• 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

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World Bank Carbon Market initiativesWorld 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 million37 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

Baseline 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

CDM6,500

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

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• 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 atwww.carbonfinance.org