Prototype Carbon Fund and World Banks

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• Prototype Carbon Fund and World Banks
• Role in Sustainable Development
• Takahashi Masaki
• The World Bank
• World Energy Council Coal Dialogue
• Warsaw, Poland
• June 19, 2002

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The Kyoto Mechanisms

• Clean Development Mechanism (CDM) credit for
  emission reduction investments in developing
  countries
• Joint Implementation (JI) credit for emission
  reduction investments in economies in transition
  countries
• International Emissions Trading (IET)- trading of
  emission credits among developed countries

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Why is the Bank Involved in the Carbon Market?

• To Demonstrate
• that investments under CDM/JI can
• Earn export revenue for Developing
  Countries/Transition Economies engaging in the
  new ER commodity trade
• Increase the profitability of cleaner more
  efficient technology in energy, industry, and
  transport sectors
• Contribute to sustainable development
• and how private sector and governments can
  implement the CDM/JI project cycle and compete in
  emerging carbon market

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Greenhouse gases emission reductionsan unusual
commodity
Emission ReductionHypothetical baseline
emissions - effective emissions

• ERs become a commodity after certification.
• Before certification ERs are very heterogeneous
  depending on the plausibility of their baseline.

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Features of the PCF

• PCF is a closed-end Mutual Fund structure with
  diverse portfolio to
• Show how CDM/JI contributes to sustainable
  development
• Demonstrate public/private partnerships for
  addressing global environmental problems
• Enhance the Learning Experience
• Shareholding Governments, 10 m Companies, 5 m
• Total Capital US145 million to be used in 30
  projects
• PCF Products
• Competitively priced, high quality emissions
  reductions
• target portfolio wide outcome price 5/tCO2
  (20/tC)
• target deal price 2.5-3.5/tCO2 (9-12tC)
• High value knowledge asset create competitive
  advantage for corporate investors and efficient
  market regulation and leverage for sustainable
  development for Parties

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PCF Project Cycle
Project design identification, preparation,
review
Baseline Study, Monitoring Plan
Validation Report and Opinion
Negotiations of purchase agreement
Project Implementation and Initial Verification
Production of ERs and monitoring
Periodic verification certification of ERs
PCF payments for ERs to Project Entity
Transfer ERs to Participants accounts
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PCF Project Portfolio

• ERPA concluded or being concluded
• Latvia landfill gas
• Uganda small hydro
• Chile run-of-river hydro
• Brazil charcoal and afforestation
• Actively developing stage about 30 projects
• PIN received about 180 projects

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Important Lessons Learned

• First CDM transaction is most powerful capacity
  building available
• Learning by Doing Works. Feedback from Parties,
  Negotiators, Stakeholders to PCF is positive
• Need for Learning by Doing continues
  benchmarking baseline methods and monitoring
  techniques for new carbon assets and policy
  contexts, and supporting the development of a
  body of reference cases is key to market
  development..

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Our Response Carbon Finance Beyond PCF

• Strategy
• Introduce more developing countries and economies
  in transition to CDM and JI opportunities using
  learning-by-doing around the first serious
  carbon purchase transaction
• Benchmark methods for creating environmentally
  credible emissions reductions in specific
  technology and policy contexts to expand the
  CDM/JI market
• Continue learning-by-doing while rules evolve
  for sinks activities given their wider
  development impact
• Open Markets for small projects and small
  countries channel carbon finance to the
  potentially excluded majority

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Our ResponseCarbon Finance Beyond PCF

• Vehicles
• Community Development Carbon Fund(CDCF) design
  and launch by end-2002 as means of distributing
  benefits of CDM to small projects, small
  countries and rural poor.
• BioCarbon Fund(BCF) design and launch by 03/2003
  as a prototype specifically for LULUCF

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Financing IGCC

• GEF/OP7 up to 50 million
• PCF (3-15 million purchasing CO2 reduction at 3
  5 per ton)
• IFC (loan if 51 private, IFC may provide loan
  or equity)
• Japans Green Aid Program
• JBIC concessional loan
• EUs FP5 or 6 (up to 35 of the eligible costs)

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Czech Vresova IGCC Project

• 2x200 MW CC fueled by syn-gas from old gasifiers
• HTW pressurized oxygen blown fluidized bed
  gasifiers will replace the old gasifiers
• GHG (CO2) reductions by higher gasifier
  efficiency
• 7 Mt CO2 reduction in 20 years
• Local environmental benefits
• Sponsor Sokolovska Uhelna supported by MoE CR

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Czech Vresova IGCC Financing Plan

• Equity 20-40M
• Grant or CO2 emission right selling 20-30M
• GEF 4M, PCF 5 M, EU 3M
• Others (additional EU, Germany, JI etc)
• Loan 60-90M
• Consortium of EIB or KfW and Czech commercial
  banks
• Total 130M (including IDC and contingency)

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Global Environment Facility (GEF)

• Preparation work/study (PDF-B)
• Development of financial plan
• Hydrogen production, CO2 removal and
  sequestration
• Biomass co-gasification
• HTW Gasification demonstration

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Long term goalZero emissions from coal

• Support cleaner coal technologies and the
  development of a "zero emission from coal"
  concept
• Gasification technology for low cost hydrogen
  production and CO2 capture
• The Czech IGCC project a first important step of
  a "zero emission" coal plant

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Prototype Carbon Fund (PCF)

• Government endorsed to sell GHG emissions
  reduction right
• 3-5/ton of CO2
• 170,000/year CO2 emissions reduction from unit 2
  HTW at current operation mode (peak/intermediate/b
  ase)
• 0.5M/year 2006 2015 5M total
• More CO2 reductions by base load operation

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Thailand Biomass Project
Sugar mill industry
Cost 45 million
Energy Products reliable and sustainable
electricity production from biomass
PCF Project
Outcomes Efficient use of bagasse, rice husk
cane leaf and wood waste
Outcomes eliminate field burning of agricultural
waste
PCF adds 8m in revenue
Baseline Project
Use of imported coal for additional fuel
Reliable fuel supply and firm PPA contract
Impact illegal field burning damages environment
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Proposed PCF projects in Asia

• Thailand biomass utilization
• Bagasse, sugar cane waste, rice husk, wood waste
  etc.
• Vietnam biomass and energy efficiency
• Bagasse, sugar cane, fuel switching and
  rehabilitation
• China biomass, fuel switching and energy
  efficiency
• Biomass co-generation, gasficiation, coal
  briquette, coal to gas fuel switching, LNG etc.
• India biomass and municipal solid waste
  utilization projects

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Opportunities working together with the WBG

• Technical and policy advice
• National policy of developing countries
• Operational policies of GEF, PCF and CDM
• CCT projects for GEF, PCF, IFC funding
• Advanced CCT IGCC and multi-production
• Biomass utilization
• Coal bed methane utilization
• Financing CCT investment projects

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Related World Bank web site

• Environmental Management for Power Development
  (including CCT)
• www.worldbank.org/html/fpd/em
• Energy and Environment Strategy (Fuel for
  Thought)
• www-esd.worldbank.org/cc/wbstrat.html
• Pollution Prevention and Abatement Handbook
  (Environmental guideline)
• www-esd.worldbank.org/pph
• Global Environment Facility (GEF)
• www.gefweb.org
• Prototype Carbon Fund (PCF)
• www.prototypecarbonfund.org