• 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…

• … and build on new finance, technology and capacity at scale.

Climate change as a development challengeJari Vayrynen, Sr. Environmental

Specialist, World Bank

Objectives: Enable WBG to effectively support sustainable

development and poverty reduction, as climate risks and climate-related economic opportunities arise

Facilitate global action and interactions among all countries

Key principles: Working in partnerships guided by UNFCCC process Country-led, country-driven, “no regrets” actions Approach tailored to specific needs of diverse clients

WB Strategic Framework for Climate Chance and Development

MDB & UNPartnerships

Knowledge &Capacity

Climate Investment Funds

Bottom Up Momentum

Resource Mobilization

Regional / Country Strategies

Financing Climate Change Mitigation

• Scale of financing needs for mitigation estimated by UNFCCC at $200 billion annually

• Concessional resources are very limited for low carbon investments in developing countries and transition economies

• Mobilizing private sector finance is crucial– Market mechanisms can play a central role

Finance scaled-up demonstration, deployment, and transfer of low carbon technologies

Country Investment Plans: Support country development strategies Leverage financial products of

International Financial Institutions Stimulate private sector engagement

Clean Technology

Fund (CTF)

± $5 billion

Strategic Climate

Fund (SCF)

±$1 billion

Targeted programs with dedicated funding to pilot new approaches with potential for scaling up

Pilot Program for Climate Resilience: Mainstream climate resilience into core development planning

Forest Investment Program: Reduce emissions from deforestation and forest degradation

Scaling Up Renewable Energy in Low Income Countries

6

World Bank Carbon Market initiatives

World Kyoto Funds under implementation reaching over $2 billion in funding and about 130 ER purchase agreements signed

Progress with new facilities:

Exploring possibilities for further engagement Carbon in Agriculture sector Carbon Capture and Storage (CCS)

Carbon Asset Development Fund (CADF) operational at €7 million

Carbon Fund currently €100 million (minimum target €200 million)Carbon Partnership Facility (CPF)

Forest Carbon Partnership Facility (FCPF)

Operational since June 2008 - current donor pledges at $107 million

37 Developing Country Participants

How do carbon markets work?

What is traded?

What is the underlying principle?

Units = tons of carbon dioxide (or equivalent) allocated as part of an emission cap or “reduced” by a project or program activity. These units are labeled based on the market segment in which they are traded : AAUs, CERs, ERUs, EUAs, VERs, etc.

Cost-effectiveness: a ton of CO2 emitted anywhere in the world has exactly the same impact on climate change and should therefore be reduced/ mitigated where the cost of doing so is lowest.

Why should this be of interest?

• Significant new investments and financial flows • Application of new technologies and financial instruments to

reduce emissions at lower costs; and• Transition to a lower carbon economy better tuned to cope

with future resource and environmental constraints.

What are the

benefits?

• Lowers compliance costs for meeting emission reduction obligations; ;

• Catalyzes financial and technology flows to developing countries to facilitate low-carbon growth;

• Creates a global and long-term price signal to lower carbon intensity.

Beyond domestic actions to reduce emissions, a country can use trading to purchase reductions in another country to achieve compliance with its Kyoto obligations.

Examples of trading options include:• Buying emissions ALLOWANCES (called AAUs) from other

countries with commitments which are below their Kyoto cap (International Emissions Trading)

• Purchasing carbon OFFSETS from projects which reduce emissions• In developing countries (Clean Development Mechanism – CDM)• In economies in transition (Joint Implementation – JI)

Kyoto Protocol-based carbon markets

Domestic actions

Baseline emissions

1990

“Business as-usual” projected emissions by 2008

1990 Baseline

Kyoto target

Allowances from IET

Project-based Offsets (CDM/JI)

2008-12

Kyoto allowed emissions

Projected emissions increase

between 1990 and 2008-2012

Sources of reduction

CDM: Offsets obtained from a non-Annex I countryJI: Offsets obtained from another Annex-I country;

IET: Kyoto allowances obtained from another Annex-I country

A significant amount of the reduction must be achieved through domestic measures

3

Industrialized country with an emissions cap

Baselin

e em

issions

Baseline Scenario

EmissionReduction Units (ERUs)

Project em

issions

Project Scenario

How does Joint Implementation (JI) work?

Emissions target

Purchase of allowances

Project benefits from increased

cash flow

$$

ERU

Purchase of ERs

Domestic action

Carbon Market Values in 2008

(in M US$)

Allowance MarketsProject-Based Transactions

CDM

6,500

EU Emission Trading Scheme

91,910

SecondaryCDM

26,300

JI300

Assigned Amount Units 210

World Bank Carbon Finance Projects in Bulgaria

• Joint Implementation projects:– Sofia District Heating– Pernik District Heating– Svilosa Biomass

• Green Investment Scheme (GIS)–options study– GIS is a system where revenues from AAU trades are

reinvested in environmental projects– To our knowledge Bulgarian Government has not yet

concluded any GIS transactions11

12

• Climate change is fundamentally a development issue, not only an environmental issue

• Huge financing needs– Carbon markets will continue to be play a major role in catalyzing

low carbon investments in developing countries and transition economies

• The World Bank, through a range of financial instruments and capacity building activities, is deeply engaged in this effort

Conclusions

Thank You.

Jari Vayrynen

jvayrynen@worldbank.org

Please visit us online at

www.carbonfinance.org