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
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