incandescent bulbs with an equal number of energy-ef�cient compact fluorescent lamps (CFLs) in Bangladeshi households. By increasing the ef�ciency of lighting, Phase 1 of the program will reduce GHG emissions by about 725,000 tCO2e. It will be implemented across urban and rural areas in Bangladesh by various utilities, supervised by the Rural Electri�cation Board’s Program Management Unit. The program will provide households with up to six free CFLs to replace their incandescent light bulbs. So far, 9 million out of approximately 10.5 million CFLs have been distributed in Phase 1. Phase II is currently under design, and it will likely result in door-to-door distribution or installation of 17 million CFLs. Bene�ts to households include reduced energy bills and improved quality of lighting. On a national scale, the signi�cant energy savings will reduce load shedding in Bangladesh. 58 Report on Business Alicia Montalvo Santamaría Chair, Spanish Carbon Fund Gonzalo García Andrés Director General, Climate Change Director General, International Ministry of Environment, and Rural & Finance, Ministry of Economy and Marine Affairs, Government of Spain Finance, Government of Spain Spanish Carbon Fund Since the establishment of the Spanish Carbon Fund, the The Government of Spain remains convinced that Spanish Government has promoted public-private partnerships sustainable development in the future will have foundations between the Administration and Spanish companies to foster in carbon �nance and clean technologies. The agreements low-carbon development through carbon �nance. This year, reached in Cancun in December of 2010 set the stage for new the SCF achieved its founding goals by developing a diversi�ed opportunities. Carbon markets are an ef�cient tool that must be portfolio that includes projects covering a variety of sectors and further explored to create new possibilities for developing and technologies, such as renewable energy, waste management, developed countries. The Spanish experience with the SCF has energy ef�ciency, and transport. helped to strengthen the sharing of knowledge in this �eld. It Quanti�able achievements and the veri�cation of emission successfully demonstrates the viability of carbon �nance and reductions have now become of utmost importance. Signi�cant performance-based incentives, allowing developing countries’ progress has already been made in this regard, as a relevant participation in the carbon market while promoting sustainable number of carbon credits from projects in the portfolio are development. being issued. We are con�dent that this new phase will be carried out successfully by the World Bank, as has been the case with previous phases of the SCF. Carbon Finance for Sustainable Development 2010 59 The Spanish Carbon Fund Regional Distribution www.spanishcarbonfund.org Europe and Central Asia 3% Africa 2% The Spanish Carbon Fund (SCF) is a private-public partnership South Asia 4% Middle East and North Africa 6% East Asia and Pacific 68% that aims to mobilize resources to address climate change and promote sustainable development. The �rst tranche of Latin America and the SCF opened in 2005 with an investment from the Spanish the Caribbean 17% Government. In 2006, the Spanish private sector, including representatives from companies with obligations under the Spanish National Allocation Plan, committed to participate. The second tranche of the SCF, with the Spanish government as its sole Participant, was launched in April 2008. The SCF has three main goals: (1) to purchase project- based ERs on behalf of its Participants; (2) to stimulate the flow of Spanish capital into sustainable development; and (3) Sectoral Distribution to leverage the experiences of the World Bank to build Spanish private and public sector capacity to meet Spain’s Kyoto Energy Efficiency - Industry 1% Protocol obligations ef�ciently. Fugitive Emissions 2% Transport 1% Methane Avoidance 5% Hydro 6% HFC-23 Destruction 45% SCF Portfolio Status Energy Distribution 9% Tranche 1 In 2010, the Spanish Carbon Fund Tranche 1 signed seven new ERPAs, bringing the total number of projects to 19, with a total value of € 111 million and a total volume of 15.9 million Wind 14% tCO2e, after cancelations and amendments. While most of the portfolio’s value is concentrated in the East Asia and Paci�c Landfill Gas 17% region (68 percent), some of it is linked to projects in all other regions where the World Bank operates. The sectoral distribution is diverse, ranging from HFC-23 destruction (45 percent by value) to transport (1 percent by value). Projects Value Volume (tCO2e) ERPAs Signed 19 ˆ 110,981,865 15,909,120 and Active Pipeline 1 - 6,000,000 Projects 60 Report on Business Tranche 2 Regional Distribution Tranche 2, which consists of only one participant, the Middle East and North Africa 14% Spanish government, signed two contracts with a total value of € 13.7 million for a volume of 1.5 million tCO2e Europe and Central Asia 86% in a combination of CERs and AAUs in 2010. The portfolio is concentrated in the Europe and Central Asia as well as the Middle East and North Africa regions (86 percent and 14 percent of the portfolio’s value, respectively). Currently, the portfolio’s value is centered in the energy ef�ciency (87 percent) and transport (13 percent) sectors. Projects Value Volume (tCO2e) ERPAs Signed 3 ˆ 13,748,224 1,468,528 and Active Sectoral Distribution Pipeline 3 - 4,267,216 Projects Transport 13% Energy Efficiency - Households 73% Energy Efficiency - Industry 14% Carbon Finance for Sustainable Development 2010 61 2010 Tranche 1 Participants’ Committee Public Sector: Alicia Montalvo Santamaría (Chair), Private Sector: David Corregidor, Endesa Government of Spain Daniel Casado García, EON Generación Gonzalo García Andrés, Government of Spain Jaime Martín Juez, Repsol Ana de Vicente Lancho, Government of Spain Ismael Aznar Cano, Government of Spain Teresa Solana Méndez de Vigo, Government of Spain 2010 Tranche 1 Participants Public Sector GOVERNMENT OF SPAIN Ministry of Environment, and Rural and Marine Affairs: www.marm.es/index_en.htm Ministry of Economy and Finance: www.meh.es Private Sector AZULIBER 1, S.L. E.ON Generación IBERDROLA www.azuliber.com/en www.eon-espana.com www.iberdrola.es CEMENTOS PORTLAND VALDERRIVAS www.valderrivas.es OFICEMEN GAS NATURAL FENOSA, SA www.o�cemen.com www.gasnatural.com CEPSA www.cepsa.com REPSOL YPF HC ENERGIA www.repsol.com www.hcenergia.com/en ZEROEMISSIONS ENDESA www.zeroemissions.com/corp/web/en www.endesa.es/portal/en 62 Report on Business Emission Reductions Purchase Agreements Signed Tranche 1 Project Description tCO2e Brazil Nova Gerar Carbon This umbrella project involves three land�lls from the metropolitan area of Rio de 480,000 Finance and Waste Janeiro and one from the metropolitan area of Recife. Three of the projects are new Management II 2010, at which point a program will be implemented to support the local waste pickers. Land�ll gas will be collected from all four land�lls, which could potentially be used for electricity generation. China DASHIQIAO District The objective of the Dashiqiao Central Heating Project is to improve the energy 194,232 Heating Project ef�ciency and cleanness of building heating in the city by introducing a new primary district heating system and replacing a large number of inef�cient small-sized boilers with a central station that has large �heat only boilers� with higher ef�ciencies. HFC-23 Destruction Installation of an incineration facility to decompose HFC-23 generated by the existing 8,333,333 HCFC-22 manufacturing facility into carbon dioxide and hydrogen fluoride. Jiangxi Shihutang Hydro The Jiangxi Shihutang Hydropower Project is a grid-connected hydropower project 200,000 Project with total installed capacity of 120 MW. It is equipped with 6 sets of bulb tubular turbines with a unit capacity of 20 MW. Tianjin Land�ll Gas Construction of a land�ll gas utilization system to generate electricity for land�ll 635,000 Recovery and Utilization operations and to feed to Tianjin City’s power grid The project will be implemented on the Shuangkou municipal land�ll. The Shuangkou land�ll is a sanitary land�ll that was partially �nanced by the World Bank under the Tianjin Urban Development and Environment Project. YINGKOU EDZ District The project aims to improve the energy ef�ciency and cleanness of current heating 860,021 Heating Project services for buildings in the city of Yingkou EDZ by establishing a new primary district heating system and receiving heating from a much cleaner source. Heat will be extracted from the turbines of two supercritical units of the Huaneng Yigkou Power Plant (320 MW each) located near the city. Egypt Alexandria Onyx Land�ll Installation of new land�ll gas collection systems to collect gas emissions from the 1,100,000 Gas Capture and Flaring Borg el Arab and El Hammam land�ll sites in Alexandria. The project collects residual emission gas, which currently Onyx does not have an obligation to treat. India BBMB Hydro The project involves capacity enhancement of Bhakra-Left Bank Power House, an 240,000 Rehabilitation Project existing hydro electric project that will increase the power availability from cleaner sources in the Northern Region Grid. Karnataka Wind Power Construction and operation of wind power projects at two sites in the Indian state of 178,917 Project Karnataka. Mali/Mauritania/ OMVS Félou Construction and operation of a run-of-the-river hydroelectric installation on the 280,000 Senegal Hydroelectric Senegal River. The project will deliver electricity to national power utilities in the sub-region (Mali, Mauritania, and Senegal) through the creation of 59 to 62 MW of installed hydropower generation capacity. Mexico La Venta II An 85 MW wind project in the southern region of the Isthmus of Tehuantepec, in the 1,560,000 Mexican state of Oaxaca. Mexico City Transport Activities will promote a shift toward low-polluting modes of transportation (primarily 354,607 articulated buses) through the development of surface mass transport corridors and traf�c management measures that work with the existing metro infrastructure. High- polluting “colectivo� buses will be scrapped. Philippines LFGTE and Program of Two components: Activity A aims to mitigate the release of methane from pig waste 250,000 Activities in Piggeries by effluents produced by different piggeries. Activity B will mitigate the release of LandBank methane generated from dumpsites and land�lls through an initiative developed by LandBank. Russia Associated Gas Recovery Construction of a booster compressor station with a gas conditioning unit and a gas 226,320 for the Komsomolskoye pipeline to the national gas transmission system, which will result in recovery of gas Oil Field currently flared. Thailand Bionergy Sugar Construction of an anaerobic cover lagoon to treat wastewater from the Thai Sugar 500,000 Ethanol Wastewater Ethanol facility in Kanchanaburi Management Table continued on next page Carbon Finance for Sustainable Development 2010 63 Emission Reductions Purchase Agreements Signed (continued) Tranche 1 Project Description tCO2e Tunisia Sidi Daoud Wind Farm The project comprises 26 wind turbines of 1,320 kilowatts each, with a total installed 130,000 Project capacity of 34.32 MW. The project also includes a transformation substation aimed at upgrading the power generated by the turbines to 90 kilovolts, and the construction of a 22.5 km high-voltage transmission line linking the wind farm to the nearest central transformation station of Menzel Temime 1 and connecting it to the Tunisian interconnected electricity grid. Ukraine Alchevsk Steel Mill Improving ef�ciency of steel production by replacing old Open Hearth Furnaces with 100,000 Revamping and modern basic oxygen furnaces Modernization Uruguay Montevideo Land�ll Gas The Montevideo Land�ll Gas Recovery Project consists of the design, implementation, 247,491 Recovery and monitoring of a land�ll gas extraction, treatment, and flaring facility. Such a facility will allow the capture and destruction of methane generated through the anaerobic decomposition of organic matter disposed of in the land�ll. Wind Farm Implementation of a 10 MW wind farm at Caracoles Hill in Maldonado, Uruguay. 39,200 The wind farm is connected to the national electric system through a 30 kilovolt line, approximately 20 km long. Tranche 2 Project Description tCO2e Czech Republic Green Investment Scheme The Czech Republic set up the “Program of Savings of Energy and Renewable 1,000,000 Energy Sources on the Revenues from Sale of Emission Credits – Green Investment Scheme� on April 1, 2009. The overall objective of the GIS program is to support selected measures implemented in residential buildings by resident persons and entities owning residential buildings that will lead both to immediate reductions in carbon dioxide emissions and to the initiation of a long-term trend of sustainable housing. Egypt Vehicle Scrapping and Implementation of a mechanism through which owners of taxis, microbuses, Recycling Program trailer trucks, and buses may voluntarily surrender their vehicles for managed scrapping and recycling in exchange for incentives used to purchase vehicles that are more ef�cient. Ukraine Alchevsk Steel Mill Improving ef�ciency of steel production by replacing old Open Hearth Furnaces 236,254 Revamping and with modern basic oxygen furnaces Modernization 64 Report on Business India: Karnataka Wind Farm Approximately 250 km from Bangalore, in the villages of Anabaru local sub-station at Hiremallaholle using underground internal and Arasinagundi, the India Karnataka Wind Farm supplies electrical lines and local transmission lines. Traditionally, internal renewable electricity to the Karnataka State electricity grid. The wind farm connections use overhead transmission lines with open project activities include development, design, engineering, transformers. However, for the �rst time in India, the wind farm procurement, construction, operation, and maintenance of wind- relies on installed underground cabling within the wind farm. The based electricity-generating stations. The wind farm consists of 18 project bene�ts are multi-dimensional: it promotes renewable wind turbines of 1.65 MW each, totaling a capacity of 29.7 MW. power generation, innovative technology, and sustainable By supplying renewable power, the project displaces economic and environmental development. conventional electricity and reduces GHG emissions. The electricity generated through the project is supplied to a common Carbon Finance for Sustainable Development 2010 65 Anne C. Bolle Chair, Carbon Fund for Europe Managing Director, Statkraft Carbon Invest AS The Carbon Fund for Europe The �ve Fund Participants—four governments and one issues and assert Participants’ interests. In 2010, one ERPA company—are committed to participating in the carbon market and one AAU PA were signed, and two ERPAs were amended. to meet our Kyoto and EU ETS targets up to 2012 and beyond. The Trustee has succeeded in adjusting commitments to be By managing parts of our purchasing targets through the realistic in regards to volumes, deliveries, and capital needs. Carbon Fund for Europe, we are contributing to low-carbon Thorough reporting and analysis, close follow-up of projects, development through clean technology projects. The CFE and discussions and negotiations with project owners have project portfolio now consists of seven signed agreements, been paramount to this success. including six Emission Reductions Purchase Agreements and The carbon market is impacted by an absence of strong one Assigned Amount Unit Purchase Agreement. signals towards enduring flexible mechanisms and future Operating in a dynamic carbon market, 2010 proved to be commitment periods. We hope that 2011 will bring these yet another challenging year for the Fund. Issues of volume signals, enhancing the success of our investments in shortfalls and delays are by no means unique to this Fund, sustainable development. and the Trustee has put in considerable effort to address these 66 Report on Business The Carbon Fund for Europe Regional Distribution www.wbcarbon�nance.org/cfe Africa 6% Operational since March 2007, the Carbon Fund for Europe East Asia and Pacific 20% Europe and Central Asia 40% (CFE) is a trust fund co-managed by the World Bank and the European Investment Bank. Both contribute unique expertise: the European Investment Bank provides an in-depth understanding of the European economy and project pipelines in developing countries, while the World Bank offers expertise and experience in carbon markets. The Fund purchases credits compatible with the EU ETS from projects compliant with CDM and JI mechanisms of the Kyoto Protocol. Moving forward, the Fund expects to continue building its dynamic project portfolio Middle East and North Africa 34% and maintain a diverse set of technologies that support the advancement of developing countries, in a sustainable way. CFE Portfolio Status Sectoral Distribution In 2010, two new ERPAs were signed by the CFE, enlarging the Fugitive Emissions 7% portfolio to seven projects, with a total value of €31 million and Landfill Gas 40% a total volume of 3.1 million tCO2e. Most CFE commitments support projects located in the Europe and Central Asia region Methane Avoidance 21% (40 percent by value), and the portfolio also includes projects in the regions of Middle East and North Africa (34 percent by value), East Asia and the Paci�c (20 percent by value), and Africa (6 percent by value). CFE ERPA-signed projects currently focus on four sectors: land�ll gas (40 percent by value), energy ef�ciency in households (32 percent by value), methane avoidance (21 percent by value), and fugitive emissions Energy Efficiency - Households 32% (7 percent by value). The pipeline comprises a hydro rehabilitation and a transport project. Projects Value Volume (tCO2e) ERPAs Signed 7 ˆ 30,987,191 3,087,966 and Active Pipeline 2 ˆ 2,600,000 288,000 Projects Carbon Finance for Sustainable Development 2010 67 The Carbon Fund for Europe Participants Public Sector DEPARTMENT OF THE ENVIRONMENT, FLEMISH GOVERNMENT GOVERNMENT OF LUXEMBOURG HERITAGE AND LOCAL GOVERNMENT, www.flanders.be www.environnement.public.lu/air_bruit/dossiers IRELAND www.environ.ie/en/Environment/ FONDO PORTUGUES Atmosphere/ClimateChange DE CARBONO FONDO PORTUGUES DE CARBONO, PORTUGAL Private Sector STATKRAFT CARBON INVEST AS www.statkraft.com Nigeria: Earthcare Solid Waste Composting Project In Nigeria, the common waste management practice is to dispose of waste in land�lls, where it decays in anaerobic conditions and emits methane, a potent GHG. The Earthcare Solid Waste Composting Project improves municipal solid waste management practices in the state of Lagos while curtailing methane emissions from land�lls. The composting facility processes biodegradable waste from households, saw mills, abattoirs, and fruit and vegetable markets into compost, diverting a portion of the municipal solid waste away from land�lls. Composting helps reduce waste disposal problems in Lagos City, which in turn reduces methane emissions and improves air quality. The composted material also provides a competitive natural fertilizer to the local agricultural sector. The project was registered as a CDM activity in December 2010, with an estimated 280,000 tCO2e to be generated per year. The project is already commissioned and producing compost. Under the ERPA signed in June 2010, the CFE will purchase a total of 236,646 CERs over 3 years and 275,000 option CERs. 68 Report on Business Emission Reductions Purchase Agreements Signed Project Description tCO2e Egypt Land�ll and Processing Reduction of methane gas emissions by diverting high organic waste 100,000 Services for Southern Zone from direct disposal at a land�ll to a composting plant. Of the revenues in Cairo generated from the sale of ERs, 6 percent will be used to implement social services projects. The compost will be sold to farmers at current market prices. Jordan Amman Land�ll Gas Avoidance of methane emissions from the Ghabawi Sanitary Land�ll by 900,000 installing a plant for land�ll gas collection and electricity generation. The electricity will be delivered to the grid and replace electricity produced from power plants using heavy fuel oil, which means that in addition to the methane emission reduction on the land�ll, there will also be a carbon dioxide emission reduction from the power plant. Malaysia Kota Kinabalu Composting Reduction of methane gas emissions by diverting high organic waste from 125,000 direct disposal at a land�ll to a composting plant. The sorting facility will provide employment opportunities, in particular for local waste pickers at the land�ll. The project will also promote technology transfer and capacity building of local staff in solid waste management. Russia Associated Gas Recovery for Construction of a booster compressor station with a gas conditioning unit 226,320 the Komsomolskoye Oil Field and a gas pipeline to the national gas transmission system, which will result in recovery of gas currently flared Thailand Small Scale Livestock Waste Improvement of livestock waste management practices in Thailand to 500,000 Management Program reduce emissions and take advantage of captured renewable energy of (ERDI) small-scale swine farms equating to approximately 4,000 animals per farm, for an aggregate 500,000 animals. The project will apply anaerobic digesters, which capture the biogas, and use it to generate electricity for on-farm consumption or sale to the national grid. Czech Republic Green Investment Scheme Implementation of energy-ef�ciency measures in households and in small 1,000,000 (GIS) Transaction renewable energy projects in the Czech Republic Nigeria EarthCare Municipal Solid Implementation of a bioremediation system to process municipal solid 236,646 Waste (MSW) Composting waste generated in Ikorodu City, Lagos State, Nigeria. The compost facility Project will process and convert biodegradable waste into useful compost as an alternative to chemical fertilizer. Carbon Finance for Sustainable Development 2010 69 Inger Andersen Vice President, Sustainable Development The World Bank Forest Carbon Partnership Facility Since we started designing the Forest Carbon Partnership readiness services to countries under the FCPF. REDD+ Facility in 2006, all parties involved—forest countries, donor provides forested countries with a tremendous opportunity countries, indigenous peoples, civil society, the private sector, to generate revenue streams while protecting forests and and international organizations—have bene�ted from a fruitful combating poverty, but also poses serious development exchange of knowledge. The FCPF has provided a forum for challenges and requires that the capacity of all partners be discussions both at the international and country levels, where harnessed using common �duciary and safeguards approaches. governments, traditional rights holders and various stakeholders Important developments lie ahead, including the start of come together to discuss new approaches to tackle the drivers operations of the Carbon Fund. The Fund will demonstrate how of deforestation and forest degradation. performance-based payments can incentivize fundamental In 2010, the FCPF accelerated the assessment of Readiness changes in the way countries manage their forest heritage. We Preparation Proposals (R-PPs: descriptions submitted by forest also look forward to the growing collaboration between the countries on how they will prepare for REDD+) and allocated FCPF and its partners, the UN-REDD Programme, the Global about $40 million in grant funding for their implementation. Environment Facility and the Forest Investment Program. The Many more countries will formulate and present their proposals partners’ complementary roles are continuing to crystallize, in the months ahead. We recognize that disbursements from particularly at the country level. We encourage forest nations the FCPF have been slower than expected, but the World Bank to tap into the support offered by these various initiatives in team is working with government counterparts to address the ways that will maximize their bene�t — not in isolation, but in underlying issues and clear the way for fund disbursement. combination with each other. The forum and processes set up We are keen to invite other delivery partners, including by the FCPF help make this possible. multilateral development banks and UN agencies, to offer 70 Report on Business The Forest Carbon Partnership Facility FCPF Portfolio Status www.forestcarbonpartnership.org Sixteen �nancial contributors had pledged about $345 million Operational since June 2008, the Forest Carbon Partnership to the FCPF by the end of 2010: $200 million to the Readiness Facility (FCPF) is a global partnership focused on reducing Fund and $145 million to the Carbon Fund. In 2010, the emissions from deforestation and forest degradation, as well as FCPF continued to strengthen its partnership of countries and forest carbon stock conservation, sustainable management of stakeholders. More than ever before, the important role of forests, and enhancement of forest carbon stocks (a collection forests in mitigating GHG emissions and maintaining resilience of activities known as REDD+). The FCPF has two objectives: to climate change was a focal point of international dialogue. (1) to assist tropical and subtropical forest countries with the Progress on REDD+ was made at the Conference of Parties in development of systems and policies for REDD+, captured in Cancun (see “REDD+: Exploring the Role of Forests,� page 83). the Readiness Mechanism and supported by the Readiness The unique FCPF partnership not only allowed participants to Fund, and (2) to provide them with performance-based discuss opportunities and challenges to implementing REDD+ payments for ERs through the Carbon Finance Mechanism in their individual countries, but it also gave them a neutral and and the Carbon Fund. The FCPF cooperates closely with other innovative space to propose different solutions with the rich initiatives, including the UN-REDD Programme and the Forest input of counterparts from other countries and independent Investment Program. experts outside of the climate negotiations. The Partnership is composed of 37 REDD Country Participants (14 in Africa, 15 in Latin America and the The Readiness Mechanism Caribbean, and 8 in Asia and the Paci�c) and 15 �nancial contributors. The Facility is governed by a 28-member In 2010, signi�cant progress was made in moving from the Participants’ Committee and six Observers, all elected planning stage to REDD Readiness preparation in forested or nominated by stakeholders, including REDD Country developing countries. Ten REDD Countries submitted formal Participants, �nancial contributors, forest-dependent indigenous Readiness Preparation Proposals, providing a wealth of peoples and other forest dwellers, NGOs, international experience and information from which the international organizations, the UN-REDD Programme, the UNFCCC community is learning about REDD+. This past year, the 10 Secretariat, and the private sector. The World Bank acts as countries that submitted R-PPs were allocated funding for Trustee for both the Readiness Fund and the Carbon Fund their proposals, and they are looking ahead towards their and provides secretariat services. The World Bank also acts as implementation. delivery partner for the FCPF, providing technical support to the The Fund was also able to offer $200,000 grants to all REDD Country Participants and conducting due diligence on REDD Participant Countries to support the preparation of their matters such as �duciary policies and environmental and social R-PPs. A number of these grants were signed and disbursing, safeguards. Carbon Finance for Sustainable Development 2010 71 with some fully disbursed. The �rst independent evaluation of the FCPF was initiated in December 2010, and the FCPF published some valuable lessons learned since 2008 (see Early Lessons from the Forest Carbon Partnership Facility, page 85). The Carbon Finance Mechanism Though the focus to date has been on Readiness, important planning was accomplished in 2010 towards making the FCPF Carbon Fund operational in 2011. It will be a public-private partnership that will provide payments for Veri�ed ERs from REDD+ programs in countries that have made, or made considerable progress towards, REDD+ Readiness. 2010 Participants AGENCE FRANÇAISE DE DEVELOPPEMENT GOVERNMENT OF AUSTRALIA GOVERNMENT OF CANADA GOVERNMENT OF DENMARK THE EUROPEAN COMMISSION GOVERNMENT OF FINLAND GOVERNMENT OF GERMANY GOVERNMENT OF JAPAN THE NATURE CONSERVANCY GOVERNMENT OF THE NETHERLANDS GOVERNMENT OF NORWAY *Argentina *Ghana Papua New Guinea GOVERNMENT OF SPAIN Bolivia Guatemala Paraguay Cambodia Guyana Peru GOVERNMENT OF SWITZERLAND Cameroon Honduras Suriname Central African Rep. Indonesia GOVERNMENT OF THE UNITED KINGDOM *Tanzania Chile *Kenya Thailand Colombia *Lao P.D.R. GOVERNMENT OF THE UNITED STATES *D.R. of Congo Liberia Uganda *Rep. of Congo Madagascar Vanuatu *Costa Rica *Mexico Vietnam El Salvador Mozambique Equatorial Guinea *Nepal Ethiopia Nicaragua Gabon Panama * Countries with Readiness Preparation Proposals formally accessed as of December 31, 2010. 72 Report on Business Carbon Finance for Sustainable Development 2010 73 74 Report on Business Joëlle Chassard Chair, Carbon Partnership Facility Manager, Carbon Finance Unit, The World Bank The Carbon Partnership Facility Strengthened by the rich experience garnered over the past Inherently, this will give the CPF a different character. decade, we have embarked on our next 10 years of carbon Instead of working on a project- by-project basis with �nance. Even if it is taking time for the global community to individual developers, we will be working on a larger, more put in place an international climate regime post-2012, with programmatic basis with governments and agencies to all the resulting uncertainties this implies in the interim, we develop large-scale carbon �nance programs. These programs are forging ahead with our work to expand the scope, scale, will be linked to World Bank operations and other sources and range of climate change mitigation activities in our partner of funding to provide more comprehensive approaches to countries. �nancing clean technologies. The Carbon Partnership Facility is a centerpiece of This is uncharted territory, and requires a new way of our efforts to continue to innovate in the use of market doing business. That is why we have established the CPF as a mechanisms and to scale up their impact on global emission partnership, where both Buyer and Seller Participants, together reductions. The fundamental goal of the CPF is to help with Donors and Host Country Partners, can sit together at the our partner countries utilize carbon �nance to implement table, learn from each other’s experiences, and work together systematic approaches to low-carbon growth. To do this, our to design solutions that will work on the ground and be focus has to be on �nding ways to support their policies and mutually bene�cial. This, we believe, is the most effective way initiatives to catalyze public and private investment in clean to drive innovation and to scale up carbon �nance. technologies. Carbon Finance for Sustainable Development 2010 75 The Carbon Partnership Facility lending operations. It facilitates the implementation of low- www.wbcarbon�nance.org/cpf carbon programs across an array of sectors and technologies— energy generation and distribution, energy ef�ciency, and waste Made operational in 2010, the Carbon Partnership Facility management—in situations where governments need policy (CPF) is designed to develop and market ERs by providing measures or investments. carbon �nance to investments focused on delivering post- 2012 ER assets. It consists of the Carbon Asset Development CPF Portfolio Status Fund, which supports the preparation of the ER programs, and the CPF Carbon Fund, which will purchase ERs generated The �rst Tranche of the Carbon Partnership Facility became by CPF programs. The CPF collaborates with governments operational on May 15, 2010. By the end of 2010, it had and market participants on investment programs and sector- €140 million in commitments and an additional €11 million in based interventions that are consistent with low-carbon contributions to the Carbon Asset Development Facility. economic growth and the sustainable development priorities of The key objective of Tranche 1 is to test the CPF model. developing countries. The goal is to demonstrate the ef�cacy of using the CDM In the current Kyoto period, existing carbon �nance Programme of Activities approach on a large scale, linked to mechanisms (e.g., CDM) have operated largely on a project- World Bank operations that support partner country initiatives. by-project basis. The CPF utilizes scaled-up, programmatic New approaches, such as city-wide programs, will be tested. approaches, such as the CDM Programme of Activities, to New CDM methodologies in areas of great potential for ERs, enable carbon �nance to support partner country initiatives such as energy ef�ciency in buildings, will be developed. in support of low-carbon investments. It also targets areas While Tranche 1 will take into account current carbon that have not been reached effectively by mechanisms in the market conditions, the longer term vision is to use the CPF past, such as energy ef�ciency, and proposes to pilot city-wide to innovate and scale up CDM modalities at the frontier. The carbon �nance programs. lessons learned from initial efforts on Tranche 1 programs will The Facility draws on the World Bank’s �nancial and set the stage for the World Bank to make further constructive knowledge resources to integrate carbon �nance with contributions to the design and implementation of future sustainable development plans by aligning carbon �nance with carbon market mechanisms. World Bank country assistance programs, and often linking with Jordan: Amman Green Growth Program Cities are the fastest growing source of global GHG emissions, and urban areas represent a rising challenge for global climate change mitigation. In an effort to promote access to carbon �nance at the city level, the World Bank published A City-wide Approach to Carbon Finance in 2010. This document presents a series of steps to create city-wide Programmes of Activities, which are coordinated by the city authority and ensure carbon impact consideration in every decision. In May 2010, the Carbon Partnership Facility and the Greater Amman Municipality signed a Seller Participation Agreement for the Amman Green Growth Program, representing the �rst city-wide PoA in the world. The PoA includes ER opportunities in municipal waste, urban transport, sustainable energy, and urban forestry. Based on initial estimates, the Amman Green Growth Program has the potential to reduce GHG emissions by up to 560,000 tCO2e per year. The particularly strong commitment to the Amman Green Growth Program prompted the World Bank to use it as a case to support the submission of the City-Wide Approach to Carbon Finance to the CDM Executive Board. At the UNFCCC climate conference in Cancun, the Parties requested that the Executive Board reassess regulations related to PoAs, paving the way for future city-wide programs around the world. 76 Report on Business 2010 Participants Buyer Participants GOVERNMENT OF SPAIN ENDESA MINISTRY OF FINANCE GOVERNMENT OF NORWAY2 SWEDISH ENERGY AGENCY2 2 As of December 31, 2010, the participation of Norway and Sweden was pending the completion of an amendment to the CPF Instrument. Seller Participants Donors to the Carbon Asset Development Fund FONDS D’EQUIPEMENT COMMUNAL OF MOROCCO GOVERNMENT OF SPAIN CAIXA ECONÔMICA FEDERAL OF BRAZIL GOVERNMENT OF NORWAY MINISTRY OF INDUSTRY AND TRADE OF VIETNAM GOVERNMENT OF ITALY GREATER AMMAN MUNICIPALITY EUROPEAN COMMISSION PROVINCIAL ELECTRICITY AUTHORITY OF THAILAND Carbon Finance for Sustainable Development 2010 77 The Way Forward 78 The Way Foward The World Bank is already positioning itself for the post-2012 carbon market by putting forward innovative approaches, such as the Partnership for Tosi Mpanu-Mpanu Chair, African Group on Market Readiness. Climate Change Negotiations The Cancun Agreements were a major milestone and re- will support their sustainable development goals by rewarding them established con�dence in multilateralism. They set a path towards for managing their natural resources in a sustainable fashion. In raising a collective ambition to prevent climate change, laying this regard, the important role of the World Bank in ongoing and the foundation for enhanced adaptation actions and substantial new initiatives, such as the Forest Carbon Partnership Facility, the scaling-up of climate �nance. However, the future of the Kyoto BioCarbon Fund, and the Forest Investment Program, should be Protocol, and therefore the continuation of its mechanisms, remains recognized. Nevertheless, there is still a need for reform of the uncertain. For the two negotiation tracks, clari�cation of the desired Clean Development Mechanism, especially with regard to Least outcomes and de�nition of the timeline for work completion will Developed Countries that have not yet bene�tted from the CDM be required in Durban, South Africa. The World Bank is already and still experience restricted access to carbon markets. We are positioning itself for the post-2012 carbon market by putting looking forward to the climate talks in Durban, where we will have forward innovative approaches, such as the Partnership for Market the opportunity to move key issues forward to keep Africa safe from Readiness. the adverse effects of climate change and advance its sustainable In Africa, REDD+ activities and programs hold substantial and development agenda. transformational potential for some tropical forest countries. REDD+ Carbon Finance for Sustainable Development 2010 79 The Partnership for Market Readiness The future of carbon �nance beyond 2012 The PMR is an example of how the World Bank continues to address the needs of the countries responding to a growing may be uncertain, but the World Bank is demand for capacity building in preparing for post-2012 taking steps now to ensure new �nancial carbon market options. Many countries, including China, Chile, instruments continue to drive climate change Indonesia, India, and Mexico, have shown interest in using mitigation. The Partnership for Market carbon market instruments and emissions trading mechanisms Readiness (PMR) was launched at the end of to encourage investment in carbon-alternative technologies. For 2010 to provide governments, international example, China is exploring the establishment of a domestic emissions trading scheme, and India is putting in place a trading organizations, and relevant stakeholders with scheme for renewable energy and energy ef�ciency certi�cates. a platform to share, innovate, and support market instruments necessary to meet Building Capacity for Market Instruments national mitigation targets. The Partnership’s Market instruments, including the Clean Development multi-million dollar fund, combined with Mechanism (CDM), Joint Implementation (JI), and domestic specialized technical support, will provide emissions trading schemes, have successfully encouraged support to countries in their efforts to use investment towards lower-carbon alternatives. In a cost- effective manner, they drive the �nancial flows needed to market instruments to scale up mitigation. divert a business-as-usual trajectory and reduce emissions. The challenge moving forward is how to best scale up carbon Carbon Finance Beyond 2012 market mechanisms, allowing them to expand in scope and The PMR focuses on supporting the pursuit of sustainable operate more ef�ciently. development through access to carbon markets. Launched The PMR will address this challenge by creating at an event on the sidelines of the UNFCCC conference in opportunities for carbon markets. It will provide a technical Cancun in December 2010, the PMR has �nancial pledges forum to discuss and develop new market instruments, as well of $70 million from the European Commission and 9 donor as enabling capacity building to help countries prepare for them. countries, including Australia, Germany, Norway, Japan, the The PMR will support pilot programs and provide the channels Netherlands, Spain, Switzerland, the United Kingdom and the to exchange experiences and lessons learned. The process will United States. The goal is to raise $100 million to provide be led by the participating countries within the context of their �nancial and technical support to countries that need it most. mitigation priorities and level of market development. 80 The Way Foward “We can build support for addressing greenhouse gases by more countries—developing and developed— by putting concepts into practice.� World Bank President, Robert Zoelllick in the January 23, 2011 edition of Newsweek An aim of the PMR is to encompass a range of market Putting Concepts into Practice instruments. It will cover domestic schemes, including One of the greatest ways the World Bank can enable climate emissions trading for carbon or its proxies (e.g., renewable change action in countries throughout the world is by putting energy and energy ef�ciency certi�cates). It will also include innovative concepts into practice. The PMR will give its international market instruments, such as new scaled-up Participants an important platform to explore new ideas, as well crediting schemes. Capacity building will be an important as the support to bring those ideas to fruition. By mobilizing part of the PMR’s work: certain “readiness components� are resources, encouraging the sharing of experiences, and working essential to any form of market instruments. The PMR will to invent new and innovative market instruments, the PMR will support a range of technical, policy, and institutional readiness propel carbon �nance through 2012 and beyond. initiatives, such as setting up domestic systems for monitoring, reporting and veri�cation, enhancing institutional capacity, and establishing policy and regulatory frameworks. Carbon Finance for Sustainable Development 2010 81 82 The Way Foward REDD+: Exploring the Role of Forests From Argentina to Zambia, developing countries with a natural capital of land and forests have an intricate mosaic of land types. However, expanding agricultural areas and development have resulted in lost forest area and declining biodiversity. The concept of REDD+ was proposed in 2005 in the UNFCCC climate change negotiations as a policy instrument to slow, stabilize, and reverse this history of loss. It began as a proposal for reducing emissions from deforestation and forest degradation (REDD), and then expanded to include conservation, sustainable management of forest, and enhancement of forest carbon stocks in developing countries (REDD+). There are tremendous opportunities for climate change mitigation and adaptation from REDD+ activities. As countries experiment with this new mechanism, the fundamental challenges are building capacity while integrating REDD+ into national development plans, altering land-use incentives and behavior, and safeguarding local participation and implementation. REDD+ at UNFCCC COP16 in Cancun climate change at a national scale. Currently, the Kyoto In December 2010, the UNFCCC COP16 in Cancun, Mexico Protocol’s CDM only allows afforestation and reforestation reached a decision about REDD+, encouraging developing activities at the project scale. The up-scaling of mitigation countries to act in accordance with national circumstances activities to a national level, while allowing voluntary carbon and capabilities to develop: (1) a REDD+ strategy or action offset projects and sub-national piloting in the interim, was the striking accomplishment of Cancun. The COP16 decision con�rmed a phased approach to system for robust and transparent monitoring and reporting REDD+: a �rst phase of national strategies and capacity strategies for addressing and respecting safeguards throughout the implementation of REDD+ activities. results-based activities that are fully measured, reported, and While no quanti�ed global deforestation target was agreed veri�ed. Bilateral and multilateral funding is anticipated to assist upon, the decision represents a historical development, with the �rst two phases while further discussions on funding particularly with respect to the scale of actions. Broad support of the third phase are called for at COP17 in Durban, South was won for slowing the loss of tropical forests while mitigating Africa. Carbon Finance for Sustainable Development 2010 83 Building in the REDD Space resources from national and international REDD+ institutions. The policy space pioneered by the development of REDD+ Key tasks of the Partnership include designing and maintaining has widened and deepened in the past year. An important the voluntary REDD+ database, analyzing �nancing gaps, transition occurred: the creative international policy concept sharing of lessons on REDD+ initiatives, and developing and and exploratory project-scale emissions reduction (ER) launching a website for the REDD+ Partnership. agreements have developed into the early stages of a country- driven institutional architecture and stakeholder participation. The Year Ahead: the World Bank, REDD+, The governing bodies of the Forest Carbon Partnership and Low-Carbon Development Facility (FCPF), the Forest Investment Program (FIP), and Initiatives for REDD+ have matured, allowing it to �t into the UN-REDD Programme (UN-REDD) have mandated their the context of the UNFCCC negotiations for advancing low- secretariats to enhance cooperation and coherence among carbon development strategies. In the coming year, individual REDD+ institutions to support country-level REDD+ efforts and countries and REDD+ programs will be experimenting with �nancing. FCPF and UN-REDD have jointly developed both developing methodologies, best practices for stakeholder guidelines for stakeholder engagement and a common draft participation, reference levels for forest emissions, and template for Readiness Preparation Proposals. Work is also measurement, reporting and veri�cation of REDD+ within the underway to create a common approach to delivery of FCPF low-carbon development context. At the World Bank, carbon REDD+ grants as well as social and environmental safeguards �nance pilots by the BioCarbon Fund that expand beyond among various partner entities. afforestation and reforestation into soil carbon management Other multilateral donor trust funds have created new and landscape-scale programs will broaden the scope of modalities to channel additional resources to countries in land-use emissions management projects. In addition, the support of REDD+ efforts. For one, as part of its program FCPF Carbon Fund will begin assessing potential large-scale for Sustainable Forest Management/REDD+, the Global ER programs, methods, and price setting in a public-private Environment Facility has created an incentive-based context. mechanism with a funding envelope of $250 million that This may be the year that the global community asserts may be combined with country-level REDD+ allocations. its understanding of what is required to signi�cantly mitigate For another, Brazil’s Amazon Fund has begun to implement global emissions: expansion from small but ingenious pilots to its nearly $1 billion program of setting reference levels for visionary infrastructure and delivery mechanisms at the country forest cover change, reviewing and funding proposals to slow level. The 2011 work program for REDD+ features some deforestation, and delivering payments to eligible forest users daunting challenges. National institutions are needed to assert and communities. influence over lands, organizations, and economic incentives. At the Oslo Climate and Forest Conference in May 2010, Technical methodologies are required to measure and monitor the REDD+ Partnership—a consortium of 72 countries REDD+ activities relative to an established reference level. and relevant stakeholders, including indigenous peoples’ Governance must be advanced at local and national levels. organizations, civil society, and the private sector —announced To prepare for the third phase of REDD+, the international its goals to increase ef�ciency, effectiveness, transparency, community must consider �nancial options and make decisions and coordination across bilateral, national, and international that promote the possibility of a potentially massive private programs supporting REDD+. A central focus for the year sector investment. This needs to be the year that incentives ahead emerged as the need to match identi�ed national begin to reach the ground. REDD+ initiatives with available �nancial and technical 84 The Way Foward Early Lessons from the Forest Carbon Partnership Facility In November 2010, the World Bank released a working paper compiling lessons learned from the early stages of the Forest Carbon Partnership Facility that can be applied moving forward. The overall message emphasized �nancial incentives and governance, the need to start building with awareness of timing and sequencing, the growing attention to issues of poverty, and the increasing relevance of project implementation at the sub-national level. These messages were highlighted in 10 speci�c lessons: Partnership Governance A partnership among often-contentious stakeholders involved Early cooperative development of a �rst set of rules for REDD+ in tropical land use can �nd ways to communicate and transactions and bene�t sharing is an essential prerequisite for explore highly policy-sensitive topics, if it �rst builds trust and the broad legitimacy and support of REDD+ programs. willingness to share new ideas. Methodological Issues Coordinating Sectors Addressing methodological issues such as reference level and The cross-cutting nature of REDD+ presents new challenges measurement, and reporting and veri�cation is a key entry in sectoral coordination that may be solved by embedding requirement for REDD+ programs. In the absence of clear the REDD+ strategy in overarching policy frameworks (e.g., a policy guidance from the international level and price signals nation’s low-carbon development strategy) and by mobilizing for REDD+, countries could embark on a no-regrets stepwise decisive political will. approach to begin building capacity. Stakeholder Participation Financing Countries are now grappling with how to operationalize the Early initiatives to �nance REDD+ have illuminated a paradox: inclusion of stakeholders in REDD+ policy and implementation, in spite of the high level of international commitments to raising new issues of control over resource management and REDD+ funding, the mechanics of multilateral programs to the respective decision-making processes. move resources to REDD+ partner countries require due diligence and safeguards that have slowed the flow of funds Country Readiness Preparation Proposals to countries. Political will is required to create highly quali�ed teams capable of resolving competing interests into a coherent national plan A Realistic Role for REDD for REDD+. If REDD+ is to evolve and achieve its promise to mitigate global climate change, these lessons suggest it needs New Techniques and Tools some time, some space, and some flexibility to be fairly Promising results are emerging where countries are combining experimented with over the next few years. traditional evaluation of potential REDD+ strategy options with newer analytical tools that facilitate making choices among These 10 lessons illustrate an important point about competing options. REDD+ and the FCPF: this is a process. REDD Countries and the Partnership are only beginning this journey, and On-the-Ground Implementation there is quite a road ahead. In particular, we all must be A REDD+ bridge has yet to be built between the wealth of realistic about what the R-PP provides: not the solution, but experiences at the local level in managing forest resources and an important step towards it. REDD+ goals are ambitious land-use change, and ideas on REDD+ policy frameworks and and it will take patience and dedication to reach them. incentive programs at the national level. Carbon Finance for Sustainable Development 2010 85 CDM in the Poorest Countries Realizing the Potential of the Clean Development restrict the use of CERs for compliance (for projects registered Mechanism in Least Developed Countries after December 31, 2012) to those located in LDCs. Also, the UNFCCC is developing a loan scheme to support project The CDM is intended to lower the cost of abating GHG developers in under-represented countries. emissions while facilitating a wide range of socioeconomic However, further actions are needed to remove the barriers bene�ts. By the end of 2010, the CDM had been successful in to mitigation actions under the CDM in LDCs. In particular, registering more than 2,800 projects, and an additional 2,500 progress is needed on two parallel fronts. First, from a projects are currently in the validation or registration process. policy perspective, the CDM Executive Board should reform This success is further exempli�ed by the over 500 million CDM regulation. Second, on the ground in host countries, Certi�ed Emission Reductions (CERs) that have been issued partnerships should be fostered among governments, bilateral from registered CDM projects. However, the greatest impacts of and multilateral institutions, and the private sector in order to CDM have been restricted to a few large developing countries. build the local capacity to implement mitigation actions. The reach to Least Developed Countries (LDCs) has been limited. LDCs host only about 0.7 percent of all registered CDM projects, producing less than 0.4 percent of the expected average ERs. The reasons for the low uptake of CDM projects in LDCs are diverse. To begin with, the magnitude of emissions in the countries is relatively small. A signi�cant portion of the emissions are concentrated in land-use activities, not all of which are currently eligible under the CDM. The current CDM regulations are complex and costly to navigate. Combined with a dif�cult investment climate, insuf�cient institutional capacity, and lack of policy support, exploring CDM is often dif�cult for many low-income countries. Initiatives that acknowledge the need to support CDM projects and programs in LDCs are on the rise. Very small projects are now allowed to use simpli�ed procedures on additionality and the CDM registration fee is waived in LDCs. In addition, it appears that the third phase of the EU ETS will 86 The Way Foward Reform of CDM Regulation Looking forward, innovations in carbon �nance must be CDM procedures and methodologies can be particularly developed with LDCs in mind. Programmes of Activities cumbersome and costly to use in the poorest countries (PoAs) still represent a relatively new generation of carbon and there is an overwhelming need for streamlining and �nance activities. To ensure these are accessible to LDCs, the simpli�cation. Data availability is often constrained in LDCs. regulations on PoAs need to be improved to allow dispersed Therefore, standardization of emissions baselines must be and small mitigation activities (e.g., cook stoves) to be promoted. This could be based on benchmarks, default values, implemented cost-effectively. simpli�ed barrier tests, or a positive list. It would also reduce transaction costs and processing time while maintaining the Building Local Capacity environmental integrity of the CDM. The long-term sustainability of mitigation actions requires The unique circumstances of LDCs must be considered in capacity building in host countries, both in terms of �nancial CDM reform, particularly the potential for land-use mitigation and institutional capabilities. There is a strong need to promote and conditions of extreme poverty. The rules on temporary up-front �nancing and cost-effective �nancial intermediation credits issued for land-use project types (e.g., afforestation/ for CDM projects. The contribution of carbon revenue streams reforestation) must be reconsidered. Land-use projects are must be recognized to bridge �nancing gaps for projects. the mainstay of mitigation action in low-income countries, The private sector must participate as well, particularly with and these projects must not be penalized due to the rules regards to implementing mitigation actions through incentives, on crediting. Given the poverty that exists in LDCs, the unmet technology transfer, and training. The capacity of Designated demand for energy required for minimum standards of living National Authorities and other national institutions also needs must be recognized. continuing support to ensure their effective role in catalyzing the development of CDM projects. Carbon Finance for Sustainable Development 2010 87 Future Directions in Carbon Finance Carbon �nance has been a remarkable REDD+ and agricultural sequestration. The socioeconomic bene�ts are vast. The sector promotes community resilience to success over the last 10 years. An impressive food shortages and extreme weather, biodiversity protection, $27 billion of carbon �nance has flowed to ER and inclusive access to international trade in agricultural projects, in turn leveraging an additional $100 commodities. The World Bank intends to continue to support billion in related �nancing. However, some and expand this pioneering work, building on its strong key areas for climate change mitigation in emphasis on poverty reduction and improvements to rural low-income countries, especially in Africa, are livelihoods. bypassed by market mechanisms. The World Reconsidering Regulatory Frameworks Bank is responding to this by tackling key LDCs can bene�t from carbon markets to help meet their implementation hurdles. energy access, transport, and waste management needs. However, the regulatory framework must evolve to better Land Use, Land-use Change, and Forestry reflect the context of these countries. In particular, procedures (LULUCF) and Beyond for project approval and issuance of CERs require simpli�cation. Land-use change is responsible for about 20 percent of annual This will reduce transaction costs and delays, which is vital for global GHG emissions. The sale of carbon assets represents the viability of small-scale projects. a rare opportunity for rural populations to compete in the The World Bank will work with partners to help simplify the global market by improving the way they manage their natural monitoring procedures and requirements to be better adapted resource base. However, only a small subset of mitigation to small projects with limited capacity and limited data. The activities in this sector are eligible under the CDM and the development of standardized baselines, CDM methodologies offsets generated are penalized by regulations that make them that recognize current energy demand, and rules for PoAs much less attractive than those generated by other types need to be further clari�ed and simpli�ed. Improvements of projects. in regulatory frameworks will help channel carbon market Current trends in the negotiations for post-2012 LULUCF resources to LDCs, and pave the way for a progressive rules are paving the way for innovation in this sector, including transition to new market mechanisms. 88 The Way Foward New ideas for �nancing low-carbon projects Limited access to �nance can be a signi�cant hurdle for for an equity investment. Not only would this improve low-carbon projects. The impact of carbon �nance could be the risk pro�le, it would allow leveraging of more private signi�cantly enhanced by developing ways to “frontload� sector resources to the riskiest countries. Guarantees for carbon �nance resources to the early stages of project the future generation of CERs may also revise the credit development. Many projects, in sectors varying from renewable quality of ERPAs in local �nancial institutions. energy to forest management, often struggle to reach �nancial closure. This is particularly true in LDCs, where access to income generated from expected carbon revenues. This �nance is more dif�cult. Local �nancial institutions are often would work well when scaling up successful projects. reluctant to lend against an Emission Reduction Purchase Given the high risk inherent to testing innovative mechanisms Agreement (ERPA) because of unfamiliarity with carbon in LDCs, initial grant support from developed countries would �nance or perceived regulatory risks. In some sectors, such as be required. However, such grants may be reduced over renewable energy, this is compounded by lack of familiarity time as there is great potential that these mechanisms would with new technology and inexperienced project sponsors, become self-sustaining. The World Bank recognizes these increasing requirements on the level of equity. issues and is prepared to be a leader, exploring solutions, This hurdle can be overcome using various approaches and considering a number of different innovative approaches, and instruments. Some ideas under development include: testing new ideas in pilot projects through the years to come. a share of the future CERs generated by the project. Combined with solid project due diligence and appropriate sizing of the grant, up-front grants have the potential to provide key �nancial support at a most crucial time. Carbon Finance for Sustainable Development 2010 89 Who We Are 90 The Way Foward Carbon Finance for Sustainable Development 2010 91 Carbon Finance Glossary Assigned Amount Unit (AAU) reward innovation, ef�ciency, and early action and provide A Kyoto Protocol unit equal to one metric ton of carbon dioxide strict environmental accountability without inhibiting economic equivalent. Each Annex I Party issues AAUs up to the level of its growth. assigned amount, established pursuant to Article 3, paragraphs 7 and 8, of the Kyoto Protocol. Assigned amount units may be Carbon Asset exchanged through emissions trading. The potential of greenhouse gas emission reductions that a project is able to generate and sell. Adaptation Adjustment in natural or human systems in response to actual Carbon Credits or expected climatic stimuli or their effects, which moderates A permit that allows the holder to emit the equivalent of one harm or exploits bene�cial opportunities; for example, the metric tonne of CO2. Credits are awarded to countries or construction of flood walls to protect property from stronger groups that have reduced their emissions below an assigned storms and heavier precipitation, or the planting of agricultural quota. Credits can be exchanged between businesses or crops and trees more suited to warmer temperatures and drier bought and sold in international carbon markets at the soil conditions. prevailing market price. Afforestation Carbon Finance Planting of new forests on lands that historically have not Resources provided to projects generating (or expected to contained forests. generate) greenhouse gas emission reductions in the form of the purchase of such emission reductions. Annex I Parties The countries listed in Annex I of the UNFCCC and in Annex B Carbon Market of the Kyoto Protocol. A market created to buy and sell carbon credits. Under a regulated limit on carbon emissions (a “cap� on emissions), Avoided Deforestation permits or allowances are given or auctioned to carbon Preventing deforestation by compensating countries for carbon emitters. Entities emitting below their cap may trade their extra dioxide reductions realized by maintaining their forests. allowances (carbon credits) to those who need additional capacity, creating a market for buying and selling carbon credits. Bagasse The �brous residue left after crushing sugarcane. Carbon Sequestration The process of removing carbon from the atmosphere and Biomass Fuel depositing it in a reservoir. Fuels produced from dry organic matter or combustible oils produced by plants. These fuels are considered renewable CDM Executive Board as long as the vegetation producing them is maintained or A 10-member panel that supervises the Kyoto Protocol’s replanted, such as �rewood, alcohol fermented from sugar and CDM under the authority and guidance of the Conference of combustible oils extracted from soy beans. Their use in place the Parties. The CDM Executive Board is the ultimate point of fossil fuels cuts greenhouse gas emissions because the of contact for CDM Project Participants for the registration of plants that are their sources recapture carbon dioxide from the projects and the issuance of CERs. atmosphere. Certi�ed Emission Reduction (CER) Cap-and-Trade System A unit equal to one metric tonne of carbon dioxide equivalent, An environmental policy tool that institutes a mandatory which may be used by Annex I parties towards meeting their cap on emissions while providing emitters with flexibility on binding emission reduction commitments under the Kyoto how they may comply. Successful cap-and-trade programs Protocol. CERs are issued for emission reductions from CDM 92 Glossary project activities. Two special types of CERs (temporary CERs European Union Emissions Trading Scheme (EU ETS) and long-term CERs) are issued for emission reductions from In January 2005, the European Union Emissions Trading afforestation and reforestation CDM projects. Scheme commenced operation as the largest multi-country, multi-sector greenhouse gas emissions trading scheme Clean Development Mechanism (CDM) worldwide. The scheme is based on Directive 2003/87/EC, A mechanism provided by Article 12 of the Kyoto Protocol, which entered into force on October 25, 2003. through which developed countries may �nance greenhouse gas emission reduction projects in developing countries, and Flexible Mechanisms receive credits for doing so which they may apply toward Three procedures established under the Kyoto Protocol meeting mandatory limits on their own emissions. to increase the flexibility and reduce the costs of making Clean Energy or Clean Technology Development Mechanism, International Emissions Trading and Although there appears to be no strict de�nition, clean energy Joint Implementation. is any energy that causes little or no harm to the environment. Wind energy, solar energy (in all its forms—photovoltaic, Greenhouse Gases (GHGs) geothermal, solar thermal, etc.), hydrogen and fuel cells, wave The atmospheric gases responsible for causing global warming and tidal energy and biomass are all examples of clean energy. and climate change. Six gases are listed in Annex A of the Kyoto Protocol. The major greenhouse gases are carbon Community Bene�ts dioxide (CO2), methane (CH4), nitrous oxide (N2O). Less Community bene�ts are identi�able and quanti�able prevalent—but very powerful—are hydrofluorocarbons (HFCs), improvements in the quality of life of a local group of people perfluorocarbons (PFCs) and sulphur hexafluoride (SF6). who are identi�ed by the trustee and the project entity as in the vicinity of or affected by a project. Green Investment Scheme (GIS) A �nancing mechanism in which the proceeds from emissions Conference of the Parties (COP) trading under the Kyoto Protocol are reinvested in projects The supreme body of the UNFCCC. It currently meets once a in the host country’s economy with the objective of further year to review the Convention’s progress. reducing emissions. Countries with Economies in Transition Hectare (ha) Those Central and Eastern European countries and former A metric unit of measure equivalent to unit of area equal to republics of the Soviet Union in transition from state-controlled 10,000 square meters, or 2.47 acres. to market economies. HFC-23 (triofluoromethane) Designated N ational Authority Greenhouse gas that has 11,700 times the global warming An of�ce, ministry or other of�cial entity appointed by a Party potential of carbon dioxide and is a by-product in the to the Kyoto Protocol to review and give national approval to manufacturing process of HCFC-22, used in air conditioning, projects proposed under the CDM. refrigeration and as a feedstock. Emission Reduction (ER) Host Country The measurable reduction of release of greenhouse gases into The country where an emission reductions project is physically the atmosphere from a speci�ed activity or over a speci�ed located. area and a speci�ed period of time. Host Country Committee Emission Reductions Purchase Agreement (ERPA) The committee known as the Carbon Finance Host Country Agreement which governs the purchase and sale of emission Committee established by the World Bank for the purposes reductions. of facilitating interaction between the host countries and the Carbon Finance for Sustainable Development 2010 Carbon Finance for Sustainable Development 2010 93 93 World Bank in relation to the development and operation of Mitigation CDM projects. In the context of climate change, a human intervention to reduce the sources or enhance the sinks of greenhouse gases. Intergovernmental Panel on Climate Change (IPCC) Examples include using fossil fuels more ef�ciently for industrial Established in 1988 by the World Meteorological Organization processes or electricity generation, switching to solar energy and the UN Environment Program, the IPCC surveys worldwide or wind power, improving the insulation of buildings and scienti�c and technical literature and publishes assessment expanding forests and other “sinks� to remove greater amounts reports that are widely recognized as the most credible existing of carbon dioxide from the atmosphere. sources of information on climate change. The IPCC also works on methodologies and responds to speci�c requests from the Programme of Activities (PoA) Convention’s subsidiary bodies. The IPCC is independent of the Emission reductions that are achieved by multiple veri�able Convention. activities executed over time as a direct response to a government measure or private sector initiative. Programmes International Development Association (IDA) typically result in a multitude of greenhouse gas-reducing One of the �ve institutions composing the World Bank Group, activities in multiple sites over the life of the programme. which focuses exclusively on the world’s poorest countries. Reforestation Joint Implementation (JI) Replanting of forests on land that was previously forested but A mechanism under the Kyoto Protocol through which a subsequently converted to other use. developed country can receive “emission reduction units� when it helps to �nance projects that reduce net greenhouse Small-scale Projects gas emissions in another developed country (in practice, the Projects that are compatible with the de�nition of “Small-scale recipient state is likely to be a country with an “economy in CDM Project Activities� set out in decision 17/CP.7 by the transition�). An Annex I Party must meet speci�c eligibility Conference of Parties to the UNFCCC. requirements to participate in Joint Implementation. Sustainable Development Kyoto Protocol Development that meets the needs of the present generation An international agreement standing on its own, and requiring without compromising the ability of future generations to meet separate rati�cation by governments, but linked to the UNFCCC. their own needs. The Kyoto Protocol, among other things, sets binding targets for the reduction of greenhouse gas emissions by industrialized Tonne of Carbon Dioxide Equivalent (tCO2e) countries. It entered into force on February 16, 2005. The universal unit of measurement used to indicate the global warming potential of each of the six greenhouse gases. Carbon Land Use, Land-Use Change and Forestry (LULUCF) dioxide—a naturally occurring gas that is a byproduct of burning A greenhouse gas inventory sector that covers emissions and fossil fuels and biomass, land-use changes and other industrial removal of greenhouse gases resulting from direct human- processes—is the reference gas against which the other induced land use, land-use change and forestry activities. greenhouse gases are measured. Tranche agricultural activities may add to atmospheric levels of methane The Spanish Carbon Fund, the BioCarbon Fund, and the and nitrous oxide. Umbrella Carbon Fund consist of tranches. For example, the BioCarbon Fund’s �rst tranche supports a wide variety of land Least Developed Countries (LDCs) use, land-use change and forestry projects, some providing The world’s poorest countries. Least developed countries are emission reductions potentially eligible for credit under the Kyoto Protocol, and some that explore options for carbon (ii) countries commonly referred to as “IDA blend,� with a credits that achieve them by activities other than afforestation and reforestation and therefore not eligible for Kyoto credits as least developed countries by the United Nations. 94 Glossary in the �rst commitment period. Depending on the interests made interference with the climate system. In December of contributors, various additional tranches may be opened, 1997, the Parties to the UNFCCC adopted the Kyoto Protocol. each one with a speci�c focus, which could be sectoral or In February 2005, the Kyoto Protocol entered into force thus geographic. becoming a legally binding instrument. United Nations Framework Convention on Climate Change Voluntary Carbon Market (UNFCCC) The unregulated market which allows individuals, companies The international legal framework adopted in June 1992 at the and organizations to purchase emission reduction credits to Rio Earth Summit to address climate change. It commits the offset the emissions they produce. Parties to the UNFCCC to stabilize human-induced greenhouse gas emissions at levels that would prevent dangerous man- Carbon Finance for Sustainable Development 2010 Carbon Finance for Sustainable Development 2010 95 95 96 From the Carbon Finance Unit Acknowledgements mission statement Managing Editor Deputy Editor Isabel Hagbrink Lorraine Sugar Photo Editor Shahyar Niakan Our mission is to support the global carbon Copy Editor Inge Pakulski Design Corporate Visions market through catalytic initiatives that unlock Printer MOSAIC private capital to mitigate climate change while supporting sustainable development and assisting the poorest communities in developing nations. This report covers the carbon funds and facilities managed by the World Bank during the period from January 1, 2010 through December 31, 2010. An online version of this report is available at www.carbon�nance.org/publications. Notes: All dollar amounts are U.S. dollars ($) unless otherwise indicated. The U.S. dollar/euro exchange rate used in this report is 1.34. All greenhouse gas emission reductions are reported in metric tonnes (equivalent to 1,000 kilograms) of carbon dioxide equivalent (tCO2e). This report is provided for informational purposes only. The carbon funds and facilities reported on are not legal partnerships. No warranties or representations are made as to the accuracy, reliability, or completeness of any information herein. Photos courtesy of the World Bank Photo Gallery, Rhett A. Butler, and Semarnat/Comisión Nacional Forestal, Mexico (photography by Claudio Contreras Koob). carbon�nance.org