New financing for energy efficiency in buildings can carbon
Transcript of New financing for energy efficiency in buildings can carbon
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New financing for energy efficiency in buildings – can carbon finance deliver?
Introduction
International Workshop
Mainstreaming Building Energy Efficiency Codes in Developing Countries
Martina Bosi and Monali Ranade
Carbon Finance Unit, The World Bank
November 20, 2009
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Context
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• Meeting the challenge is not
a choice between growth
and climate change
• A climate smart world is
within reach if we act now,
act together and act
differently…
• … building on new finance,
technology and capacity at
scale
Climate change as a development
challenge
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4
4
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Dark red – historic emissions 1971–2000
Light red – projections 2001–2030
Scenario 1
(B2)
Scenario 2
(A1B)
Buildings related CO2 emissions
Source: IPCC AR4, WGIII Ch 6, Fig 6.2, 2007
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Energy Efficiency and Carbon Finance
What can carbon finance bring to energy efficiency programs?
How does CDM work with EE programs, and buildings in
particular?
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Real Cost of “Delivering” EE and GHG
Emissions Reduction
-200
0
200
400
600
800
1000
0 5 10 15 20 25 30 35 40 45 50
Marg
inal co
st
(US
D/t
CO
2)
2050 CO2 emissions reduction (Gt CO2/yr)
Transport alternative fuels
Industry fuel switching
and CCS
Power sector
End-use efficiencyACT Map
BLUE Map
500
10050
Significant potential; but need to consider: direct costs to deliver energy savings, i.e., costs of accessing and implementing a technology
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Can carbon finance help remove
barriers?• The market is not delivering all cost-effective savings:
– Despite large apparent low/negative cost potential, building EE potential remains untapped.
• Barriers, e.g.,
– Split incentives: landlord-tenant issue; division of capital acquisition vd operation & maintenance budgets; energy capital lifespan often longer than ownership period
– Transaction costs
– Typical small-scale of EE in buildings (EE bundled with more important capital decision factors)
– Initial investment barrier; decisions not based on life-cycle cost basis.
• Can carbon finance be part of the missing link?
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INSIGHTS FROM WORKING WITH CARBON MARKETS FOR DEVELOPMENT & GLOBAL GREENHOUSE GAS MITIGATION
Construction
18
Carbon finance: stream of emission reduction revenues
Debt
Equity
Cash
out
Cash
in
Yrs 0 1 2 3 4 5 6 7 8 …………………………………….
Carbon revenuesOperating revenues
= annual carbon payments
= other sources of revenue from service or production
= debt servicing
Carbon revenues provide an additional revenue stream that can help:
reward more GHG-friendly investment and purchase decisions,
create incentive for good management / operational practices to sustain emission reductions
over time,
enhance the financial viability of the project,
leverage capital for underlying investments by
o addressing the initial investment barrier;
o providing incentives to overcome social inertia, lack of awareness, transaction costs and
financing of programs, etc.
Carbon finance: provides an additional revenue stream Improves project cash-flows for climate-friendly projects
•Help address other barriers, such as
split-incentive barrier
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How does the CDM Work?
time
em
issio
ns
Project emissions
Baseline
Certified
emission
Reductions*
Important Methodological Issues:
-Baselines are allowed to be
counterfactual/hypothetical
-Determining Additionality
- Ex-post monitoring of emission
reductions
*The difference between the actual project emissions and the emission
baseline constitute the volume of emission credits
*If project = baseline → no credits
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World Bank’s carbon finance activities – link
with building energy efficiency
• Carbon finance: In collaboration with public and private sector participants, WBG played a critical role in creating the carbon market, with over $2 billion of carbon funds under its management
• Carbon Partnership Facility (www.carbonfinance.org) launched in fall 2008.
– Partnership between buyers and suppliers of carbon credits.
– Use carbon finance / carbon markets to catalyze a transformation toward low-carbon economic development.
– Scaling-up of carbon finance:
• Programs and sector interventions.
• Long-term emissions from all sources.
• Low-carbon technologies.
• During consultations on CPF, client countries highlighted importance of EE programs in general and buildings in particular
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World Bank Efforts to Support Greater EE
through Carbon Finance
• In addition to supporting EE projects in the portfolio and pipeline...
• Increased focus on demand side energy efficiency
– Small-scale CDM methodology: Demand-Side Activities for Efficient Lighting Technologies - SSC AMS IIJ (approved in summer 2008)
• Support for CDM Programme of Activities
• Active Member and supporter of the recently established International Expert Group on Energy Efficiency and Carbon Finance (launched in Bali, Dec. 2007)
• Technical reports and studies, e.g.:
– Report on Scaling-Up Demand-Side Energy Efficiency Improvements through Programmatic CDM (December 2007)
– Paper on Achieving GHG Emission Reductions in Developing Countries through End-Use Energy Efficient projects in the CDM (December 2006)
• Development of new methodologies and approaches
Work on methodology for building energy efficiency currently underway
EE and buildings : key component of ”city-wide” approach under development
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Today’s discussion
Can carbon finance help remove barriers for energy efficiency in buildings?
International carbon finance mechanisms:
•Clean Development Mechanism (CDM)
•Nationally Appropriate Mitigation Measures (NAMAs)
Methodologies:
• Practical ways to calculate energy savings and translate them in emission credits
•What are the issues that need to be addressed?
•Can we build on existing monitoring and verification practices?