Climate Finance and Carbon Finance The Development Bank

Climate Finance and Carbon Finance: The Development Bank of the Philippines Experience

DEVELOPMENT BANK OF THE PHILIPPINES § 100% government- owned, sources its own funds § DFI with universal banking license § Main conduit for ODA funds

DBP’s Environmental Commitment. . . . Started in 1992 under the US $ 175 million World Bank structural adjustment program Facility to improve efficiency and international competitiveness of Philippine industries with component for environmental concerns.

Challenges ◦ Difficulties of borrowers related to Requirement to conduct environmental impact assessments Compliance with environmental regulatory requirements ◦ Inclusion of environmental risks in loan evaluation

Challenges ◦ Delays in loan processing because of new credit guidelines ◦ Identification of environmental projects Technologies to reduce waste, recycle or use of cleaner technology not yet appreciated at that time

Objectives. . . . . DBP to influence industries to be more proactive in environmental management and protection Introduce a new mindset and new approaches to Environmental Management for the Bank and its clients

Strategies and Initiatives Capacity building 1. ◦ Production of environmental manuals and guidebooks ◦ Workshops and seminars 2. Financial credits and technical assistance for environmental investments ◦

Strategies. . 3. Establish Partnerships Government Agencies Non-governmental organizations and peoples organization Academe Industry and businesses 4. Promotion of good environmental stewardship

Credit Strategies Require clients to conduct EIAs Ensure client compliance with regulatory requirements Relate environmental policy reforms to financial concerns Impose environmental conditions in the Omnibus Loan Term and Conditions

Credit Strategies Integrate environmental due diligence in project evaluation Introduce conduct of Environmental Performance Monitoring (EPM) by Account Officers (AOs) , PFIs and clients Issuances of Credit Policy Memorandum

Climate and Environmental Loan Facilities ◦ ◦ ◦ ◦ ◦ Pollution Abatement and Control Clean Technology Solid Waste Management Natural Resources Conservation New and Renewable Energy Rural Power and Electrification Urban Water Supply and Sanitation Watershed Management Environment Development Program Carbon Investment

General Loan Features ◦ Eligible borrowers Public and private enterprises with at least 70% Filipino Ownership ◦ Maximum Loan Amount Per Project 80 to 90 % of total project cost, in pesos to avoid forex risk ◦ Interest rate Fixed rate ◦ Repayment Term Based on cash flow. Maximum of 15 years with a maximum 5 years grace period

DBP’s Carbon Finance DBP supports clients with potential carbon credits claim for their carbon offsets by registering them with the Clean Development Mechanism (CDM). The CDM is one of the 3 enabling mechanisms under the 1997 Kyoto Protocol of the United Nations Framework Convention on Climate Change (UNFCCC). It allows Annex I countries to reach their GHG emissions reduction targets by implementing GHG abatement projects in developing nations.

DBP’s Carbon Finance November 21, 2003: Carbon Investment Banking Facility (CIBF) 1. Preparation, development, packaging and financing of projects that provide solutions for environmental protection (i. e. GHG emissions reduction and carbon sequestration) and sustainable development 2. Registration with the CDM of projects that reduce emission of greenhouse gases ( stand alone or bundling schemes) August 10, 2010: Carbon Finance Program (CFP) Allows use of DBP internally-generated funds to finance the registration of eligible CDM projects

DBP’s Carbon Finance Program Translates borrowers’ CDM projects into CER units 1. Enhancing project viability with additional revenues 2. Promoting environmental conservation and climate change mitigation and adaptation DBP acts as the CDM project managing entity and registers with the UNFCCC CDM Executive Board for and on behalf of the project owners DBP puts together resources and requirements needed to register, takes active role in project monitoring, initiates request for the issuance of carbon credits and monetizes the carbon credits

DBP’s Carbon Finance Program Current direction of assistance : Program of Activity (Po. A) Scheme of Registration Po. A Scheme entails the design of a sector program under which business or operational activities contribute to the reduction in GHG emission. • registration is made simpler through the enrolment of simpler projects to a CDM registered Po. A • gives qualified small players the opportunity to financially benefit from the CDM while contributing to the sustainable development of host communities

DBP’s CFP Business Model Carbon Market DNA/ CDM Executive Board DBP as CDM Project Consolidator and Managing Entity MOA covering registration assistance and sharing of proceeds CERs DBP Carbon Account CER Trading CDM Approval/Registration CPAs under Po. A X composed of Proj 1 Pronj 2 Proj n $$$ Po. A X (with aggregated CER gen. of 25, 000 tons/annum) MOA covering registration assistance and sharing of proceeds CPAs under Po. A Y composed of Proj 1 Proj 2 Proj n CERs Po. A Y (with aggregated CER gen. of 25, 000 tons/annum) Distribution of Share of CER Proceeds (Peso) Pro-rated Distribution of CER Sales to Project MOA covering registration Owners assistance and sharing of proceeds CPAs under Po. A Z composed of Proj 1 Proj 2 Proj. n CERs Po. A Z (with aggregated CER gen. of 25, 000 tons/annum)

CDM Registration Experience 1. Bundle of 3 mini-hydro power plants 2. Program of Activity (Po. A) for Generation of Electricity from micro and mini-hydro power plants 1 MW and below 3. Po. A for Composting 4. Po. A for Methane Capture from Hog Farms 5. Heat recovery from blast furnace for power generation

DBP: Country’s Frontrunner in Climate Finance and Carbon Finance Environmental projects such as mini-hydro power plants, biomass-fueled power generating plants, solid waste management projects, water sanitation, air and water pollution control and carbon sequestration projects are perceived as having high risks and low returns. DBP pioneered in financing these projects in the Philippines, showing that these projects are also viable and have high returns for the environment. Many other banks, esp. commercial banks, are now following DBP’s path of climate finance and carbon finance.

DBP’s Awards and Citations Year 2010 Award ADFIAP, Environment Award for Rural Power Project ADFIAP, 1 st Sustainable Development Report 2005 - 2008 “A” Grade for Energy Conservation Program given by the Office of the President, Department of Energy Efficiency and Conservation Program in Government Buildings 2006 ADFIAP, Most Outstanding Environmental Development Project for the DBP Forest Project 2003 ADFIAP, Technology Development Award 2002 ISO 14001 Certification of DBP’s Environmental Management System by the SGS Switzerland SA. This made DBP the first Philippine Bank to be EMS certified. 2001 ADFIAP, Environmental Development Award for DBP’s Environmental Management System Asian Banking Awards, New and Renewable Energy Financing Program 2000 World Bank Recognition of Excellence for DBP’s LGU Urban Water and Sanitation Program 1999 4 th Asian Banking Awards, Environmental Program Category

THANK YOU MARIA ANA VISITACION M. DOMINGO Assistant Vice President Development Bank of the Philippines Makati Avenue corner Senator Gil Puyat Avenue, Makati City Telephone No. - +632 8934912 Email – mavmdomingo@dbp. com. ph