MDG Carbon Facility project sourcing

1. MDG Carbon Facility project sourcing Matt Spannagle Technical ManagerMillennium Development Goals Carbon Facility Bureau for Development Policy United Nations Development Programme Session 3, Bratislava, October 14th, 2008

2. High Objective for UNDP’s Carbon Strategy MDG Impact CurrentCDM Market* Low Low Number of Countries High Successes • Of 9 projects in pipeline: • virtually all in underrepresented countries • Yemen & Rwanda likely 1st registered CDM • with strong MDGs • including innovative GIS in Uzbekistan • have significant capacity development in host countries

3. BUT… Uzbekistan - (average 800kt/year from 2009) ~ 3,000kt by 2012 Yemen – (100kt/year from 2009) 300kt by 2012 Macedonia – (50kt/year from 2009(?)) 150kt by 2012(?) Rwanda – (100kt/year from 2010(?)) 200kt by 2012(?) Honduras palm oil - (30kt/yr from 2009) 120kt by 2012 Ukraine landfill – (100kt/yr from 2009) 400kt by 2012 Albania – small hydro (80kt/yr from 2010) 200kt by 2012 Honduras – small hydro (80kt/yr from 2010) 200kt by 2012 Tanzania EE stoves – (50kt/yr from 2010) 150kt by 2012 4,720,000tCO2e

4. SO… 9 projects out of 36 (~ 25%) sourced ~ 4.7Mt by 2012 … 1/3rd 15Mt target ( ~ 30%) NEED TO ACCELERATE SOURCING!

5. Lessons learnt (a) • Overall the MDGCF offers a very competitive package with good conditions and probably best price in the market • UNDP well respected as a non-partisan player • host governments keen to see UNDP enter & promote carbon markets • Project proponents WANT to be part of the MDGCF objectives

6. Lessons learnt (1) • Host Country MoU an impediment • letter exchange significant improvement • Underlying financing is a major hurdle – highest likelihood of success with proponents with: • financing available • at least some equity and/or • established links with financing organisations • support/assistance/tools from HO/specialists on how to handle commercial financing issues needed • Project proponent should be established in the host country – start-ups are much more difficult

7. Lessons learnt (2) • CO capacity and support is critical • new markets, LDCs and smaller countries are not as difficult as assumed – often more interest from host government • must overcome the (common) assumption amongst governments and project proponents that we are: • a donor/free funding • only looking for community-based/small projects • better marketing/communications needed

8. Lessons learnt (3) • need for some flexibility (when appropriate) on cost recovery fee • structured, targeted inception mission well-planned between COs, RTAs, & HO can be effective to drive sourcing • programmatic approach and small scale methodologies are promising/interesting, but have high transaction costs: cannot have the portfolio consisting mostly of these • Late to the party • Others/input?

9. Other questions/developments? • how to maximise benefits from relationships with other institutions working on CDM - UNEP, WB, systematically within Nairobi Framework? • How to coordinate/avoid duplication/conflict with bilateral donors, development NGOs – avoiding conflict of interest, but maximising benefits/opportunities? • Can we engage other parts of UNDP to provide input – BRSP (Growing Sustainable Business); Governance Group, others?

10. Other questions/developments? • how to link effectively and systematically with capacity development work without having conflict of interest • how to have maximum flexibility in MDGCF while ensuring meet DD & UNDP requirements – where can we streamline and/or target efforts in different project types • How/where to use consultants effectively? • DD finalisation & getting financing – guidance/decisions • When do we extend LoE/MoUs etc • competition from those who provide underlying financing? How/should we counter this?

11. High Objective for UNDP’s Carbon Strategy MDG Impact CurrentCDM Market* Low Low Number of Countries High Sourcing strategy Recognise that we’re not going to achieve all of our objective in first phase To meet long term objective, we also need short-term success!

12. Pipeline development issues • Areas of development • Leads from capacity development projects in Africa, LAC • partnerships/collaboration with other organisations • Where UNDP looks good • in more difficult countries (LDCs) • in conjunction with national strategic policy priorities • leveraging other UNDP work

13. Pipeline development issues • Opportunities coming up • programmatic approach to reach community-level, smaller sites • suppressed demand

14. Sourcing strategy • MDG performance on PORTFOLIO basis: • – complex & high MDG project ‘subsidises’ MDGs of simpler but lower MDG projects • vice versa for costs/timing etc • For volume targets, need > projects that can deliver quickly • Does NOT mean we ignore more complex projects: • – but must recognise that complex projects take longer • 2 tracks: • For current portfolio – rapid implementation • For ongoing UNDP objectives - Sourcing ALL project types

15. WHERE to source… • Original thinking: • Several/most projects from established markets (BRIC) • supplemented by some ‘boutique’ projects – with gradual expansion to LDCs (few in pilot phase) • Mostly from replications/expansions of GEF projects • This has not eventuated, and MDGCF seems to have greater opportunity: • in more difficult countries (LDCs) • in conjunction with national strategic policy priorities • leveraging other UNDP work (FNC/SNC, DNA set-up)

16. WHERE to source… (cont’d) • Evolved thinking: • Still aim for some projects in established markets • larger proportion from nascent/secondary markets • Low-risk projects in LDCs/higher risk countries • Focus now on countries with Host Country agreement • We do NOT ignore any countries • – good projects are good projects wherever they are • - but adjust focus/priority • Remember – not a ‘one shot’ pipeline: • Sourcing is an ONGOING process

17. Potential (known) sources: GEF Portfolio What were successful projects that could potentially utilise carbon finance? Can these be replicated/scaled-up? Has the ‘back-catalogue’ been reviewed? Are there successful/dynamic GEF project partners that might have opportunities (not necessarily the same project type) Are there current GEF projects that provide spin-off ideas or possible interesting project proponents?

18. Potential (known) sources: Governments Does the DNA have a list of potential projects – have they been reviewed/met with PPs? Typically work with Ministry Environment/NR – do they have any ideas? Introductions to other ministries with greater links to emitting sectors? Government planning/infrastructure development? State/provincial/municipal governments?

19. Potential (unknown) sources: Domestic banks and development banks Domestic and locally engaged banks could be valuable sources of projects

20. Potential (unknown) sources: Dominant industries • What are the dominant industries in the country that are emissions intensive? • Eg: - oil & gas, cement, pulp & paper, power generation, intensive agriculture, • who are established businesses that are financially stable/successful? • projects that could potentially utilise carbon finance? • have any of them engaged (or been interested in) CDM? • for state-corporations, do we have relations with the govt that can be leveraged?

21. Potential (unknown) sources: Dominant industries • Are there dynamic sectors that are cashed-up or have solid financial backing that either have their own potential projects, or might be interested in projects outside their sector? • Eg – mobile phone companies may have an interest in power generation projects • How to engage these? • Do other practices have usable relations with good project proponents?