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UNDP and Climate Finance

Stock-taking on GEF Engagement in Carbon Markets UNDP MDG Carbon (Part I) Marcel Alers, PTA, Climate Change Mitigation GEF Case Studies / Removing Barriers (Part II) John O’Brien, RTA, Climate Change Mitigation Meeting on GEF-5 and Carbon Finance Washington DC, 15 November 2010.

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UNDP and Climate Finance

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  1. Stock-taking on GEF Engagement in Carbon Markets UNDP MDG Carbon (Part I)Marcel Alers, PTA, Climate Change Mitigation GEF Case Studies / Removing Barriers (Part II)John O’Brien, RTA, Climate Change Mitigation Meeting on GEF-5 and Carbon Finance Washington DC, 15 November 2010

  2. UNDP and Climate Finance GEF Unit Climate Change MDG Carbon Portfolio of climate change mitigation [and adaptation] projects Capacity building, technical assistance and commercialization of carbon projects Montreal Protocol Unit UN REDD Avoided deforestation pilots and support to international dialogue Portfolio of ozone depleting substance projects with large climate benefits Combining and Sequencing Climate Finance Additional platforms include: Territorial Approach, Community Based Adaptation, Green Commodities Facility, & others

  3. Today’s UNDP Team GEF Unit Climate Change MDG Carbon Marcel Alers Principal Technical Advisor, Climate Change Mitigation Oliver Waissbein MDG Carbon, Finance & Legal Robert Kelly UNDP GEF, Arab States John O’Brien UNDP GEF, Europe and CIS Noel Soriano UNDP GEF, Asia Pacific

  4. MDG CarbonMission • Mission: • Create market-enabled environments • Develop proof-of-concept, demonstration carbon finance activities • 3 core objectives: • Access. Expanding to under-represented developing countries • MDGs. Promoting sustainable development outcomes • Scale. Promoting replication and solutions at scale

  5. MDG Carbon Focus Areas and Activities Thematic Area I: Project-Based Carbon Finance (CDM/JI) Thematic Area II: Sectoral Crediting & Trading Mechanisms Market Enabling Grant Based Model Project Development Cost-Recovery Model Thematic Area III: Unaddressed Sources & Sinks of GHGs GEF-5 Climate Change Activity Pillar I Policy Dialogue Activity Pillar II Capacity Building Activity Pillar III New Meths & Instruments Activity Pillar IV Project Development Activities

  6. Thematic Area I: Project-BasedCarbon Finance (CDM/JI) MDG Carbon: 3 Thematic Areas Thematic Area II: SectoralCrediting & Trading Mechanisms Thematic Area III: Unaddressed Sources& Sinks of GHGs • Discrete project activities • Addressing existing imbalances in CDM/JI • Well suited to LDCs • Opportunity to develop programmatic approaches • Emerging modality for carbon finance at scale, • addressing entire national sectors (cement, buildings) • Forerunner to domestic market mechanisms • Well suited to MICs and EITs Synergies / Linkages • Sources and sinks of emissions currently not covered by international agreements • Examples: ozone depleting substances, peatlands • Voluntary carbon markets as a stepping stone

  7. Combining and Sequencing Climate Finance: Life Cycle Management of Refrigerators • Energy Efficient • Market Transformation/ • Early Retirement • Current Funding Sources: • GEF • MLF (pilots) • Innovative financing • mechanisms Waste Management Usage Phase ODS Life-Cycle • End of Life/ • ODS Destruction • Current Funding Sources: • VERs • MLF (pilots) • Innovative financing • mechanisms • Industrial Conversion/ • Manufacture of ODS-Free, • Low-GWP Appliances • Current Funding Sources: • MLF • CERs (HFC 134a) • VERs (HCFC 141b) Replacement of unit

  8. Part II Case Studies Removing Barriers to enable private sector carbon markets to work properly John O’Brien John O’Brien, Regional Technical AdvisorClimate Change Mitigation John.obrien@undp.org Washington D.C., November 15th 2010

  9. Carbon Market has grown and grown but has it been a success? • Why the private sector carbon market has not fully worked over the period 2003-2010 • 2. What are the barriers to a full functioning private sector carbon market • 3. Case Studies – Kyrgyzstan Small Hydro & Other • 4. Concluding Thoughts

  10. Only FOUR countries make up 70% of the private sector carbon market! • 4 countries (China, India, Brazil and South Korea) account for 70% of CDM projects and 80% of CERs through to 2012 • 50% of all issued CERs are from 50 projects (over 2000 projects registered to date) • Sub-Saharan Africa accounts for 2% of registered projects and 5% of CERs through to 2012 • Africa has largely been forgotten by the CDM Location of CDM Projects Ex: Geographical imbalance in the CDM

  11. Typically longer payback periods: 5 years and greater Larger upfront capital requirements CO2 Forestry Energy-efficiency The CDM was supposed to stimulate billions of dollars of investment in emission reduction projects – What happened in reality? GHG Project Sector These CDM Projects have quick pay-back periods: Normally 3 years or less Carbon pays for 50% to 100% of project cost! Typically high IRR HFC23 HFC22 Production Nitric & Adipic Acid Production N2O Landfills, Coal-mines, Gas Networks, Biogas CH4 SF6 Magnesium Production Renewable Energy

  12. Despite high potential carbon finance for EE has not taken off …

  13. A number of barriers have stopped carbon market from really flourishing …

  14. A number of barriers have stopped carbon market from really flourishing … (Part 2)

  15. UNDP Barrier Removal Activites to Overcome Carbon Market Barriers in Europe & CIS region incl. Central Asia fall into two categories … Project Development Market Enabling • Ukraine - Lugansk Landfill Gas – Methane Capture Project • Uzbekistan - Gas Recovery from Pipeline Project • with UzTransGaz • Kyrgyzstan - Small Hydro Project • (pending due to political reasons) • New CDM Project Ideas • Programmatic CDM for Small Hydro in Georgia • (GEF Renewable Energy project) • Programmatic JI : EE Lighting in the Russian • Federation (3 x GEF EE Projects (new)) • PoA EE Buildings (Uzbekistan & Kyrgzstan) • Kazakhstan – Roundtable on Kyoto & 1 day • Training seminar to Kaztransgaz (GEF EE lighting • and EE buildings project and wind project) • Kyrgystan – Discussions on carbon finance • opportunities and elaboration of project ideas (GEF • EE Buildings & Small Hydro) • Tajikstan – Roundtable on carbon finance • opportunities and identification of possible projects • (GEF Renewable Energy project) • Turkmenistan – Discussions on carbon finance • opportunities and elaboration of project ideas (GEF • EE Buildings) • Uzbekistan – Assistance with establishing the DNA • and elaboration of project ideas (GEF EE Buildings) UNDP employed a Full-Time carbon specialist for Central Asia for 2 years

  16. Lessons Learned by UNDP in developing Carbon Finance projects • Project Development (CDM, JI) moves much slower than you might expect as many projects face unexpected problems and delays; • The actual number of emission reductions achieved by projects can often by much less than originally estimated - strong due diligence is critical; • New types of staff with experience in carbon finance are required in UNDP (typical grant model that UNDP is used to does not apply to carbon finance – cost recovery model is more service oriented); • It is critical to select project partners very carefully (i.e – no large multi-national companies but also no ‘one man and a dog’ companies); • UNDP should work in countries where the private sector carbon market does not work and with project types that are not widely implemented in these countries; • (i.e – no 51st landfill gas project in Brazil or 60th wind project in China)

  17. Where is the overlap? Business Plans Feasibility Studies Capacity Building Projects Finance - Debt Carbon Finance Project Development Awareness Carbon Finance Market Enabling Finance - Equity Policies What goes here? GEF Removing Barriers to Energy-Efficiency, Renewable Energy, Sustainable Transport LULUCF Finance – Revolving Fund Regulations Financing – ERPA prepayment Legislation Financing – Risk Guarantee New Approaches - PoA - NAMAs - Sectoral Trading - REDD Opportunity Cost Studies & Reports on carbon finance

  18. Conclusion : Now is an ideal time to get involved in the post-2012 carbon markets Thank You!

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