International Climate Change Regime

1. International Climate Change Regime • UNFCCC • “stabilization of greenhouse gas concentrations at a level that would prevent dangerous anthropogenic interference with the climate system” • Kyoto Protocol • QELROs for OECD countries and EITs (Annex I) to reduce emissions of six GHGs on average 5.2% below 1990 levels in 2008 - 2012 • Kyoto Mechanisms: JI; CDM; Emissions Trading • Buenos Aires Plan of Action • Strengthen implementation of the Convention • Demonstrate, inter alia, substantial progress on the Kyoto Mechanisms • Decisions on the operational modalities of the Kyoto Mechanisms by CoP-6

2. Purpose of the PCF To help create a market for carbon offsets within the framework of the Kyoto Protocol through • demonstrating how CDM and JI trade can contribute to sustainable development • providing “learning by doing” experience for Parties to the Protocol on key policy issues (for example, defining and validating baselines) • building confidence that the trade can benefit both sellers and buyers

3. What is the Prototype Carbon Fund? OECD governments/ companies buy offsets WB manages PCF Client countries (EITs/ developing countries) originate offsets $ $ CO2 • Benefits: • risk diversification • reduced transaction costs

4. Project selection and validation From Projects to Emissions Reductions Project implementation Periodic independent verification/ certification Distribution emission reductions Registration Protocol “PCF Value Chain” Transfer Emission Reductions

5. Why would the private sector participate in PCF? ...one or more of the following reasons.... • cost- effective wayto meet Kyoto Protocol obligations (price of $ 20-30$/T) • reduce entry barriers to carbon market. Learn from PCF at low cost to do your own Funds and trades • increase image of environmental responsibility as a competitive tool • profitin the secondary market

6. PCF will catalyze Market Development through: • Building private sector and host government confidence in offset trade (Bank will exit market when private sector enters) • demonstrating intermediation and brokerage in mitigating risk and lowering transaction costs • engaging major private capital in learning from PCF experience • creating “high quality” uniform sovereign commodity • developing generic contracts, procedures, protocols • helping client countries and companies develop own “funds” • building host government market capacity • demonstrating price contracts that share risk acceptably between buyers and sellers in uncertain early markets • Second Closing (if necessary): one year later

7. Examples of Knowledge Generated • “Additionality” and Baseline determination • Validation, Certification and Verification protocols, procedures and outcomes • sample project-based offset contracts (e.g. with host government, project sponsor) • emerging market and risk analyses • price formation agreements (e.g methods for risk and benefit-sharing) • Targeted seminars and workshops on PCF experience and implications

8. Option Space for Climate Change Mitigation $/Tonne Carbon Abated MC Developing Renewables; Fuel Cells (Mini-) Hydro; Gas; Geothm’l Some CCT’s; CH4 Capture; Potential “Win-Win” Renewables; DSM; Nuke (?) 200 Low- hanging fruit Pseudo- “Win-Win” 50 The $20 Bill IBRD/ IDA 0 40% 20% 80% 100% % or Volume Abated Win-Win Lo-Cost High-Cost Curtailment J.I./AIJ Public-Private Investment Funds Policy Dialogue IBRD/IDA/BI-L Private Cap. GEF Lubricant GEF Buy-Down OECD R,D&D Venture Cap.

9. PCF Project Selection and Portfolio Criteria Generic: Adhering to UNFCCC, Bank standard, with emphasis on renewable energy projects • Broad balance between CDM and JI with initial emphasis on CDM • Not less than 2% and no more than 10% of Fund’s assets in one project • Not more than 20% of Fund’s assets invested in Projects in the same host country • Not more than 10% of the Fund’s assets in forest-based sinks (and only in EITs) • Mostly renewable energy technology - but no more than 25% of the Fund’s assets in any one technology

10. PCF Indicative Project Pipeline Endorsed: • Latvia: Liepaja Solid Waste Management • Costa Rica: Renewable Energy Small Scale Power Under consideration: • Hungary: Tatabanya Biomass Power • Kazakhstan: Mini Hydro Power • Uganda: Renewable Energy

11. Host Country Committee for the PCF

12. PCF Status and Time Line PCF Participants: Governments reviewing participation: 6 Companies signed MoUs: 20 Companies reviewing participation: 30+ Key Dates: • Public Announcement - December 15, 1999 • First Closing - February 2000 • Organizational Meeting - February/ March 2000

13. Host Country Role in the PCF • Host country committee • Composed of those countries either signing a letter of endorsement for a PCF project or a Memorandum of Understanding • Provide advice and strategic guidance to the Fund Management • Annual meetings, prior to Participants’ Meeting to provide effective input • Observer status in Participants committee and Participants’ meetings