Скачать презентацию CDM OVERVIEW OF FINANCIAL MECHANISMS Climate Change Information Скачать презентацию CDM OVERVIEW OF FINANCIAL MECHANISMS Climate Change Information

9d6cc3beec2819a1ccadf25f61d25257.ppt

  • Количество слайдов: 67

CDM: OVERVIEW OF FINANCIAL MECHANISMS Climate Change Information Center Manila Observatory Ateneo de Manila CDM: OVERVIEW OF FINANCIAL MECHANISMS Climate Change Information Center Manila Observatory Ateneo de Manila University

Contents 1. 2. 3. 4. Mechanics of CDM Basics of CDM Financing Risks in Contents 1. 2. 3. 4. Mechanics of CDM Basics of CDM Financing Risks in CDM Financing State of the Carbon Market

1. Mechanics of CDM 1. Mechanics of CDM

Clean Development Mechanism • • Enables developed countries (known as Annex I countries) to Clean Development Mechanism • • Enables developed countries (known as Annex I countries) to meet their emission reduction commitments in a flexible and costeffective manner Assists developing countries (non-Annex I countries) in meeting their sustainable development objectives Investors benefit by obtaining Certificates of Emissions Reductions (CERs) Host countries benefit in the form of investment, access to better technology, and local sustainable development

What are the Criteria for CDM Projects? • Sustainable development – Host country criteria What are the Criteria for CDM Projects? • Sustainable development – Host country criteria – Environmental Impact Assessment – Stakeholder consultations • Greenhouse Gas (GHG) emission reductions – Environmental additionality • Project additionality • Project viability – Technologically proven – Financially sound • Host country approval • Project validation and registration

CDM Project • Achieves Sustainable Development objectives for the host developing country • Reduces CDM Project • Achieves Sustainable Development objectives for the host developing country • Reduces GHG Emissions

Simplistic numerical example Provide electricity for a barangay • “Business-as-usual” (baseline): Diesel generator sets Simplistic numerical example Provide electricity for a barangay • “Business-as-usual” (baseline): Diesel generator sets – Cost of project $10 – Emissions 1 t. C • Cleaner project (CDM-eligible): Microhydro – Cost of project $13 – Zero Emissions

Simplistic numerical example • CDM Investor (e. g. Japan) – Invests $3 ($13 -$10, Simplistic numerical example • CDM Investor (e. g. Japan) – Invests $3 ($13 -$10, difference between cleaner and business-as-usual project) – Gains Certificate of Emissions Reduction of 1 t. C, which it can meet some of its Kyoto Protocol commitments to reduce emissions

Simplistic numerical example WIN – WIN • WIN for the host country – Sustainable Simplistic numerical example WIN – WIN • WIN for the host country – Sustainable development benefit: Cleaner energy production technology • WIN for the Annex I country – Credits for emissions reduction • WIN for the Global Environment – Emissions reduction

Kyoto Protocol: Flexibility Mechanisms Annex I Emission Trading Clean Development Mechanism 1990 level Joint Kyoto Protocol: Flexibility Mechanisms Annex I Emission Trading Clean Development Mechanism 1990 level Joint Implementation - 5% Domestic Actions Assigned Amounts Present day 2012 (Ba. U) 2012 with KP

Price of a Unit of Emissions Reductions: A Competitive Market Cost of Reducing in Price of a Unit of Emissions Reductions: A Competitive Market Cost of Reducing in the Host Country (Developing) < Price of a Unit of Emissions Reductions by CDM < Cost of Reducing in the Investor Country (Annex I)

Carbon Asset Creation and Maintenance Costs The PCF Experience: Transactions Costs Preparation and review Carbon Asset Creation and Maintenance Costs The PCF Experience: Transactions Costs Preparation and review of the Project completion • Upstream Due Diligence, carbon risk assessment and documentation: $ 50 K 3 m ont ars hs Up to 21 ye Baseline Study and Monitoring Plan (MP) 2 mon 2 m on ths ars ye 1 -3 • Verification: $10 -25 K • Supervision: $10 -20 K ths Periodic verification & certification • Baseline: $30 K • Monitoring Plan: $25 K Validation process • External consultant: $25 K • Processing and documentation: $30 k 3 months Construction and start up • Initial verification at start-up: $25 K Negotiation of Project Agreements • Consultation and Appraisal: $75 K • Negotiations and Legal documentation: $30 K Total through Negotiations • All expenses: $265 K

2. Basics of CDM Financing 2. Basics of CDM Financing

Starting Point: Viable Project • A potential CDM Project is a feasible project § Starting Point: Viable Project • A potential CDM Project is a feasible project § Technologically feasible § Financially sound • A potential CDM Project is a project which has an Environmental Compliance Certificate (ECC)

Total Project Costs and Sources of Finance Total Project Cost Estimates • Investment costs, Total Project Costs and Sources of Finance Total Project Cost Estimates • Investment costs, including development costs, up to commissioning of project Sources of Finance to be Sought or Already Identified • • • Critical to identify other debt and/or equity finance Typical sources of funding: international development banks, government funding, private financing, supplier credit CDM contribution = typically 5 -15% of total project costs

Important Distinction • Project Financing – Equity – Debt • CDM Finance / CER Important Distinction • Project Financing – Equity – Debt • CDM Finance / CER Revenue

Financing Options in a CDM Project Equity • Annex I Investor co-finances part of Financing Options in a CDM Project Equity • Annex I Investor co-finances part of a CDM project in return for shared financial returns and CERs • Local investors co-financing CDM projects in a host country may wish to share in CERs so that they have the opportunity to sell the credits at a later time

CDM Equity Financing Investor Equity CDM Investor Equity $$ Banks Debt Power Purchase Agreement CDM Equity Financing Investor Equity CDM Investor Equity $$ Banks Debt Power Purchase Agreement $$ CERs Electricity

Financing Options in a CDM Project Loan • Annex I Investor provides loan or Financing Options in a CDM Project Loan • Annex I Investor provides loan or lease financing at concessional rates in return for CERs

CDM Debt Financing Investor Equity $$ Electricity Banks Debt $$ CERs CDM Investor CDM Debt Financing Investor Equity $$ Electricity Banks Debt $$ CERs CDM Investor

Financing Options in a CDM Project Emission Reductions Purchase Agreement • Annex I investor Financing Options in a CDM Project Emission Reductions Purchase Agreement • Annex I investor agrees to buy CERs as they are produced by the project

Emission Reductions Purchase Agreement Investor Equity $$ CDM Investor Banks Debt Power Purchase Agreement Emission Reductions Purchase Agreement Investor Equity $$ CDM Investor Banks Debt Power Purchase Agreement $$ Electricity CERs Emission Reduction Purchase Agreement

Financing Options in a CDM Project Carbon Funds • Annex I investors contribute to Financing Options in a CDM Project Carbon Funds • Annex I investors contribute to a mutual fund • Mutual fund agrees to buy CERs as they are produced by the project • Examples – WB Prototype Carbon Fund – Netherland’s CERUPT

How Carbon Funds Work. . Technology $ Finance Industrialized Governments and Companies Carbon Fund How Carbon Funds Work. . Technology $ Finance Industrialized Governments and Companies Carbon Fund Finance Developing Countries and Communities CO 2 Equivalent Emission Reductions

Nature of Carbon Financing Contract Investor Banks Equity Debt Power Purchase Agreement $$ Electricity Nature of Carbon Financing Contract Investor Banks Equity Debt Power Purchase Agreement $$ Electricity $ $ Carbon Credits Carbon Fund 2 $$ 2 Emission Reduction Purchase Agreement

Emission Reduction Purchase Agreement • Will improve IRRs • Forward contract – Payment upon Emission Reduction Purchase Agreement • Will improve IRRs • Forward contract – Payment upon delivery of verified ERs – Upfront payments are rare • Will provide a hard currency revenue ($, €, £, ¥) • Helps secure financing and reduce project risk – Future ER payments as collateral for project loans – Can be paid into an escrow account, protecting lenders from currency convertibility and transfer risks

How CDM can matter FIRR Without CERs implemented With CERs not implemented Without CERs How CDM can matter FIRR Without CERs implemented With CERs not implemented Without CERs not implemented; with CERs implemented CER income 0 No CDM

Impact of Carbon Finance on Project Financial Rate of Return Technology DIRR Hydro, Wind, Impact of Carbon Finance on Project Financial Rate of Return Technology DIRR Hydro, Wind, Geothermal 0. 8 -2. 6 Methane Kick Crop/Forest Residues 3 -7 Municipal Solid Waste 5 -10+ • Revolution in Solid Waste Management • Important impact on small-holder cropprocessors and animal production

CDM Equity Financing ODA Non-ODA Investor Equity CDM Investor Equity $$ Banks Debt Power CDM Equity Financing ODA Non-ODA Investor Equity CDM Investor Equity $$ Banks Debt Power Purchase Agreement $$ CERs Electricity

CDM Debt Financing ODA Non-ODA Investor Equity $$ Electricity Banks Debt $$ CERs CDM CDM Debt Financing ODA Non-ODA Investor Equity $$ Electricity Banks Debt $$ CERs CDM Investor

Emission Reduction Purchase Agreement ODA Investor Non-ODA Banks Equity Debt Power Purchase Agreement $$ Emission Reduction Purchase Agreement ODA Investor Non-ODA Banks Equity Debt Power Purchase Agreement $$ Electricity $ $ $$ Carbon Credits Carbon Fund 2 Emission Reduction Purchase Agreement 2

3. Risks in CDM Financing 3. Risks in CDM Financing

Risks in CDM Financing • Renewable energy projects are considered risky by financing institutions Risks in CDM Financing • Renewable energy projects are considered risky by financing institutions • Multitude of risks could reduce the value of the project to zero • Measures are needed to mitigate risks at different stages of the project

“Normal” Project Risks • Political/Country Risks • Sponsor Risks • Construction Risks • Technical “Normal” Project Risks • Political/Country Risks • Sponsor Risks • Construction Risks • Technical Risks • Fuel Risks • Environmental Risks • Financial Risks • Legal Risks • Operation Risks

CDM-Specific Risks • Market/Price Risk – Will there be a market for project-based ERs? CDM-Specific Risks • Market/Price Risk – Will there be a market for project-based ERs? – Will contract price exceed market price? • Policy/Compliance Risk – What if no Kyoto Protocol? – What if host country does not ratify or comply? – What if host country does not approve project? ð Market and Policy Risk are closely linked

CDM-Specific Risks • Baseline Risks – Eligibility--will ERs be Kyoto-compliant? – Will project be CDM-Specific Risks • Baseline Risks – Eligibility--will ERs be Kyoto-compliant? – Will project be validated and registered? – Will ERs be verified and certified? – Baseline design--is the baseline robust? Will its assumptions remain valid over time? – Performance--actual performance will determine level of ERs generated

4. Emerging Trends in the Carbon Market 4. Emerging Trends in the Carbon Market

Summary of carbon markets currently in operation Project-based Emission Reduction “Pre-Compliance” purchases Allowance Trading Summary of carbon markets currently in operation Project-based Emission Reduction “Pre-Compliance” purchases Allowance Trading Within National trading systems From voluntary UK DK Retail Intra-Firm trading To Kyoto Pre-Compliance BP Shell

Market Intelligence: “Few Countries Benefiting, Little Private Sector Buying” • Market: cumulative 200 million Market Intelligence: “Few Countries Benefiting, Little Private Sector Buying” • Market: cumulative 200 million tonnes CO 2 traded ($500 million) since 1996 • Five-fold increase between 2001 and 2002 • Only 43% of all carbon transactions made in CDM/JI (2001 -2002), dominated by Dutch and PCF • Only 13% of the private sector’s purchases were in CDM (2001 -2002) • African countries, smaller countries and smallscale projects are largely bypassed

Carbon Market Volume has increased Source: Authors’ own calculation, as above, volume projection by Carbon Market Volume has increased Source: Authors’ own calculation, as above, volume projection by Point. Carbon

Who is buying ER Credits? 1996 -2000 2001 -2002 Source: Authors’ own calculation, based Who is buying ER Credits? 1996 -2000 2001 -2002 Source: Authors’ own calculation, based on transaction database assembled with Natsource, Co 2 e. com and Point. Carbon

Balance in Asset Classes Emerging Source: Authors’ own calculation, based on transaction database assembled Balance in Asset Classes Emerging Source: Authors’ own calculation, based on transaction database assembled with Natsource, Co 2 e. com and Point. Carbon

Carbon Finance flows 2001 -2002 Australia Canada Asia Africa USA Latin America Source: Authors’ Carbon Finance flows 2001 -2002 Australia Canada Asia Africa USA Latin America Source: Authors’ own calculation, based on transaction database assembled with Natsource, Co 2 e. com and Point. Carbon

Who’s buying where? (2001 -2002) In 2001 -2002, private companies acting alone have purchased Who’s buying where? (2001 -2002) In 2001 -2002, private companies acting alone have purchased only 13% of their reductions in developing countries. Source: Authors’ own calculation, based on transaction database assembled with Natsource, Co 2 e. com and Point. Carbon

World Bank Carbon Finance Vehicles Netherlands CDM Facility Italian Carbon Fund Bio Carbon Fund World Bank Carbon Finance Vehicles Netherlands CDM Facility Italian Carbon Fund Bio Carbon Fund

World Bank’s Carbon Finance Business - at a Glance üCarbon Purchases agreed and under World Bank’s Carbon Finance Business - at a Glance üCarbon Purchases agreed and under negotiation: ~40, ~US$250 million üNumber/Value of PCF and Netherlands Projects approved for carbon purchase: 64, US$ 440 million üCarbon Asset portfolio: ~50 million t. CO 2 e üUnderlying CDM/JI project finance: ~$3. 0 bn

Sample Projects • Latvia: $2. 5 million PCF Purchase – anaerobic decomposition of about Sample Projects • Latvia: $2. 5 million PCF Purchase – anaerobic decomposition of about 20, 000 tons of garbage a year – ERs from the existing landfill site gas recovery began June 2002 • Uganda: $3. 9 million PCF purchase – a 5. 1 MW and 1. 5 MW small hydro generating facilities in the West Nile region – Displaces >200 small and few large public diesel gensets • Chile: $6 m PCF Purchase – 26 MW run-of-river hydro generating 175 GWh to replace coal/gas • Brazil: $5 mm of PCF Purchase – Substituting coal/coke by sustainably produced charcoal in pig iron production, plus afforestation and ecosystem restoration, biodiversity and health benefits

Lessons from PCF: Carbon Prices Uganda small hydro (5&1. 5 MW) remote area $3. Lessons from PCF: Carbon Prices Uganda small hydro (5&1. 5 MW) remote area $3. 00 Chile: 25 MW hydro run-of-river $3. 50 [ +option] Brazil sustainable charcoal replacing coal/coke $3. 50 Poland District Heating Fuel Switch – Coal to Geothermal and Biomass $3. 50 C. America small wind/hydro $3. 50 Romania Afforestation $3. 60 [+option] Colombia wind farm $3. 50 + 0. 5 South Africa Durban waste management $3. 75 + 0. 2 Czech small-scale energy efficiency $4. 00

Carbon Funds in Asia • Asian Development Bank CDM Facility • Development Bank of Carbon Funds in Asia • Asian Development Bank CDM Facility • Development Bank of Japan Carbon Fund of Japan • JBIC Carbon Fund

Carbon Prices Source: PCF estimates, based on database assembled with Natsource, Co 2 e. Carbon Prices Source: PCF estimates, based on database assembled with Natsource, Co 2 e. com and Point. Carbon

Pricing of Emission Reductions • Price range offered depends on the – Legal jurisdiction Pricing of Emission Reductions • Price range offered depends on the – Legal jurisdiction of the ER • Kyoto Protocol, EU trading system, domestic trading systems such as those in UK or Denmark or the voluntary market – Price signal in the market for the jurisdiction – Willingness to pay of the buyers • Price outcome in a project depends on risk sharing in the contracts including – Regulatory risk (e. g. Kyoto Protocol entry into force, eligibility of project, verification and certification) – Project performance and delivery risk

Price Differentials b/w CER & AAU Different Carbon Markets • Legal Status of Asset Price Differentials b/w CER & AAU Different Carbon Markets • Legal Status of Asset § AAU has more secure status than CER § CER has Kyoto Risks • Different Trading Regimes § AAU: Cap-and-trade § CER: Baseline-and-credit • Each reduction has to be certified – higher transaction costs • Baseline risks • Compartmentalized Carbon Markets – At present, not allowed to trade CER in EU Trading Schemes

Estimated and Contracted ERs Additional emission reductions Estimated emission reductions Minimum contracted emission reduction Estimated and Contracted ERs Additional emission reductions Estimated emission reductions Minimum contracted emission reduction Contract default value 5 Year 10

Actual performance and contract volume Expected ERs 5 Year 10 Actual performance and contract volume Expected ERs 5 Year 10

Actual performance and contract volume “Swept” amount Minimum contracted amount Expected ERs freed due Actual performance and contract volume “Swept” amount Minimum contracted amount Expected ERs freed due to sweeping 5 Year 10

Buyers of Carbon Credits [Mt. Ce/yr] (Source: Grubb, March 2003) Historical Emissions Low Surplus Buyers of Carbon Credits [Mt. Ce/yr] (Source: Grubb, March 2003) Historical Emissions Low Surplus (High Demand, Low Supply) High Surplus (Low Demand, High Supply) 1990 2000 % change 2000 -2010 Carbon Balance 220 53 EU Carbon 911. 4 895. 5 7% 120 -3% 30 Japan Carbon 305. 3 313. 7 10% 58 -3% 17 Canada Carbon 128. 6 158. 0 15% 61 0% 37 + Net other GHGs (+5, -5%) 12 -2 - Managed forest allowance -30 GROSS DEMAND

Sellers of Carbon Credits [Mt. Ceq/yr] (Grubb, March 2003) Historical Emissions Low Surplus (High Sellers of Carbon Credits [Mt. Ceq/yr] (Grubb, March 2003) Historical Emissions Low Surplus (High Demand, Low Supply) High Surplus (Low Demand, High Supply) 1990 2000 % change 2000 -2010 Carbon Balance 331 587 647 450. 7 20% 106 0% 196 Ukraine Carbon 191. 9 104. 5 20% 67 0% 87 Accession 10 Carbon 245. 2 146. 6 25% 45 5% 75 Other EITs 87. 8 45. 4 25% 24 0% 36 Other GHGs (10, 20%) 24 79 + Managed forest allowance 40 40 SUPPLY Russia Carbon CDM 15 50

Probable prices for CERs (£/t. CO 2 e) (Grubb, March 2003) • Renewable energy Probable prices for CERs (£/t. CO 2 e) (Grubb, March 2003) • Renewable energy and energy efficiency projects under CDM fast-track procedures for small scale projects Ø £ 10 – 25 per t. CO 2 e • Land use and other CDM projects Ø £ 5 – 15 per t. CO 2 e

Key Factors in CDM Market Development • Need 5 years+ for carbon finance to Key Factors in CDM Market Development • Need 5 years+ for carbon finance to make a difference in a project at current prices; • Buyers only want ERs delivered by 2012. They heavily discount ERs after 2012 • If value of post 2012 ERs is not assured by 2006, CDM market activity will decline sharply

Lead Time and Uncertainty Constraints on Project-Based Mechanism (esp. CDM) Wind, Efficiency, Waste to Lead Time and Uncertainty Constraints on Project-Based Mechanism (esp. CDM) Wind, Efficiency, Waste to Energy Operating CDM Investment Window: 3 years 2003 Large Hydro, Geothermal, Coal to Gas Power Operating 2006 2008 2012 = Start Construction IF NO Decision; No Incentive beyond 2012, No Investment, Market Development Stalled

CDM: Challenges ahead CDM: Challenges ahead

Roberto C. Yap, S. J. , Ph. D. Environmental Economist Climate Change Information Center Roberto C. Yap, S. J. , Ph. D. Environmental Economist Climate Change Information Center Manila Observatory Ateneo de Manila University Tel +63 2 426 -6144 Fax +63 2 426 -6070 [email protected] ph