Considerations on a Facility to Finance the Climate Benefits

of ODS Bank Management

Seminar on the Environmentally SoundManagement of Banks of

Ozone-Depleting Substances

Geneva, Switzerland

14 June 2010

2

Overview of Presentation

The challenge:

• To establish sources of financing - which are sufficient and sustained - to finance the climate benefits of ODS bank management

The focus of this presentation:

• Constraints regarding the voluntary carbon markets• Possible solutions: targeting sources of international climate finance• A key consideration: HCFC waste-streams• The role and rationale for a Facility

To note:

• All ODS bank activities under a Facility would be voluntary measures• Other possible sources of financing are not addressed here (e.g., GEF)

3

The Issue: Constraints of Voluntary Carbon Markets

While the voluntary carbon markets have an important initial role to play, they have a number of limitations as a financing solution for ODS banks

Sources: TEAP; World Bank

Voluntary Market Constraints

201

0

201

2

201

4

201

6

201

8

202

0

201

1

201

5

201

3

201

7

201

9

Supply/Demand Imbalance

100 -

200 -

300 -

400 -

Ann

ual E

mis

sion

s (M

t C

O2e

)

Developing Country ODS Banks(Low and Medium Effort)

Total Voluntary

Market

200

820

09

Price. Lower prices limit the range of ODS banks to be financed

Demand. Small size of marketinadequate for potential ODS supply

Quality. Perceptions of environmental integrity vary

Scope. Limitations, such as no foams or US-only destruction

4

Possible Solutions: Targeting International Climate Finance

VoluntaryCarbon Markets

Multilateral Fund

- Pilots

Market Mechanisms Cost Coverage Mechanisms

ComplianceCarbon Markets

International Public

Finance

e.g., Copenhagen Acc.• $10bn/yr 2010 -12• up to $100bn/yr

by 2020

e.g., EU ETS, $118bn in 2009

International Climate Finance

Source: World Bank

5

Possible Solutions: Targeting International Climate Finance

• Opportunity: international offsets

• One global market (UNFCCC) or regional/domestic (EU, US)?

• Costs of ODS can be fully internalized into economy

ComplianceCarbon Markets

International Public Finance

• Opportunity: grants, concessional loans

• One global fund or fragmented funds and bilaterals?

• Links to developing countries mitigation actions (NAMAs)?

• Lack of awareness/understanding of ODS• Uncertainty (politics) and complexity• Exclusion of MP gasses (UNFCCC only)

Common Barriers

6

Key Consideration: Anticipating HCFC Waste-Streams

Sources: TEAP, UNDP

CFC/HCFC Dynamic Opportunity

20 -

201

0

40 -

60 -

80 -

100 -

Ann

ual E

mis

sion

s (M

t C

O2e

)

201

2

201

4

201

6

201

8

202

0

201

1

201

5

201

3

201

7

201

9

= CFC= HCFC

Commercial Refrigeration in Developing Countries(Densely Populated) (Emissions Only) • HCFCs will soon be the main

ODS bank waste stream• Large, increasing volumes • Opportunities still cost-effective

• HCFCs are not being addressedby voluntary carbon markets

• Key barrier: “production for destruction” perverse incentive

International climate finance solutions for ODS should be comprehensive and include a pathway for CFC to HCFC continuity

7

ODS Climate Facility: Overview

ODS Climate Facility• Donor led-fund• Oversight framework• Portfolio of projects

Today Near/Med. Term Med//Long Term

A Facility, developing a portfolio of demonstration projects targeting specific financial instruments, can be a

stepping stone to sources of international climate financing

Ma

rke

tC

ost

Co

ver.

Voluntary Carbon Markets

MLFBilaterals

Ad hoc projects

Compliance Carbon Markets

International Public

Finance

ODS established in

8

ODS Climate Facility: Key Components

Finances projects an on incremental cost basisFor carbon projects:• Provides demand and price• Follows market convention: contract to buy offsets

Environmental integrity is critical• For carbon projects: methodologies, registry, verifiers • For int. public finance: verified emission reductions

Market development and broad representation • Different sectors, project sizes, HCFCs, etc.• Different partners: public sector, private sector

Donor Fund

OversightFramework

Portfolio of Projects

The Facility’s components are designed to build credibility and establish modalities for ODS bank projects under each targeted financial instrument

9

ODS Climate Facility: Possible Structures

• A number of possible structures for a Facility exist

• Designs with MLF, MP bodies, MLF Implementing Agencies• Variations could also involve voluntary carbon standards

• Factors to consider include• Leveraging respective qualities, expertise and existing capabilities• Ease/speed of establishment in different institutions• Short term versus long term structures

Oversight Framework

Fund(Managed by)

Configuration

#1

#2

#3

Multilateral Fund

MLF Implem. Agencies

MLF Implem. Agencies

Montreal Protocol Bodies

Montreal Protocol Bodies

MLF Implem. Agencies

10

Concluding Remarks

The voluntary carbon markets will not provide the sufficient and sustained financing necessary for ongoing ODS bank management

A Facility can explore 3 related strategic issues for ODS banks• Targeting the compliance carbon markets• Targeting international public finance• In due course, addressing HCFC bank management

The Facility’s value is in moving from an ad hoc to a systematic approach,and more effectively and credibly making the case for financing ODS bank management• Maximizes awareness-raising and engagement• Coordinated action to address barriers• Controlled, ring-fenced portfolio of projects

Precedents exist: UN REDD, Prototype Carbon Fund for CDM

11

Thank you.

For further information:

www.undp.org/chemicalswww.mdgcarbonfacility.org