63921 Joint MDB Report to the G8 on the Implementation of the Clean Energy Investment Framework (CEIF) and Their Climate Change Agenda Going Forward June 2008 Copyright © 2008 The African Development Bank The Asian Development Bank The European Bank for Reconstruction and Development The European Investment Bank The Inter-American Development Bank The World Bank Group All rights reserved CONTENTS Acronyms and Abbreviations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .iv Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1 1: Background and Objective of the Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8 2: An Overview of Developments since Gleneagles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9 3: Results of the CEIF and Related Climate Change Strategies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11 Increasing Energy Access . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11 Mitigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13 Adaptation to Climate Variability and Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .34 4: The Way Forward . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .40 The Collective Ambition of the MDBs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .40 Access . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .40 Mitigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .43 Adaptation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .48 Mobilizing the Private Sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .51 Mobilizing Additional Concessional Resources to Fund the MDBs' Climate Change Agenda . . . . . . . . . . . . . .52 Working Together: Strengthening the Partnership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .56 Boxes Box 1: World Bank Group Support for Private Sector Participation in Renewable Energy Projects . . . . . . .18 Box 2: ADB Support for Private Equity Funds for Clean Energy Projects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21 Box 3: Azdres Power Project in Azerbaijan, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22 Box 4: Tunisia Municipal Solid Waste Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24 Box 5: Principal Policy Interventions to Reduce GHG Emissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26 Box 6: Sustainable Urban Mobility in Asia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26 Box 7: The Nairobi Framework . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .32 Box 8: World Bank Support to Assessing “Low-Carbon� Growth Strategies for India . . . . . . . . . . . . . . . . . . . . .33 Box 9: A Study of Climate Change Impact and Adaptation in Asian Coastal Cities . . . . . . . . . . . . . . . . . . . . . .35 Box 10: IDB Support for Adaptation to Climate Change and Disaster Mitigation—Township Planning Strategies for Storm Surges in the Caribbean . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .36 Box 11: ADB Support to Climate-Proofing Pacific Countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .38 Box 12: African Development Bank–Malawi Climate Adaptation for Rural Livelihoods and Agriculture (CARLA) Project . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .39 Box 13: The Economics of Adaptation to Climate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .49 Tables Table 1: MDB CEIF/Climate Change Lending/Investments ($ billion) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .41 TA B L E O F CO N T E N T S iii ACRONYMS AND ABBREVIATIONS ADB Asian Development Bank AfDB African Development Bank APCF Asia Pacific Carbon Fund BRT Bus Rapid Transit CAI-Asia Clean Air Initiative for Asian Cities CARLA Malawi Climate Adaptation for Rural Livelihoods and Agriculture Project CCEC China Clean Energy Capital CCS carbon capture and storage CDM Clean Development Mechanism CECAFA Clean Energy Access and Climate Adaptation Fund for Africa program (AfDB) CEIF Clean Energy Investment Framework CER Certified Emission Reduction CF-Assist Carbon Finance Assist CHP combined heat and power CLIMAP Climate Change Adaptation Program for the Pacific ClimDev Action Plan for Africa on Climate Information for Development Needs CMI Carbon Market Initiative (ADB) COP13 Conference of Parties CPF Carbon Partnership Facility CRMA climate risk management and adaptation CTF Clean Technology Fund DANIDA Danish International Development Agency DMC Developing Member Country EBRD European Bank for Reconstruction and Development EE energy efficiency EEfSD Energy Efficiency for Sustainable Development (WBG) EEI Energy efficiency initiative EIB European Investment Bank ESCO energy service company ESMAP Energy Sector Management Assistance Program ESW Economic Sector Work EU European Union FCF Future Carbon Fund FCPF Forest Carbon Partnership Facility FINESSE Financing Energy Services for Small-Scale Energy Users (AfDB) FLEG Forest Law Enforcement and Governance FY fiscal year G8 Group of Eight: Canada, France, Germany, Italy, Japan, Russia, the United Kingdom, and the United States G8+5 Brazil, China, India, Mexico, and South Africa GDP gross domestic product GEEREF Global Energy Efficiency and Renewable Energy Fund (EU) GEF Global Environment Facility GEF LDCF GEF Least Developed Countries Fund GEF-SA GEF South Asia Clean Energy Fund GGFR Global Gas Flaring Reduction Partnership (World Bank) GHG greenhouse gas H1 first half (of a fiscal year) HEST higher education, science, and technology strategy (AfDB) iv JOINT MDB REPORT TO THE G8 ON THE IMPLEMENTATION OF THE CLEAN ENERGY INVESTMENT FRAMEWORK (CEIF) AND THEIR CLIMATE CHANGE AGENDA GOING IBRD International Bank for Reconstruction and Development IDA International Development Agency IDB Inter-American Development Bank IEA International Energy Agency IFC International Financial Corporation IFI international financial institution IGCC Integrated Gasification Combined Cycle IPCC Intergovernmental Panel on Climate Change IREDA Indian Renewable Energy Development Agency JBIC Japanese Bank for International Cooperation KfW Kreditanstalt für Wiederaufbau kl kiloliter LAC Latin America and the Caribbean department (World Bank) LCGS low-carbon growth strategy LRT light rail transit MCCF Multilateral Carbon Credit Fund MDB Multilateral Development Bank MDG Millennium Development Goals MFI-WGE Multilateral Financial Institutions–Working Group on the Environment MRT mass rapid transport Mtpa million tons per annum NAPA National Adaptation Programme of Action (Malawi) NGO nongovernmental organization ODA official development assistance OCR Ordinary Capital Resources (ADB) OECD Organisation for Economic Co-operation and Development PPEE National Energy Efficiency Program (Chile) (Programa País de Eficiencia Energética) PPP public-private partnerships PV solar photovoltaic or photovoltaics RD&D research, development, and deployment RE renewable energy REDD Reducing emissions from deforestation and degradation RMC regional member country RWSSI Rural Water Supply and Sanitation Initiative (World Bank) SBSTA Subsidiary Body for Scientific and Technological Advice (UNFCCC) SCF Strategic Climate Fund SECCI Sustainable Energy and Climate Change Initiative (IDB) SEFF Sustainable Energy Financing Facilities SEI Sustainable Energy Initiative (EBRD) SIDA Swedish International Development Cooperation Agency SSA Sub-Saharan Africa SUMA Sustainable Urban Mobility in Asia TA technical assistance TAOS The Arbiter of Storms storm surge risk assessment model TJ terajoule UNFCCC United Nations Framework Convention on Climate Change WBG World Bank Group ZETP Zero Emissions Technology Platform All dollar amounts are U.S. dollars unless otherwise indicated. AC R O N Y M S A N D A B B R E V I AT I O N S v EXECUTIVE SUMMARY Background The Gleneagles G8 Summit in September 2005 stimulated a con- compared to around 5 percent of GDP per year in the richer certed effort by the multilateral development banks (MDBs) to countries. The reasons for this uneven impact are geographic broaden and accelerate their activities on access to energy and disadvantages from already high temperatures; their economies climate change mitigation and adaptation through the Clean suffer greater impacts from variations in rainfall; their economies Energy Investment Framework (CEIF) and related programs. The are heavily dependent on agriculture, the sector expected to be CEIF and related strategies developed by the MDBs in response among the hardest hit by climate change; health care and other to this mandate focused on three pillars: energy for develop- public services are already of low quality; and lower incomes ment and access for the poor, transition to a low-carbon econo- make the ability to adapt to climate change more difficult. The my, and adaptation to climate change. At Gleneagles, it was also net impact of climate change would, therefore, increase the level agreed that a report on the implementation of the CEIF would of poverty in developing countries, and make it harder to meet be prepared for the 2008 G8 Summit hosted by Japan. This joint the Millennium Development Goals. report of the MDBs responds to that request. In addition to The Intergovernmental Panel on Climate Change (IPCC) Fourth reporting on the status of the CEIF, this report outlines the col- Assessment was delivered during 2007. Its chief findings include lective ambition of the MDBs with respect to assisting the devel- confirmation that the warming of the global climate system is oping countries in meeting the climate change challenge, their unequivocal; global greenhouse gas (GHG) emissions resulting evolving strategies designed to meet these objectives, and the from human activities have grown 70 percent between 1970 and mechanisms through which they intend to achieve the neces- 2004; most of the observed increase in global temperatures since sary collaboration to optimize the collective impact of their cli- the mid-20th century is very likely because of the observed mate change intervention. increase in anthropogenic GHG concentrations; impacts are very In the period since Gleneagles, a number of studies have been likely to be more severe because of increasing frequencies and completed that further highlight the urgency of the climate intensities of some extreme weather events; unmitigated climate change agenda. The October 2006 Stern Review, commissioned change would, in the long term, be likely to exceed the capacity by the U.K. government, found that the benefits of strong, early of natural, managed, and human systems to adapt; a broad range action to reduce carbon emissions considerably outweigh the of stabilization levels are achievable using a portfolio of technolo- costs. Furthermore, the same report points out that climate gies that are currently available and expected to be commercial- change impacts are disproportionately felt in the developing ized in the next two decades; and changing development paths countries: the cost of climate change to poor countries could be and technology choices can make a major contribution to cli- as much as 20 percent of gross domestic product (GDP) per year mate change mitigation and vulnerability reduction. Results of the CEIF and Related Climate Change Strategies The MDBs, individually and collectively, had worked on several for the development of a coherent and focused MDB response important aspects of the climate change agenda, for example, to the climate change challenge designed to help their clients EE and renewables, well before the Gleneagles Summit. overcome its potentially adverse implications for their respec- However, the Gleneagles communiqué provided the impetus tive development, transition, and poverty reduction agendas. In E X E C U T I V E S U M M A RY 1 the period following the Gleneagles communiqué, all the MDBs to EE with the European Bank for Reconstruction and have defined overall programs, together with specific initiatives, Development (EBRD) being recognized as a leader in develop- designed to help their clients mitigate the impact of their past ing innovative approaches by its peers. Ongoing and planned and future development programs on climate change, while at interventions by all MDBs include (a) substantially increasing the same time accelerating their efforts to increase energy sup- their lending activities in this area, (b) screening investment ply to the 1.6 billion poor who remain without access to modern pipelines for EE opportunities early in the project cycle, (c) pro- energy services. In those regions where the impact of global moting energy audits, (c) being willing to finance an increased warming is already apparent, the MDBs are also increasingly help- share of total costs of EE projects, (d) targeting key countries ing their clients to adapt to the new, higher-risk environment. with the highest potential impact for efficiency gains, and (e) helping clients to identify and remove institutional, regulatory, Access and policy barriers to efficiency gains. Not only is there a major financing gap for needed energy sec- tor investment in developing countries, about $60 billion per A broad range of proven renewable energy (RE) technologies are year, but helping governments get the sector policy framework now available, several of which are commercially viable, such as right has also posed a major challenge for the MDBs. Providing wind and geothermal, and have significant potential to improve modern energy services to the poor, particularly in Sub-Saharan energy access in the developing countries. Bringing these Africa (SSA) and South Asia, where most of those without access small-scale technologies online in full market volumes has live, has also required special attention. The MDBs have signifi- become a key priority for the MDBs. These interventions include cantly scaled up their efforts in this area. For example, the MDBs' investment support, as well as steps to tackle a variety of policy support for Africa includes action plans that aim to increase issues designed to eliminate biases against renewables (for access by households from current levels of around 23 percent example, fossil fuel subsidies and inequitable access to trans- to 35 percent by 2015 and close to 50 percent by 2030. As a mission grids). They also increasingly include more proactive consequence, the World Bank Group (WBG) and the African support for renewables, such as promoting regulatory and pol- Development Bank (AfDB) have seen a substantial increase in icy regimes that actively encourage renewables, capacity build- their lending for the energy sector in the last two years. For ing, identifying local renewable resources, technology adapta- example, World Bank annual lending for energy is now averag- tion, and knowledge transfer. ing $4.4 billion compared with $2.3 billion three years ago, and The MDBs are also delivering investment and analytical support lending for energy access has increased from about $0.8 billion designed to decrease emissions from thermal energy sources. A to about $1.5 billion over the same period. Given that more than number of interventions are being pursued, including (a) ther- 80 percent of the 1 billion people in Asia that lack electricity mal power plant rehabilitation, (b) transmission and distribution access live in the rural areas, the Asian Development Bank (ADB) network efficiency improvements, (c) upgrading of efficiency of has given particular emphasis to providing finance for rural new thermal power plants, (d) early retirement of inefficient electrification projects together with related policy advice. plants and replacement with state-of-the-art facilities, (e) sup- Mitigation port for carbon capture and storage (CCS), (e) gas flaring reduc- By reducing the amount of primary energy resources needed to tion, and (f ) methane release reduction. The European deliver a given amount of modern energy service, EE helps to Investment Bank (EIB) is also systematically factoring an eco- mitigate the global and local environmental impacts of fossil nomic price of carbon into its economic rate of return calcula- fuel. EE measures have been identified as the lowest-cost tions of energy projects in order to influence project choice in options available for a country to mitigate the impacts of cli- favor of low-carbon options. mate change. EE is also attractive for other reasons; it increases Methane capture as part of solid waste management programs economic competitiveness and alleviates the vulnerability to offers one of the most financially attractive climate change mit- disruptions in energy markets. All the MDBs are giving priority 2 JOINT MDB REPORT TO THE G8 ON THE IMPLEMENTATION OF THE CLEAN ENERGY INVESTMENT FRAMEWORK (CEIF) AND THEIR CLIMATE CHANGE AGENDA GOING FORWARD igation options. Given that such methane capture has the proven to be an important catalyst for piloting innovative potential to be rapidly mainstreamed in the urban strategies for approaches. developing countries, several of the MDBs are adjusting their In determining their country priorities, the MDBs have taken priorities to respond to this opportunity. into account the differing magnitudes of GHG emissions by individual nations. For example, more than half the GHG emis- Estimates indicate that the transport sector contributes about 14 sions in developing countries come from Brazil, China, India, percent of global emissions, making this a key sector for climate Mexico, and South Africa. These countries have made significant change interventions. In 2002 the transport sector accounted for progress in identifying low-carbon growth opportunities within 21 percent of worldwide energy consumption and is projected to their own sustainable development strategies, a process the generate more than 60 percent of the increase in total energy use MDBs have made a special effort to support. In turn, this work is through 2025. The strong connection between economic expected to provide the basis for a further substantial scale-up growth and transport-generated GHGs can be moderated over in MDB climate change support. time by changes in travel behavior, logistics decisions, technolo- gy choices, and transport modes. These factors can, in turn, be Adaptation to Climate Variability and Change influenced by planning, fiscal, and regulatory measures, as well as The earth's climate is already changing because of human through public investments in infrastructure. The MDBs are cur- activities. Developing countries, particularly in SSA, are suffer- rently reviewing their transport strategies and programs with a ing the greatest impact from climate-related disasters, which view to making them more climate friendly. For example, the ADB threaten to undermine their development. According to the has produced a pioneering study that analyzes the relationship recent IPCC report, the cost of adaptation in Africa could be as between the transport sector and climate change in Asia; the high as 5–10 percent of the continent's GDP. Climate change ADB is now in the process of translating the vision contained in thus has serious implications for the MDBs' poverty reduction this report to meaningful policy and investment interventions. efforts. The MDBs whose member countries will be most affected by climate change are making efforts to help the Reducing emissions from deforestation and degradation (REDD) countries adapt to climate change variability through region- offers particularly important opportunities for mitigating GHGs al and country policy and investment interventions. They are in developing countries. Emissions from deforestation and land also attempting to expand their knowledge of climate risk use changes are estimated to account for more than a third of management, build more comprehensive screening tools, and their total GHG emissions each year. MDB interventions in this develop best-practice guidance to support their clients' long- area have so far been quite modest, but they include promot- term sustainable development goals. For example, the Inter- ing special financing mechanisms, capacity building, and pilot- American Development Bank (IDB) has begun to factor cli- ing new forest conservation approaches. mate-risk concerns into sector policies, country strategies, and All the MDBs have embarked on efforts to catalyze low-carbon project design and implementation. As a first step, the IDB is investments through new financial instruments that can mobi- focusing on integrating adaptation issues in disaster risk pre- lize additional funding, promote innovation, and help fund the vention in its operations and in country programming, as well incremental costs of these projects. These efforts include a as developing guidelines to climate-proof infrastructure number of carbon funds and facilities administered by the investments. The AfDB is supporting one of the first climate MDBs, for example, the Carbon Partnership Facility, the Forest adaptation projects in Malawi; the project aims to improve Carbon Partnership, the Congo Basin Forest Fund, the EBRD/EIB resilience to current climate variability and future climate Multilateral Carbon Credit Fund (MCCF), the EIB/World Bank change by developing and implementing cost effective adap- Carbon Fund for Europe, the EIB-sponsored Post-2012 Carbon tation strategies, policies, andmeasures that will improve agri- Fund, and the Asia Pacific Carbon Fund (APCF). The availability cultural production and rural livelihood. The International of Global Environment Facility (GEF) grant funding has also Financial Corporation (IFC) has initiated several pilot studies to E X E C U T I V E S U M M A RY 3 evaluate the financial risks and climate change adaptation oppor- adaptation activities remains modest. The MDBs as a group are tunities for private sector investments. While much analytic work therefore reviewing ways in which their collective efforts on adap- has been undertaken, the current MDB financial commitment to tation can be increased. These are discussed in more detail below. The Way Forward The Collective Ambition of the MDBs for the MDBs to support additional clean technology projects Based on their individual and collective experiences in imple- with a total cost of $9 billion in 2009 and $15 billion in 2010. It menting the CEIF, the MDBs are in the process of refining and is important to emphasize that all the MDBs' public and private deepening their climate change interventions to reflect emerg- sector lending and investment programs are demand led and ing global and regional priorities. This includes scaling up current are ultimately determined by client governments and private and developing new activities with respect to access, mitigation, investors. These are therefore projections, not targets. They are and adaptation; mobilizing additional concessional funding; and based on requests and activities currently in the pipeline and, as developing new approaches. The overall ambition of the MDBs such, may be subject to change. going forward can be summarized as a logical evolution of their Access climate change agendas in which the emphasis shifts from broad Despite the progress made by the MDBs in improving energy global aspirations toward a much more explicit focus on helping access, power development, particularly in Africa, continues to each of their country clients integrate climate change issues, represent one of the most difficult infrastructure challenges. including adaptation and the identification of low-carbon Given recent levels of growth in GDP and accompanying elec- growth opportunities, into their own sustainable development tricity demand of 5 percent per year or more in many SSA coun- programs. The MDBs would support this country-led approach tries, generation capacity needs to expand by about 4 GW per through finance, technology transfer, and capacity building. year, but only about 1 GW is being added annually. Serious Success in this endeavor will also require the development of drought in many countries has, in recent years, reduced enhanced MDB assistance products, significant additional hydropower generation, and inadequate maintenance and reli- increases in the staff resources devoted by the MDBs to this effort, ability of power systems have exacerbated the shortfalls in sup- and further improvements in the way in which they work togeth- ply. Although it is too early to conclude that the objectives of er. These issues and plans are highlighted below. the MDBs' action plans to increase modern energy access can- On the assumption that these plans are realized, the MDBs not be achieved, indications to date are that the earlier targets would expect to see continuing and substantial growth in their will need to be scaled down unless and until concessional fund- collective CEIF and climate change–related lending and invest- ing and private investment are scaled up substantially. While ment programs. Collective annual lending and investments for the earlier premise that the key ingredient to mobilizing such energy access could increase to nearly $6 billion by 2010 (in funding was getting the sector policy framework right, progress support of projects and programs totaling as much as $18 bil- in this area has proved to be somewhat challenging. Too many lion) Collective low-carbon annual lending and investments countries simply do not have the governance and capacity to could reach about $11 billion by 2010 (in support of projects establish satisfactory policy frameworks and an attractive envi- and programs totaling $41 billion) by 2010. These projections ronment to attract these funds. The MDBs are therefore trying compare to annual average collective lending and investments fresh approaches, including the introduction of new technolo- for energy access of $1.3 billion and $1.9 billion for low carbon gies, such as solar lanterns, to engage the private sector, attract in the 2003–05 period. On the assumption that the proposed more concessional funds, and address the capacity and per- Clean Technology Fund materializes in 2008, it may be possible formance problems of the SSA power utilities. 4 JOINT MDB REPORT TO THE G8 ON THE IMPLEMENTATION OF THE CLEAN ENERGY INVESTMENT FRAMEWORK (CEIF) AND THEIR CLIMATE CHANGE AGENDA GOING FORWARD Mitigation gets are to be met. While there is significant scope for the devel- The articulation and adoption of low-carbon growth strategies opment of RE, including hydropower, wind, geothermal, and bio- (LCGSs) is a key challenge facing all countries. This challenge is mass, overall RE investment and financing, with the exception of particularly difficult in the developing countries, given the key hydropower in some countries, remains very limited. It is therefore role played by energy in economic growth and the over-riding important that the MDBs continue to innovate in these areas. As imperative of poverty reduction. As noted above, work on mentioned above, the MDBs are also increasingly focusing on the preparing an LCGS for the G8+5 countries (Brazil, China, India, development of strategies designed to overcome some of the Mexico, and South Africa), which account for more than half the barriers to accelerated deployment of advanced clean energy GHG emissions of the developing world, is now well under way. technologies in developing countries; this includes support for It is important that this work now be progressively expanded to early-stage project funding for RE developers. other key developing countries while at the same time main- While the transport sector is a major and growing source of car- taining the principle of country responsibility for these studies. bon emissions in the developing world, the MDBs have only Without such ownership, any LCGS that emerges is unlikely to begun to tackle this agenda item. In light of the enormity of this be implemented. The MDBs are collectively committed to con- problem, the difficult policy issues involved, and the formidable tinue to assist in the finalization of these country strategies. challenges of implementation, the MDBs are committed to indi- As the lessons of experience of the post Gleneagles period vidually and collectively focusing their professional expertise on become apparent, each MDB has been engaged in a continu- this subsector, with a view to raising its priority and developing ous process of refining their climate change interventions. Since effective interventions. Similarly, despite the importance of launching their new initiatives, the MDBs have shown that scal- deforestation as a major contributor to GHGs (close to 20 per- ing up investment activities can be achieved in a short time. cent of the total emissions), the MDBs' assistance programs in Based on their own comparative advantage, as well as the spe- this area remain quite modest. Reducing the rate of deforesta- cial needs of each region, several of the MDBs have also pio- tion is an exceedingly complex policy, regulatory, governance, neered new approaches. Since many the opportunities for cli- and financial challenge, which the traditional products of the mate change mitigation are accessible using the MDBs' existing MDBs are not necessarily well suited to meet. However, given and proven instruments, their key focus for future activities will the importance of urgently tackling this global issue, the MDBs, be therefore to scale up the deployment of these instruments, particularly those with the most seriously affected client coun- thus promoting the transition to lower-carbon economies tries, are committed to substantially raising the priority they through demonstration of energy savings, overcoming of mar- attach to reducing the rate of deforestation. ket barriers, and mobilization of the private sector. In the con- Adaptation text of rising energy prices, both as a result of global market As indicated above, the work of the MDBs on adaptation to cli- trends and as a consequence of continuing reform driving mate change remains quite modest, relative both to their miti- down subsidies and internal energy market distortions, EE is gation activities and the global adaptation challenge. Indeed, expected to remain a strong activity area. There appear to be the MDBs are still in the process of staffing up respond to these significant opportunities for the MDBs to further leverage their demands. This is not surprising, given that adaptation has only collective efforts on thermal power and to help their clients recently been recognized as a major global priority, and its com- achieve significant GHG reductions per megawatt. Under most plexity compared to mitigation. Moreover, the impact of climate business-as-usual international energy scenarios, coal is project- change varies significantly from one region to another. For ed to increase the most among all energy sources worldwide. example, the clients of the AfDB will be far more seriously affect- Given the exceptionally high level of CO2 emissions from coal- ed than those of the EBRD. In light of these realities, all the MDBs fired power plants, new technology must be developed to rad- are developing a more ambitious and coherent set of adapta- ically reduce these emissions if reasonable atmospheric CO2 tar- tion products (investment and policy) designed to leverage EXECUTIVE SUMMARY 5 each other's strengths and build the needed staff capacities. For operations. The MDBs can also play an important role in open- example, the ADB has recently initiated Promoting Climate ing new markets, demonstrating technologies and practices, Change Adaptation in Asia and the Pacific, and the AfDB has and in overcoming private sector perceptions of risk, the trans- begun the process to develop a comprehensive climate risk action costs of smaller projects, and behavioral inertia and low management and adaptation strategy (CRMA); the EIB is review- prioritization of such investments. The potential role of new ing its lending policy in the water sector and has established donor funds (see next section) in helping to facilitate and lever- adaptation as an area of intervention alongside mitigation. To age climate-friendly private investment will also be critical. some extent, the MDBs' overall progress on implementing Mobilizing Additional Concessional Resources to widespread adaptation has been hindered by the lack of sound Fund the MDBs' Climate Change Agenda estimates of the scope of the task and the financial implications. While the MDBs have made good progress in implementing Developing countries are often unwilling to borrow for discrete their climate change agenda, the current scale of financial adaptation activities and some appear to be reluctant to act support is not at the levels required to address the challenges until resources that are clearly “additional� to official develop- that lie ahead. The International Energy Agency's (IEA's) pro- ment assistance (ODA) budgets are made available for the jection of energy investment needs of $22 trillion (2006 dol- imposed costs of adaptation. The uncertainties are frequently lars) from 2006 to 2030 in their Reference Scenario is split even greater for private sector projects because of their shorter roughly 50-50 between developing countries and the time horizons and more limited geographic focus; these per- Organisation for Economic Co-operation and Development spectives are now being explored in IFC pilot studies. Initial (OECD) plus transition economies. The World Bank estimates World Bank estimates suggest that $1–4 billion per year would that the incremental cost to enable power investments in need to be directed to adaptation actions to “climate proof� developing countries to reach a low carbon threshold were of global concessional finance for development. the order of $30–40 billion per year. Global incremental costs Mobilizing the Private Sector for a low-carbon trajectory, including all sectors, are estimated Success in achieving a global low-carbon growth trajectory is of to be $100–500 billion per year. Existing financing addresses course ultimately dependent on climate-friendly investments only a very small component of this total requirement. Over by the private sector—the expected source of more than 80 the long term, the gap may be filled by some combination of percent of investments for climate change mitigation and adap- a growing market for carbon trading and policy instruments, tation according to United Nations Framework Convention on such as carbon taxes following a post-Kyoto global agree- Climate Change (UNFCCC) and other estimates. Given the ment. However, in the interim, concessional financing is criti- EBRD's overall mandate, the private sector has been at the core cal to catalyze increased flow of commercial capital and to of the EBRD's approach since the inception of the Sustainable support early action by the developing countries to address Energy Initiative (SEI); indeed a major contributory factor for the the challenges of climate change. rapid scale-up of the SEI has been its business-driven nature. For example, in 2007, 84 percent of the EBRD's €1 billion invest- In this context, the MDBs, working with developed and devel- ments under its SEI went to the private sector. The IFC and the oping countries and other stakeholders, have proposed the private sector arms of the other MDBs are now expanding their establishment of the Climate Investment Trust Funds com- own programs to respond to the private sector challenge. In prising two new trust funds, one for scaling up investments in addition to an active dialogue with private sector interests, this low-carbon technologies and the second to support various includes a continuing focus on country policy and regulatory programs to test innovative approaches to climate change. regimes to ensure a conducive enabling environment that pro- Donor contributions to the Climate Investment Trust Funds vides the needed incentives for low-carbon and climate- would be new and additional to existing ODA funding levels. resilient projects, as well as specific support for private sector The Clean Technology Fund (CTF) would provide scaled-up 6 JOINT MDB REPORT TO THE G8 ON THE IMPLEMENTATION OF THE CLEAN ENERGY INVESTMENT FRAMEWORK (CEIF) AND THEIR CLIMATE CHANGE AGENDA GOING FORWARD financing to contribute to demonstration, deployment, and The sheer scope and complexity of the climate change agenda transfer of low-carbon technologies with a significant potential and the overriding imperative for coherence and consistency for long-term GHG emissions savings. It would provide positive on the part of the MDBs require that they further strengthen incentives through grant elements tailored to cover the iden- collaboration with respect to their analytical work and related tifiable additional costs of low-carbon investments necessary methodologies. For example joint work on developing a har- to make a project viable. The Strategic Climate Fund (SCF) monized approach to the assessment and reporting of portfolio would include targeted programs with grants or concessional GHG emissions (carbon foot printing) is under way. This exercise finance considered as the preferred instrument, depending on will, among other things, provide the basis for measuring and the activity and its mix of local and global benefits. The first monitoring the climate change performance of the MDBs with program would pilot national level actions for climate respect to outcomes. In addition, and while not used for deci- resilience in a few highly vulnerable countries. Other programs sion-making purposes, several of the MDBs have begun to pilot under consideration are to reduce deforestation and forest shadow price carbon in their economic analysis of projects. The degradation and to promote improved sustainable forest MDBs are also committed to working together in preparing and management. financing larger low-carbon projects, such as CCS. As the MDBs progressively broaden and deepen their climate Working Together: Strengthening the Partnership change activities, it is important that the lessons of experience It is evident from the foregoing that the MDBs share a common are promptly shared across the institutions and more impor- vision on approaches and actions to tackle the challenge posed tantly with the clients themselves. The MDBs have therefore by climate change. Prior to Gleneagles, they had worked committed themselves to establish more systematic knowl- together in such areas as EE, RE, clean coal technologies, urban edge exchange mechanisms. This effort is expected to include transport, forestation, and environmental protection, all of establishment of thematic groups across the banks. Such which have a direct impact on climate change. Cooperation groups would be organized by topic—for example, renewables, included cofinancing of key projects, as well as joint or closely coal-fired plant technologies, EE, and adaptation—and would coordinated country policy advisory work. include all staff working on these issues across the MDBs. As the These joint efforts have accelerated and become much more MDBs' climate change activities expand, it has also been intense in the post-Gleneagles period. In particular, each MDB increasingly important that each knows what the others are has consulted closely with the others based on their respective doing at the operational level, both to leverage their individual comparative advantages, and in the process developed and efforts and to help identify key gaps. In this connection, the revised their individual climate change and energy strategies to MDBs have established a common data base on their activities. respond to the new global priorities. The result is an increasing- This site, which the MDBs are committed to updating regularly, ly consistent set of policies, programs, and instruments across is accessible at www.worldbank.org/environment/ccandmdb. the international financial institutions (IFIs). Further initiatives, Finally, the MDBs are in the process of strengthening the formal designed to increase the level of collaboration, are under way; governance mechanisms designed to ensure the needed coop- they are considered critically important as the pace of imple- eration, particularly at the operational level. Specifically, the mentation picks up and as new sources of financing for climate MDB committee, which will be established as a part of the gov- change programs, such as the proposed Climate Investment ernance framework for the CTF, will, among other things, Trust Funds, become available. assume direct responsibility for collaboration, coordination, and information exchange across the institutions. E X E C U T I V E S U M M A RY 7 1: BACKGROUND AND OBJECTIVE OF THE REPORT The 2005 Gleneagles G8 Summit in July 2005 stimulated a con- The report builds upon the “The Multilateral Development Banks certed effort of the MDBs to broaden and accelerate programs and the Climate Change Agenda� report that was presented at on access to energy and climate change mitigation and adap- the December 2007 Bali Climate Change Conference. This report tation through the CEIF. Over the last two years, largely through describes actions taken by each MDB to develop climate change the CEIF adopted by MDBs, recognition of the vital role the strategies and programs of actions tailored to their particular MDBs play in addressing the global challenges posed by cli- client needs, based on resources and funding mechanisms cur- mate change has emerged. MDB public and private sector rently available. Under the CEIF, the MDBs have strengthened col- operations are increasingly called upon by client countries and laboration on analytical work and programming and committed the international community to help developing countries to expand this collaboration to optimize the impact of their col- achieve their poverty reduction and economic growth objec- lective actions. Through the initial stage of joint work, a monitor- tives in a manner that is resilient to climate impacts and that ing system has been established to assist joint tracking of climate mitigates their contributions to GHG emissions. change–related operations. Joint sector work is also under way, including the development developing common methodolo- At the Gleneagles Summit, it was agreed that a report on the gies for monitoring the carbon footprint of MDB operations. implementation of the CEIF would be prepared for the 2008 G8 Summit hosted by Japan. This joint report of the MDBs to the G8 In addition to reporting on the status of the CEIF, this report out- Summit in Hokkaido is intended to provide information on the lines the collective ambition of the MDBs with respect to assist- outcomes and lessons learned under the CEIF, describe the col- ing the developing countries in meeting the climate change lective MDB objectives for addressing the energy access and cli- challenge, summarizes their evolving strategies designed to mate change challenges, and outline how the MDBs plan to meet these objectives and the mechanisms through which build on the CEIF experience to date to more fully achieve these they intend to achieve the necessary collaboration to optimize objectives. the collective impact of their climate change interventions. 8 JOINT MDB REPORT TO THE G8 ON THE IMPLEMENTATION OF THE CLEAN ENERGY INVESTMENT FRAMEWORK (CEIF) AND THEIR CLIMATE CHANGE AGENDA GOING FORWARD 2: AN OVERVIEW OF DEVELOPMENTS SINCE GLENEAGLES The 2005 Gleneagles communiqué on climate change recog- risk of unraveling these gains because of the negative impacts nized the “serious and linked challenges of tackling climate of climate change. change, promoting clean energy, and achieving sustainable In 2005, the then Chancellor of the Exchequer in the U.K. development globally.� The communiqué encouraged the Government commissioned a team led by Sir Nicholas Stern to MDBs to increase dialogue with client countries on climate undertake a study on the economics of climate change. The change mitigation and adaptation activities. The World Bank report, which was released in October 2006, represented a was requested to take leadership in developing a framework for watershed in the thinking on the challenges associated with cli- clean energy and development, including investments and mate change. The report is not without controversy, but its con- financing. In response to this call, all the MDBs have finalized clusions have generally been well received. The economic strategy papers and commenced implementation of their new analysis finds that the costs of climate change impacts and initiatives, policies, and programs. adaptation, of at least 5 percent of GDP each year, are sufficient- The development of a CEIF focuses on three pillars: (a) energy ly higher than the estimated costs to reduce GHG emissions— for development and access for the poor; (b) transition to a low- about 1 percent of global GDP annually—to warrant that a high carbon economy; and (c) adaptation to climate change. The priority be assigned to mitigating GHG emissions. The report perspective of developing countries regarding the clean energy concludes: “…the evidence gathered by the review leads to a challenge differs depending on income levels. Lower-income simple conclusion: the benefits of strong, early action consider- countries have the dual related challenges of economic growth ably outweigh the costs.� and poverty alleviation through increasing access to modern Furthermore, the Stern Report points out that climate change energy while middle-income countries assign a high priority to impacts are disproportionately felt: the cost of climate change economic growth. All client countries have made it clear that to poor countries could be as much as 20 percent of GDP per the climate change agenda must be addressed in the context of year The reasons for this uneven impact are that geographic dis- these priorities. advantages have resulted from already high temperatures; their The development trajectory of developing countries, based on economies suffer more from variations in rainfall; their current policies, is not unlike that of OECD countries in the post- economies are heavily dependent on agriculture, the sector industrialization era starting in the late 19th century. Economic expected to be among the hardest hit by climate change; growth accelerated considerably in Western Europe and North health care and other public services are already of low quality; America driven by replacing labor with machines and further and lower incomes make the ability to adapt to climate change reinforced by changes in transportation and the application of more difficult. The net impact of climate change would, there- electricity. All of these changes were dependant on a rapid fore, increase the level of poverty in developing countries. increase in energy use, principally coal, oil and hydropower. Not But what does 1 percent of global GDP mean in terms of costs? coincidently, this was also the time at which CO2 emissions into To put this in context, if the global GDP on a public-private part- the atmosphere accelerated. The problem of CO2 emissions is nerships (PPP) basis is $70 trillion, the annual mitigation costs further exacerbated by the fact that, unlike many other airborne would be $700 billion. The increase in oil prices in the past 5 pollutants, CO2 remains in the atmosphere for about 100 years. years represents an annual increase in cost of more than $2 tril- The challenge, thus, is how to continue economic growth in lion—if oil prices were roughly $30 per barrel less than today's OECD countries and accelerate economic growth in developing prices, the savings would be roughly the same as the total countries in a manner that respects the need to decrease the A N O V E R V I E W O F D E V E LO P M E N T S S I N C E G L E N E AG L E S 9 expected cost of mitigation. The IEA's estimate of annual global of the time scales associated with climate processes and energy subsides is more than $250 billion—about 35 percent of feedbacks. the estimated cost of mitigation. I Equilibrium climate sensitivity is very unlikely to be less than 1.5º C. The IPCC Fourth Assessment was delivered during 2007, build- ing on the Third Assessment delivered in 2001. The chief find- I Impacts are very likely to increase because of frequencies and intensities of some extreme weather events. ings in the Synthesis Report are as follows: I Unmitigated climate change would, in the long term, be I Warming of the climate system is unequivocal. likely to exceed the capacity of natural, managed, and I Many natural systems are being affected by regional climate human systems to adapt. change. I A wide range of mitigation options is currently available or I Global GHG emissions resulting from human activities have projected to be available by 2030 with costs ranging from grown 70 percent between 1970 and 2004. negative up to $100/t CO2e and would reduce emissions to below current levels by 2030. I There is very high confidence that the global average net effect of human activities since 1750 has been one of I A large range of stabilization levels are achievable using a warming. portfolio of technologies that are currently available and expected to be commercialized in the next two decades. I Most of the observed increase in global temperatures since the mid-20th century are very likely a result of the observed I Changing development paths can make a major contribu- increase in anthropogenic GHG concentrations. tion to climate change mitigation. I With current climate change mitigation policies and related I Decisions about macroeconomic and other policies that development practices, global GHG emissions will continue seem unrelated to climate change can significantly affect to grow over the next few decades. emissions. I For the next two decades, a warming of about 0.2º C per decade is projected for a range of scenarios. In summary, the Fourth Assessment report underscores the rec- ommendations of previous reports: climate change is an urgent I Anthropogenic warming and sea level rises would continue and important issue, but meaningful changes can be made for centuries even if GHG concentrations stabilize, because using technologies that are already known. 10 JOINT MDB REPORT TO THE G8 ON THE IMPLEMENTATION OF THE CLEAN ENERGY INVESTMENT FRAMEWORK (CEIF) AND THEIR CLIMATE CHANGE AGENDA GOING FORWARD 3: RESULTS OF THE CEIF AND RELATED CLIMATE CHANGE STRATEGIES The MDBs, individually and collectively, had worked on several I The EIB has adopted an overarching strategy designed to important aspects of the climate change agenda, for example, EE consolidate and mainstream its activities in the field of cli- and renewables, well before the Gleneagles Summit. However, the mate change. Mitigation and adaptation projects benefit Gleneagles communiqué provided the impetus for the develop- from up to 75 percent financing (rather than the usual 50 ment of a coherent and focused MDB response to the climate percent cap) and longer loan maturities without any geo- change challenge designed to help their clients overcome its graphical limitation or aggregate cap. This includes support for the European Union's (EU's) flagship program that plans potentially adverse implications for their respective development, to support up to 12 CCS power plants. transition, and poverty reduction agendas. In the period following the Gleneagles communiqué, all the MDBs have defined overall I The AfDB has recently approved a “Clean Energy Framework programs, together with specific initiatives, designed to help their for Africa,� which commits the institution to an ambitious clients mitigate the impact of their past and future development program for expanding energy access on the continent, programs on climate change, while at the same time accelerating while at the same time maximizing clean energy options, their efforts to increase energy supply to the 1.6 billion poor who emphasizing EE, and participating effectively in internation- remain without access to modern energy services. In those al carbon credit markets. The AfDB also plans to finalize a regions where the impact of global warming is already apparent, new climate change adaptation strategy by the end of 2008 the MDBs are also increasingly helping their clients to adapt to the and in the interim has announced a program to provide new, higher-risk environment. As part of this process, the MDBs financial support to 5–10 climate “adaptation�projects a year have set themselves a number of targets: by 2010. I The IDB is in the process of establishing targets for expand- I The EBRD's SEI committed the institution to more than dou- ing its sustainable energy operations to reach up to $1.5 bil- bling its investments in EE and cleaner energy during the lion per year during the period 2008–12. 2006–08 period to more than $2.2 billion in projects, with total costs of more than $7.3 billion. I The WBG committed to increasing its EE and renewable lending by 20 percent a year beginning in fiscal 2005 and I The ADB is in the process of expanding its clean energy has met these targets every year. operations to reach $1 billion a year. In May 2008 the ADB also approved a new Climate Change Fund (utilizing a pro- The MDBs either already have or will exceed their enunciated portion of its own 2007 net income) that will provide further targets; the following paragraphs summarize the highlights of financial and technical assistance support so that more their ongoing programs designed to achieve these collective clean energy and low-carbon projects can be developed in the Asia Pacific region. and individual goals. Increasing Energy Access Most poor people without energy access live in SSA and South World Bank concluded the following: Asia. South Asia has the largest number of people without I There is a financing gap for the energy sector in developing access to energy (nearly 600 million); however as a percentage countries of about $80 billion per year. of the total population, SSA is much worse off and the gap is growing. Improving supplies of modern energy services has I Decreasing the electricity sector financing gap is primarily an issue of getting the sector policy and governance frame- therefore posed a particular challenge for the AfDB, the ADB, work right. and the World Bank. In a report issued in September 2006, the R E S U LT S O F T H E C E I F A N D R E L AT E D C L I M AT E C H A N G E S T R AT E G I E S 11 I Demand management, optimal generation planning, elec- and Hydro Generation, Transmission and Distribution Efficiency tricity trade across countries, and joint investments in Improvement ($465 million) includes the installation of 2 x 15 regional projects can significantly reduce the volume of MW gas-fired power plant, transmission and distribution effi- incremental investment needs. ciency improvements, and capacity building. The project will I The MDBs' existing instruments are adequate to meet ener- increase access to electricity from the current 38 percent to the gy financing needs. projected 60 percent of the national population by 2015 and I Providing access to modern energy services to the poor calls will reduce load shedding from 770 MW in 2005 to less than 470 for special attention. MW in 2009 and to zero by 2015. The ADB is now considering I An action plan for energy access with special emphasis on scaling up the Power Fund for the Poor in Sri Lanka to increase SSA is needed, with the aim of increasing access from 23 access to grid connection through microfinance institutions. percent to 47 percent by 2030. Similarly, the ADB is developing projects in Bangladesh, and Vietnam to scale up solar home systems, and rural electrification I The action plan would require concessional support to dou- ble to $4 billion per year. both on-grid and off-grid for the poor, respectively, which will contribute significantly on increasing access to energy. I IDA 14 would not be sufficient to accommodate this pro- gram, and additional support would be needed, with close WBG lending for energy has exceeded $11 billion for the period cooperation with the AfDB. fiscal 2006 to the first half (H1) of fiscal 2008, exceeding the tar- get of $10 billion during the fiscal 2006–08 period. Furthermore, In March 2007, the Action Plan was issued. It called for total Pillar 1 of the CEIF is well into the implementation phase. CEIF energy support of more than $10 billion during fiscal 2006–08 has made energy access in IDA countries a top priority. The from the WBG, Carbon Finance, and GEF. It supported the Africa WBG's energy lending increased from an annual average of $2.3 energy scale-up action plan that, with partners, aimed to billion between fiscal 2003 and fiscal 2005 to reach an annual increase the percentage of households with access to modern average of $4.4 billion between fiscal 2006 and H1 fiscal 2008. energy to 35 percent by 2015 and 47 percent by 2030 from the Energy financing to IDA countries has also increased significant- then-estimated level of 25 percent. It proposed annual energy ly from an annual average of $0.9 billion between fiscal 2003 investments to double to $4 billion per year, IDA commitments and fiscal 2005 to an annual average of $1.8 billion between fis- of $700–800 million per year, and $200 million per year of IFC cal 2006 and fiscal 2007. Despite these enhancements, energy commitments. The AfDB recently adopted broadly similar access remains a policy and financing challenge in all regions, African targets, although its longer-term goals are somewhat especially in SSA (see section 4 below). more ambitious (see section 4 below). Given that about 1 billion of the 1.6 billion people who do not have access to electricity WBG financing for the energy sector in SSA increased appreciably are in the Asia Pacific region, the ADB is now developing a new in fiscal 2007 and continues to be strong in fiscal 2008. The WBG's strategic approach to support scaling up access to energy proj- energy lending for SSA increased from $1.4 billion for the fiscal ects for the poor under its Energy for All initiative. The ADB has 2003–05 period to $2.4 billion for the period fiscal 2006 to H1 fis- given particular emphasis to providing finance for rural electrifi- cal 2008. Carbon finance and the GEF funded $23 million and $13 cation projects, together with policy advice, especially on sub- million of low-carbon projects, respectively. A good example of sidy and cost recovery mechanisms. For example, the Pakistan the broad-based support that IDA provides to the sector is the Renewable Energy Development Sector Investment Program $296 million in grant financing for the Regional and Domestic ($115 million) supported by the ADB combines physical invest- Power Markets Development project for the Democratic ments in new generating capacity across four provinces with Republic of Congo, approved in fiscal 2007. The project, critical to interventions in policy reform, capacity development, gover- DRC's energy needs, as well as to the future development of nance, regulatory, and legal frameworks. The Bangladesh regional energy trade in southern Africa, will leverage a total Sustainable Power Sector Development Program: Natural Gas investment of $500 million to (a) increase hydropower capacity 12 JOINT MDB REPORT TO THE G8 ON THE IMPLEMENTATION OF THE CLEAN ENERGY INVESTMENT FRAMEWORK (CEIF) AND THEIR CLIMATE CHANGE AGENDA GOING FORWARD through rehabilitation of the Inga generation facilities; (b) boost some cases, such as the $800 million, 250 MW Bujagali project in transmission capacity between Inga and Kinshasa; (c) extend Uganda, which mobilized about $260 million in private funding electricity access to areas of Kinshasa; and (d) enhance the capac- and $540 million in public funding, including about $370 from ity of the government and utility to improve service. Efforts to IDA, MIGA, the IFC, the AfDB, and the EIB in the form of loans and leverage public resources through large private sector–led proj- guarantees; however, overall funding to SSA's energy sector ects, particularly in generation capacity, have been successful in remains well below the levels projected in the Bank's Action Plan. Mitigation Energy Efficiency to (a) ensure that sustained EE gains are achieved, and (b) By reducing the amount of primary energy resources needed to expand the development and implementation of sustainable deliver a given amount of modern energy service, EE helps to energy financing facilities (SEFFs) to small and medium enter- mitigate global and local environmental impacts of fossil fuels. prises and to the residential sector across its countries of opera- EE measures are often cited as the lowest-cost options available tions. The SEI supports market studies to identify specific EE for a country to mitigate the impacts of climate change. EE is requirements in each target country, the development of skills also attractive, as it increases economic competitiveness and in local banks to assess EE projects, and achievement of EE sav- alleviates the vulnerability to disruptions in energy markets. ings and small RE investments. The EBRD has been recognized by other MDBs as a leader in From its launch in May 2006 to the end of 2007, EBRD SEI financ- promoting and financing EE, which is a key strategic orientation ing had reached more than $2.5 billion, already exceeding the of the bank's current Capital Resources Review (five-year strate- SEI original three year target and by the end of the first quarter gy for 2006–10) and Energy Operations Policy. The SEI commit- of 2008, EBRD SEI financing reached close to $3 billion. The ted the EBRD to sustainable energy investments of $2.2 billion results achieved to date reflect a systematic approach to the between 2006 and 2008, more than double the level of the pre- mainstreaming of SEI activities within the operations of the vious period. This, in turn, was expected to catalyze total invest- EBRD. This mainstreaming across sector and geographic teams ment of around €5 billion. Together with the development of has been a major factor in the speed and magnitude of the scal- the SEI, the EBRD has taken a number of steps to fully main- ing-up of EBRD sustainable energy financing in the context of stream its EE activities across its sector and geographic teams. the CEIF. Total reduction in carbon emissions achieved by EBRD This has included using the corporate planning function to fully SEI projects is estimated at around 11 million tons per annum integrate its EE priorities into its line operations. In this connec- (Mtpa) of CO2. In 2007, 51 SEI project components were tion, the investment pipeline is systematically screened, so as to assessed for energy savings and CO2 emission savings. The identify EE opportunities early in the project cycle. energy-saving measures financed would, for the same level of economic activity, reduce primary energy use by almost The specific components of the EBRD's SEI have been defined 100,000 terajoules (TJ) and carbon emissions by more than 6 based on a sector assessment of GHG emissions in the region, Mtpa of CO2. About two-thirds of SEI investments have been in of reduction potential, of the extent and complexity of barriers projects targeting industrial EE and cleaner energy production. to increased investment for emissions reduction, and of the Municipal infrastructure EE investments covering district heat- level of bank experience and operational capacity. Based on this ing network rehabilitation, public transport and residential EE, assessment, the SEI aims to accelerate the pace of direct invest- have also been significant. The EBRD also promotes sustainable ment in EE projects across industrial sectors. The SEI supports energy through targeted credit lines to local banks called SEFFs. the expanded reach of the bank's energy audit program for A SEFF includes a credit line or guarantee from the EBRD to local large energy users in the countries of operations and imple- banks, specifically dedicated for onlending to EE projects in the mentation support in the form of energy management training corporate, municipal and residential sectors or for small-scale RE R E S U LT S O F T H E C E I F A N D R E L AT E D C L I M AT E C H A N G E S T R AT E G I E S 13 generation. These credit lines are supported by a comprehen- es the rationale for expanded and sustained ADB action and EE- sive technical assistance package that ensures that the objec- related investment defines the general principles of the EE tives of the financing are met and that long-term capacity for investment and action plan, and provides priorities and a frame- financing sustainable energy is built into the market. work for next steps. The ADB has identified China, India, Indonesia, Pakistan, the Philippines, and Vietnam as priority EE has been an important consideration in the EIB's lending DMCs, with the potential to make greatest impact toward since the 1970s oil shocks. Lending to EE projects decreased reducing CO2 emissions in Asia and the Pacific. Under Phase II, from mid-1980s, although it has gained more prominence in which is ongoing, the ADB has been conducting consultative the last few years, given in particular the EU policy objective of meetings in these countries to learn firsthand from clean ener- achieving 20 percent reduction in energy consumption by gy market stakeholders the barriers, catalyzing conditions, and 2020. EE is mainstreamed into the EIB's decision making, and immediate investment opportunities prevailing in each DMC most of the EIB's projects result in an improvement in EE for the market as a prerequisite step to local clean energy project simple fact that they usually incorporate the most modern pipeline development. In some of these DMCs, the ADB is pro- technologies. However, the EIB only seeks to justify a loan on EE viding assistance in the formulation of a broader strategic frame- grounds when there is significant cause (at least 20 percent work for external assistance or new legislation intended to accel- reduction in energy consumption compared to the situation erate the implementation of new energy efficiency (EE) and other before the project was implemented or when EE can justify a clean energy projects. The ADB has made available $2.9 million to substantial part of the investment). EIB has made progress in the deliver the following outputs from October 2006 to April 2009: (a) financing of dedicated financial instruments for EE, notably country action plans and project pipelines for clean energy instruments for small projects and instruments that allow the investments in DMCs; (b) design and establishment of Clean blending of technical assistance with grants. In addition, it is Energy Financing Partnership Facility; and (c) development of the contributing to the development of innovative risk sharing necessary management structure and capacity building in the instruments and PPPs with EE agencies and energy service ADB to scale up, as well as monitoring and evaluation activities companies (ESCOs) for investments in building and in small and implemented under EEI. Work undertaken thus far under the EEI medium enterprises. The EIB is also involved in energy audits has already led to an increase in the ADB's investments in clean and other technical assistance to selected project promoters energy. As an example, during the five-year period 2003–07, the (that is, promoters with weak capacities in this area) when funds ADB's total investments in clean energy projects totaled more are available—including using JASPERS and JESSICA.1 than $2.7 billion. This figure comprises $916 million for EE, $506 The ADB has established a comprehensive Climate Change million for RE, and $1.34 billion for clean fuel. The pipeline for Program to help its DMCs to achieve significant, measurable clean energy projects for 2008–10 exceeds $8.0 billion. The ADB change in their energy use patterns and to secure a sustainable, established the Clean Energy Financing Partnership Facility in low-carbon energy future, as well as prepare with plans, poli- April 2007. It is designed to finance (a) smaller EE investments that cies, and infrastructure to withstand future climatic conditions. require quick and efficient transactions; (b) technology transfer A pivotal component of the Climate Change Program is the costs of clean technologies for a small number of high demon- Energy Efficiency Initiative (EEI) that was launched in July 2005 stration impact, large interventions that will catalyze deployment and that targets expansion of the ADB's operations in clean of clean energy technologies; and (c) grant assistance for activi- energy to $1 billion per year starting 2008. ties such as developing the knowledge base and incentive mech- anisms, advocacy, institutional capacity building, project prepara- The EEI is being implemented in three phases. Phase I, the initi- tion, and establishment of the monitoring and evaluation mech- ation phase, was completed in June 2006 with endorsement by anisms. The strategies and action plans will be implemented in ADB management of the draft EEI report, which firmly establish- Phase III (2008–10). 1 Joint Assistance to Support Projects in European Regions and Joint European Support for Sustainable Investment in City Areas, respectively. 14 JOINT MDB REPORT TO THE G8 ON THE IMPLEMENTATION OF THE CLEAN ENERGY INVESTMENT FRAMEWORK (CEIF) AND THEIR CLIMATE CHANGE AGENDA GOING FORWARD The ADB is on track to meet its clean energy investment target of Energy Efficiency within Economic and Sector Work, Track 2— $1 billion a year by 2008. Investments include district heating in Mainstreaming Energy Efficiency in Investment Operations, Track the China and power sector loans in India. The ADB has also made 3—Improving Internal Operational, Learning and Analytic significant progress in assisting its clients to develop EE action Capacity, and Track 4—Monitoring, Evaluation, and Outreach. plans. Examples include China, India, Indonesia, Pakistan, the The EEfSD strategy comprises interventions at three levels: (a) Philippines, and Vietnam. China where the ADB is currently assist- policy and regulatory, (b) sector and subsector, and (c) end use ing the National Development and Reform Commission to devel- equipment and appliances. The emphasis is on scaling up on op innovative mechanisms to scale up financing for EE and RE the demand side, in addition to continuing the work on supply projects to meet the government's 2010 energy intensity reduc- side efficiency improvements. Lighting Africa, a WBG program tion targets; in India where EE opportunities in the power sector developed to increase access to modern lighting services in and natural gas subsectors are being developed; the finalization of SSA, recently received the necessary funding for full mobiliza- a baseline assessment of the EE market in Indonesia; the establish- tion. Its goal is catalytic: to mobilize the private sector to reach ment of a long-term EE program in Pakistan; the design and fund- 250 million “energy-poor� customers by 2030 with low-cost, reli- ing assistance for a seven-year multisectoral EE program in the able, affordable lighting services in support of achieving the Philippines; and the drafting of new EE legislation in Vietnam. Millennium Development Goals. The program is designed to The WBG has been active in promoting EE since the early 1990s. facilitate the entry of efficient lighting programs as a WBG lend- Following the publication of the World Bank policy paper, “Energy ing product, starting in fiscal 2008. Efficiency and Conservation in the Developing World,� in 1992, EE More generally, the WBG has strengthened its investment sup- issues were mainstreamed into country policy dialogue, and port for low-carbon energy projects. The share of support for World Bank financial instruments were deployed in support of EE low-carbon energy projects increased from an average of about interventions along the entire energy supply chain. For the past 16 28 percent between 2002 and 2005 to 40 percent between years, the WBG has been engaged in promoting EE, having 2006 and 2007. By December 2007, one and a half years ahead financed investments totaling $2.2 billion for more than 100 proj- of schedule, the WBG exceeded its Bonn commitment2 of ects in more than 40 countries. The projects span all regions, with investing $1.9 billion in new RE and EE for the mid-2004 to mid- a significant concentration in Europe and Central Asia, and East 2009 period. Total commitments for new RE and EE for this peri- Asia and the Pacific, and in a few sectors, in particular the delivery od have already reached $2.3 billion. of district heating and electric power services. In fiscal 2006, the WBG committed $490 million for EE projects that addressed the The IFC has successfully pioneered clean energy financing full range of end use and supply side opportunities and were also through financial intermediaries with GEF and other donor sup- designed to help remove institutional, regulatory, financial, and port for more than a decade. Projects in Eastern Europe, Russia, technical barriers. China, and (soon) the Philippines rely on a combination of tech- nical assistance and partial risk guarantees to engage local The WBG's commitment to EE has been further reinforced banks in clean energy lending. This approach is being internal- through the key role it is playing in leading the global cooperative ized by the IFC's Financial Markets Group, which has set a target efforts to reduce GHG emissions through the CEIF. In this regard, of $500 million in annual commitments for such projects by an Energy Efficiency for Sustainable Development (EEfSD) action 2009. The IFC's performance standards require identification, plan has been prepared by the Bank, designed to scale up the quantification, and reporting of projects resulting in GHG emis- World Bank's EE operations in client countries. These interventions sions of 100,000 tons CO2 per year (directly or indirectly through are structured along four tracks to permit countries to take advan- electricity consumption). tage of EE opportunities in priority sectors: Track 1—Integrating 2 At the International Renewable Energies Conference in Bonn Germany in June 2004, the WBG committed to increasing its lending for new RE and EE by an average of 20 percent per year from fiscal 2005 to fiscal 2009 from $209 million, the average over the previous three years. New RE comprises solar, wind, biomass, geothermal, and hydropower with capacities up to 10 MW per facility. R E S U LT S O F T H E C E I F A N D R E L AT E D C L I M AT E C H A N G E S T R AT E G I E S 15 example, energy-efficient lighting). In particular, the CECAFA will The IDB is working to mainstream EE in its projects. Each new be focused on policy and regulatory issues relating to supply side project is assessed for its EE potential. Where feasible, the IDB is EE and demand management. The AfDB, in collaboration with offering an integrated EE program, which includes an audit, as the World Bank and bilateral agencies, will provide financing and well as support for investment in efficiency measures, mainte- technical assistance to African governments and local authorities nance, and training. Such audits have been completed for proj- to strengthen the efficiency aspects of energy policy and regula- ects in the water sector, various industrial sectors, and thermal tory frameworks and implementation capacities. On the energy power plants. The Bank is also providing country-level assis- supply side, support (financing, advisory services, technical assis- tance in assessing EE opportunities in key sectors. Operational tance, and capacity building) will be provided to energy and interventions to date include Chile's National Energy Efficiency power utilities to undertake EE audits and devise and implement Program (Programa País de Eficiencia Energética, PPEE) where strategies to enhance technical efficiency at the generation, Sustainable Energy and Climate Change Initiative (SECCI) is sup- transportation, storage, and local distribution stages of electricity porting the development of EE (and carbon finance) programs and fuel supplies. Particular attention will be paid to enhancing to be financed by the GEF. Projects currently under preparation the efficient functioning of regional power pools, energy markets, include a pilot Guarantee Program for EE projects in Mexico and fuel supply systems. being structured with Bancomext, the Usiminas (Usinas On the demand side, the AfDB will promote the levying and col- Siderurgicas de Minas Gerais, S.A.) Energy Efficiency Program in lection of adequate user fees by utilities (including sound subsi- Brazil, and improving the efficiency of water pumping stations dies for poor segments of the population) as an important in Nicaragua (in cooperation with Canadian bilateral assistance). instrument in promoting EE and conservation. Support will be The IDB is also financing EE in water-pumping systems in El given to government efforts to set and monitor EE, safety, and Salvador and efficiency improvements in lighting in the residen- health standards for appliances used in domestic and micro to tial, service, and commercial sectors in Central America and small business establishments (including agro-industry and Chile. It is collaborating with commercial banks and energy light manufacturing). Under the AfDB's higher education, sci- services companies on cofinancing EE in public buildings in ence, and technology strategy (HEST), support will be provided major cities in Latin America. In addition, the IDB is providing for strengthening vocational training programs to generate assistance to countries in reviewing regulatory, institutional, skilled labor for proper maintenance of mechanical appliances. and financial frameworks for EE in order to create a proper envi- The AfDB will support government programs and efforts of ronment for investments, as well as financing pilot projects for nongovernmental organizations (NGOs) to introduce more effi- the application of emerging EE technologies. It is also working cient and cleaner (smokeless) wood, charcoal, and coal cook- together with the World Bank and the IEA in developing EE indi- stoves in the rural areas where households continue to rely on cators in Brazil and Mexico in order to provide important base- these sources of energy for food preparation. Also, as a demand line information on energy consumption and efficiency. Finally, side efficiency measure, the AfDB will finance government pro- the IDB in the past year has financed a number of projects to grams to phase out incandescent bulbs and replace them with develop innovative business models for EE services. low-energy compact fluorescent lights, and will consider As part of the proposed Clean Energy Access and Climate extending financing on commercial terms to private enterpris- Adaptation Fund for Africa (CECAFA) program, the AfDB will pro- es keen on building production and distribution capacity for gressively look at EE issues related to the generation and distribu- such bulbs in African countries. tion of electricity, particularly as part of its ongoing support to the Renewable Energy regional power pools. The AfDB will support clean-stove tech- A broad range of proven RE technologies are now available of nologies, capacity building for EE audits and appliance standards which a few have reached commercially viability and have sig- regulations, as well as assist in the preparation of EE projects (for nificant potential to improve energy access in the developing 16 JOINT MDB REPORT TO THE G8 ON THE IMPLEMENTATION OF THE CLEAN ENERGY INVESTMENT FRAMEWORK (CEIF) AND THEIR CLIMATE CHANGE AGENDA GOING FORWARD countries. Bringing these small-scale technologies online in full project guaranteed by MIGA, which consists of the design, con- market volumes therefore is a key priority for the MDBs. These struction, management, and operation of a base-load geother- interventions include investment support and steps to tackle a mal power plant with a combined capacity of 48 MW on a build- variety of policy issues designed to eliminate biases against own-operate basis in the Olkaria geothermal fields of the Rift renewables—for example, fossil fuel subsidies and inequitable Valley. Two solar thermal power projects cofinanced by the GEF access to transmission grids. They also increasingly include (Mexico and Morocco) were approved in fiscal 2007, and the third more proactive support for renewables, such as promoting reg- (Egypt) was approved in December 2007. The Mexico Wind ulatory and policy regimes that actively encourage renewables, Umbrella Project, approved in 2007, is using carbon finance to capacity building, identifying local renewable resources, tech- stimulate new wind-field developments. nology adaptation, and knowledge transfer. The World Bank has recently completed a report on ethanol The World Bank has played an active role in promoting RE since production in Brazil that highlights the unique comparative 1990, providing $7.2 billion in financing ($2.7 billion excluding advantage of Brazil in producing ethanol. The sugarcane feed- hydropower >10 MW). Its RE projects are spread around the stock production costs are about a third lower than in the next world, with a significant focus in Africa, Asia, and Latin America. lowest countries. Producing ethanol from sugarcane in the cen- The WBG's work on RE is pursuing a two-pronged approach tar- tral south of Brazil does not suffer from secondary costs: the geting, on the one hand, the supply of energy in the short to sugarcane production in this region is rain fed and not depend- medium term and, on the other hand, providing assistance to ent on energy demanding irrigation. As the cost of sugarcane developing policy and building capacities for scale-up of RE use. accounts for about 60 per cent of the production costs of In fiscal 2007, the total lending for new RE projects was $421 mil- ethanol, Brazil's low production costs make ethanol competitive lion. Investments, policy support and training, capacity building, to gasoline as an input to transport services. The strongly and knowledge dissemination are key activities to increase the increased availability of flex-fuel vehicles has increased the use of RE. Economic Sector Work (ESW) and Analytic and Advisory attractiveness of building hybrid sugar-ethanol complexes. The Services are under way, with the support of the Energy Sector Bank is exploring ways to facilitate lessons learned from Brazil's Management Assistance Program (ESMAP) to strengthen the pol- experience to foster South-South cooperation. icy and institutional frameworks for developing long-term energy The IFC has also been very active in supporting a diverse port- development plans, including formulating laws and regulations folio of RE technologies as documented in its recent publica- for encouraging greater use of RE. Hydropower investments will tion, “Selling Solar: Lessons from More than a Decade of IFC's include rehabilitation of existing plants, small run-of-river plants, Experience.� This experience includes several forms of financing and multipurpose hydropower plants with reservoirs. These types programs (see box 1), including specifically tailored programs of projects can demonstrate the significant impact that partner- for distributed generation, solar photovoltaic (PV) companies, ships between the WBG, government, and the private sector can and small and medium enterprises. Some important lessons make in this effort. Box 1 showcases three private sector–orient- were also learned from unsuccessful projects including a clean ed WPG projects based on conventional as well as new RE energy equity fund, successfully restructured to provide patient sources. Other recent examples of RE projects supported by the capital and business planning assistance to small clean energy WBG include the Ghana Energy Development and Access proj- firms. In addition, with GEF and other donor support, the IFC has ect, which provides grants to developers of RE generation proj- funded several early stage new technologies including a 1 MW ects—such as small hydropower, wind, and biomass—for the grid-connected PV facility in the Philippines (the largest such benefit of communities outside the main national grid system, as project in a developing country), a stationary fuel cell supplier in well as support for the establishment of an independent Rural South Africa, and most recently low-power lighting devices in Electrification Agency, which will coordinate all rural electrifica- Africa and a new technology for generating power from sugar- tion programs, and the Kenya: Olkaria II Geothermal Expansion cane wastes in Brazil. R E S U LT S O F T H E C E I F A N D R E L AT E D C L I M AT E C H A N G E S T R AT E G I E S 17 Box 1: World Bank Group Support for Private Sector Participation in Renewable Energy Projects The WBG has a range of instruments to support private sector participation in RE projects: IFC lending and investment products for the private sector, GEF, and carbon financing, as well as Bank guarantee instruments for both debt and equity. The following are three examples of such interventions: The Nam Theun 2 Project in Laos is designed to supply 1,070 MW of RE electricity to both Thailand (995 MW) and Laos (75 MW). The project is sponsored by Electricité de France, the Italian-Thai Development Public Company Limited and Electricity Generating Public Company of Thailand. The total project cost is estimated to be $1.45 billion, including contingencies, with $450 million of equity financ- ing and $1 billion of debt. The international dollar lenders to the project indicated that without adequate political risk mitigation, they would not be able to support the international lending package. The WBG and ADB cooperated in providing the multilateral guarantees and direct lending needed to bridge the financing gap. In partnership with GEF and donor countries, the IFC is helping local financial institutions fund RE and EE projects in Eastern and Central Europe, Russia, and China as part of its response to climate change. The IFC program provides a variety of services and finan- cial resources to local banks and companies that invest in new technologies. The program consists of advisory services to banks and borrowers on RE and EE projects; lines of credit and IFC/GEF partial guarantees for local banks and leasing companies; facilitating partnerships between local banks and project developers; standardized transactions for banks and developers. As of June 2006, a $70 million portfolio of RE and EE projects has been funded, including small-scale hydropower, building retrofits to improve their EE, bio- mass-fired boilers, and EE in schools. The $108 million in IDA credits to the Indian Renewable Energy Development Agency (IREDA) for RE financing and institutional devel- opment support leveraged nearly $200 million in cofinancing from the private sector. The IREDA project contributed to increasing RE share of power generation capacity in India from about 0.1 percent of total generation capacity in 1992 at project initiation to 3 per- cent by March 2001 at project end. With additional parallel financing from developers and other commercial financial institutions, nearly 3,000 MW of wind, small hydropower, biomass, and PV power systems were in operation by March 2001, compared to about 100 MW in 1992. By the end of the project IREDA had committed financing of Rs 47 billion to nearly 1,500 projects accounting for 1,720 MW. Subsequently the Bank approved a follow-up project, the Second Renewable Resources Development Project that provides IREDA with financing from an IDA credit and IBRD loan of $130 million to support small hydropower and EE investments that leveraged an additional $170 million from other sources. With additional parallel financing from the private sector, as of March 2006 IREDA had approved 1,783 RE and EE proj- ects, and committed Re 74.5 billion in loans (about $1.5 billion) to support the clean energy capacity of 2,707 MW that annually dis- places 1.3 million tons of coal equivalent. Reflecting Europe's early commitment to RE and European lion in 2006 to €2.05 billion in 2007—an almost fourfold leadership in much of the RE market, the EIB has been actively increase (these figures include activities outside the EU). This engaged in financing renewables for more than a decade, both strong performance follows the inclusion of energy as a corpo- inside and outside the EU. The EIB has nonetheless stepped up rate priority in November 2006 and the adoption in June 2007 its involvement in financing RE projects following recent EU pol- of Clean Energy for Europe—EIB's revised energy lending policy3 icy initiatives. Lending for RE at the EIB has grown from €524 mil- supporting the ambitious energy and carbon targets adopted 3 See http://www.eib.org/attachments/clean_energy_for_europe.pdf. 18 JOINT MDB REPORT TO THE G8 ON THE IMPLEMENTATION OF THE CLEAN ENERGY INVESTMENT FRAMEWORK (CEIF) AND THEIR CLIMATE CHANGE AGENDA GOING FORWARD by the EU in March 2007.4 The EIB is keeping its performance totaled $112.5 million in this first round of funding. in this sector under close scrutiny, with a view to upgrading its The IDB is working with countries in the Latin America and the RE lending targets for 2008–10 as appropriate. The Corporate Caribbean (LAC) Region of the World Bank to develop strategies Operational Plan 2008–2010 has revised the EIB overall energy for low-carbon energy sources, including assessment of RE lending target for 2008 upwards to €6.5 billion (including activ- potential and appropriate policy frameworks and incentives; as ities outside the EU). The target has been increased to €7 billion well as financing investments in RE, such as hydropower, geot- each for 2009 and 2010. The EIB has adopted more selective cri- hermal, wind energy, rural electrification, and biofuels. The IDB teria for the financing of coal-fired plants and encouraging is working with several countries, including Brazil, Chile, state-of-the-art technology, such as CCS. Colombia, Costa Rica, El Salvador, Guatemala, Guyana, Honduras, Panama, Paraguay, and Peru, in developing regulato- New funding instruments are being developed by the EIB to ry frameworks to create better scaling-up conditions and to address market needs for project finance for small, onshore attract private sector investment in these areas. wind farms and, increasingly, large-scale, offshore farms. The EIB has also initiated a program of investments in privately man- A landmark study on the state of biofuel development in LAC, “A aged investment funds as a means to provide equity funding to Blueprint for Green Energy in the Americas,� was produced to help the renewables sector (principally wind, biomass, and solar gen- establish an informed approach to the development of the bio- eration, as well as biodiesel production). The first transaction fuels potential, taking into account opportunities for meeting under the initiative (a €25 million investment in a Spanish fund needs for energy and rural development, as well as related social as the cornerstone investor) has been closed, and others will fol- and environmental concerns. The IDB is collaborating with the low in the remainder of 2007. Further transactions, with a broad- Roundtable on Sustainable Biofuels (RSB) in incorporating sus- er geographic focus, are being actively developed by the EIB in tainability principles into the development of biofuel projects. partnership with the private sector. Under the SECCI initiative, the IDB is providing funds to the One of the key objectives of the EBRD's SEI is to promote, support, Fundación Getulio Vargas to develop “blueprints� of biofuels for and invest in the development of RE capacity in the region of countries in Central America and the Caribbean. Initial studies operations. The SEI supports legal assistance to establish the basic are under way in the Dominican Republic, El Salvador, and Haiti, regulatory framework for RE, technical assistance for RE project with two additional countries in the region due to be added to scoping and environmental impact assessment, an updated tech- this effort. The IDB is also supporting studies in Argentina nical assessment of RE potential, and training for local banks and Colombia, and Paraguay that are designed to identify and project developers. In 2007, the EBRD invested almost $100 million exploit potential biofuel opportunities. In Guatemala, the IDB is in RE projects. The EBRD's largest direct investment in a renewable funding a series of studies that will enable the government to project was an $81 million loan ($30 million of which was syndi- draw up national guidelines for biofuels production to diversify cated) to finance the construction of nine small hydropower Guatemala's energy mix. In Brazil, three potential projects have plants along the river Iskar in northern Bulgaria. The EBRD also been identified; each involving the construction and operation committed $37.5 million to the regional EnerCap Power Fund I L.P., of a greenfield sugar and ethanol mill and the construction of a a 10-year $150 million private equity fund dedicated to develop- 35 MW capacity cogeneration plant than will sell the excess ing wind, solar, and biomass energy generation, along with energy to the Brazilian electricity grid. bioethanol and small-scale hydroelectric developments in Central The Bank will also finance several private sector initiatives for and Southeastern Europe. Financing from other institutional ethanol production. Moema in Brazil was the first large IDB pri- investors, along with that of the EBRD, means that contributions vate sector bioenergy project, totaling $120 million. Other 4 The Brussels European Council of March 8–9, 2007, adopted an Action Plan for Energy Policy 2007–2009, committing the EU to achieve at least a 20 percent reduction of GHG emissions by 2020 compared to 1990 (30 percent in case of agreed international action), a 20 percent share of renewable energies in overall EU energy consumption by 2020, and an increase in EE in the EU so as to save 20 percent of energy consumption compared to projections by 2020. R E S U LT S O F T H E C E I F A N D R E L AT E D C L I M AT E C H A N G E S T R AT E G I E S 19 pipeline projects for Brazil, estimated at more than $1 billion, implementation period. As a follow-up to FINESSE, the AfDB is will contribute to Brazil's goal of tripling annual ethanol produc- currently developing a broader program on clean energy access tion by 2020. and climate adaptation (to be financed through the planned CECAFA. The program is currently in the early stages of develop- In addition, in collaboration with the World Bank, the IDB is ment, but is intended to support both public and private sector developing an RE toolkit as an operational guide and source- projects in cleaner use of fossil fuels, RE, EE, carbon financing, book specifically targeted to LAC. The purpose of the toolkit is and increasing access to energy, as well as promoting climate to promote the development of RE projects and investments change and climate adaptation activities. and broaden the portfolio in RE. Examples of the IDB's increased emphasis on RE include a program of rehabilitation of small At the moment, the private sector department of the AfDB has hydroelectric power plants in Brazil, funding for a privately generated a substantial pipeline and portfolio of RE projects, owned mini-hydroelectric power project in Chile, supporting partly as ongoing investments, and partly because of assistance Carbones del Cerrejon in Colombia to assess the feasibility for from FINESSE and support from the Danish International the construction of a 10 MW wind energy farm and the poten- Development Agency (DANIDA) technical assistance. Next to a tial use of indigenous-grown “Jatropha� to be used in the pro- portfolio of approximately $950 million, a pipeline has been duction of biodiesel to power the mine, and an Integrated Rural developed including 921 MW wind energy projects, 283 MW of Electrification Plan in Honduras to extend coverage to local small hydropower, 410 MW of cogeneration, 480 MW geother- communities. mal and more than 150,000 kl per year of biodiesel projects. At the same time, in collaboration with the United Nations Since 2004, the AfDB has been implementing the Financing Environment Programme (UNEP), two important projects: (a) Energy Services for Small-Scale Energy Users (FINESSE) Africa development of cogeneration in seven countries (Ethiopia, program, a Dutch government–funded initiative that seeks to Kenya, Malawi, Sudan, Swaziland, Tanzania, and Uganda), and increase financing of RE and EE projects by the Bank, through (b) development of small and medium hydropower in eight building requisite capacity within the Bank and in the regional countries (Kenya, Tanzania, Uganda, Zambia, Mozambique, member countries (RMCs), updating the Bank's existing energy Malawi, Rwanda, and Burundi) were recently launched. sector policy, and assisting operations departments in identify- ing and developing RE and EE projects and project compo- With bolstered support from the broad clean energy mandate nents. The FINESSE program has already resulted in a number of of its EEI, the ADB is helping its DMCs to increase the share of RE board-approved projects that feature an RE component, such as projects in the energy mix and increase access to electricity and a rural water supply project using solar water pumps in other modern forms of energy following low-carbon path. Madagascar and PV for schools and boarding facilities in During the period 2003–07, the ADB invested a $414 million RE Uganda, as well as inclusion of a renewable energy component component of more than $630 million in approved loans for 7 (PV, hydropower, and grid extension) in an agricultural infra- projects. Lending for RE projects for 2008–10 is expected to sur- structure improvement program, also in Uganda. pass $1.5 billion. Close to two-thirds of this pipeline estimate will be invested in hydropower projects in DMCs that include As part of the FINESSE program, an Africa-wide assessment has China, India, Lao People's Democratic republic, Nepal, Pakistan, been made of the status of RE and EE, with a focus on needed Samoa, and Vietnam. Under a parallel effort, the ADB is cofi- activities to accelerate investment in these areas. This study also nancing five private sector equity funds (see box 2) targeted at proposes priorities for RE technologies for different regions. The clean energy investments that include RE projects. current FINESSE program is reaching the end of its current 20 JOINT MDB REPORT TO THE G8 ON THE IMPLEMENTATION OF THE CLEAN ENERGY INVESTMENT FRAMEWORK (CEIF) AND THEIR CLIMATE CHANGE AGENDA GOING FORWARD Box 2: ADB Support for Private Equity Funds for Clean Energy Projects Using up to $100 million in seed capital, the ADB is helping establish five private sector funds with a total target investment of up to $1.2 billion in RE, EE and clean fuels projects in Asia. The ADB believes the success of these funds will help demonstrate the credibility of pri- vate equity in the emerging clean energy sector in developing Asia, and mobilize capital to support other private equity funds. The ADB is playing a catalytic role by identifying and supporting fund managers willing to establish clean energy-focused private equity funds. The funds—MAP Clean Energy Fund, China Environment Fund III, GEF South Asia Clean Energy Fund, Asia Clean Energy Fund, and China Clean Energy Capital—will each receive up to $20 million in capital from the ADB. The five funds were selected from 19 fund managers responding to the ADB's call for proposals issued in July 2007. By 2030, global energy demand will likely rise 53 percent from current levels, and developing Asia represents a large portion of it. The energy investment in Asia is strongly carbon-intensive, or highly dependent on coal-fired power generation. The ADB believes that sig- nificant resources need to be invested into clean energy and low-carbon investment alternatives over the next few decades. The MAP Clean Energy Fund (MAP) has the largest target size of the five funds, aiming to invest a total of $400 million in 10 to 15 proj- ects across Asia, with a focus on Indonesia and Southeast Asia. Project investments will range from $15 million to $40 million. Geothermal projects in Indonesia, wind projects in India and Pakistan, and bio-ethanol projects with no competition for food crops in the region are among those considered. The China Environment Fund III (CEF III) has a target size of $200 million to $250 million and will invest in companies working to improve the environment by reducing, reusing, and recycling natural resources in China. The Fund will make 15 to 20 investments of $5 million to $30 million each in a broad range of clean energy sectors. Among projects in the pipeline are PV modules, large-capacity batteries for wind farms, a laser-based monitoring system for clean coal-fired power plants, thermal technologies, coalbed methane projects, and electronic control system for wind power, biogas projects, and EE projects. GEF South Asia Clean Energy Fund (GEF-SA) has a target size of $200 million, and will make around 12 investments of $3 million to $15 million each across South Asia in companies and projects that promote the use of efficient, reliable, and cleaner forms of energy in Bangladesh, India, Nepal, Pakistan, and Sri Lanka. The Fund is jointly sponsored by Global Environment Fund, an international private equity firm with an 18-year record of investing in clean technology and emerging markets, and YES BANK Limited, an India-based pri- vate sector bank specializing in RE and clean technologies. The Asia Clean Energy Fund (ACE) has a target size of $200 million and will make about 15 investments of $10 million to $15 million each throughout Asia. Projects in the pipeline in Southeast Asia include palm oil projects, solar project expansions, and replacement of used transformers. Additionally, it will also be involved in a PV business in Indonesia, a waste-to-energy project, biodiesel companies in the Republic of Korea, and a power plant rehabilitation project with a focus on China and India. The China Clean Energy Capital (CCEC) fund has a target size of $100 million to $150 million, and will make 8 to 12 investments of $5 million to $30 million each in RE projects, energy savings and EE, and other clean energy technologies in China. CCEC's pipeline includes renewable power generation projects/technologies (biomass, wind farm, solar thermal), alternative fuels (biodiesel, straw-to-ethanol), and energy savings and EE technologies (new construction materials) in China. R E S U LT S O F T H E C E I F A N D R E L AT E D C L I M AT E C H A N G E S T R AT E G I E S 21 Decreasing Carbon Emissions from Power Plants and above, which also includes two-generation units fired with Oil and Gas Facilities natural gas and components designed to improve generation The MDBs are also pursuing investment and analytical support efficiencies in an upcoming Philippine, India, and Pakistan designed to decrease emissions from thermal energy sources. A operations. number of interventions are being pursued, including thermal The EBRD is already implementing power plant rehabilitation power plant rehabilitation, transmission and distribution net- projects such as the one described in box 3. An example is the work efficiency improvements, upgrading of efficiency of new $209 million committed in 2007 to TGK-9, one of Russia's thermal power plants, early retirement and replacement of inef- Territorial Generating Companies formed in the process of ficient plants with state-of-the-art facilities, support for consid- unbundling the state-controlled monopoly Bank's to upgrade eration and possible future implementation of CCS, gas flaring its power stations. The company supplies power to the north- reduction, and methane release reduction. ern Urals and the Komi Republic, resource-rich regions that The EIB has introduced revised criteria for financing new com- have experienced strong economic growth in recent years. mercial coal and lignite power stations. In order to avoid a shift The power system is operating close to full capacity and the toward carbon intensive electricity generation, new plants investment will enable the company to finance improvements should replace existing coal and lignite power stations while that will result in a 66 per cent increase in electricity produc- providing a decrease of at least 20 percent in carbon intensity. tion and a 10 per cent increase in heating provision. The In addition, such plants may be financed only when they use EBRD's SEI also supports studies to recommend rehabilitation the best available technology and are “carbon capture ready� and refurbishment or fuel-switching strategies at large ther- (that is, when they are able to exploit CCS once that technolo- mal power plants, to evaluate the potential of “clean coal tech- gy becomes commercially available), and are cost-effective, tak- nologies� for EBRD countries of operations, and to review ing into account CO2 externalities. The EIB has also established opportunities for, and barriers to, projects that reduce gas flar- some specific criteria for financing the rehabilitation of existing ing. In 2007, the Bank lent $30 million to Pavlodar Energo JSC coal-fired power stations. in Kazakhstan, a utility group comprising power and heat gen- eration with 550MW total installed capacity and distribution The ADB is currently developing a new energy strategy. This network. Pavlodar Energo's upgrade of a combined heat and strategy will encourage DMCs to adopt available, cleaner ther- power (CHP) plan will improve efficiency and address growing mal-power technologies. In this connection, the ADB is assist- demand in the Pavlodar region. Kazakhstan's rapid growth ing DMCs in collaborating with developed countries for trans- and increased policy focus on energy security and EE are like- fer of new and better technologies that can move from the ly to present the Bank with further climate change mitigation development stage to deployment stage. Examples include investment opportunities in future. Given the high level of the Bangladesh Sector Development operation, highlighted energy consumption of the large district heating networks in Box 3: Azdres Power Project in Azerbaijan, 2006 The EBRD provided a $115 million sovereign guaranteed loan to fund the rehabilitation of Azerbaijan's largest thermal power plant, with 2,640 MW nameplate capacity. The project will restore plant efficiency, availability, and capacity with an extensive refurbish- ment of seven out of eight units onsite, together with the repair and modernization of the flue gas chimney and cooling water tun- nel. The plant, based in Mingechaur, provides more than 40 percent of Azeri generation capacity, but operates significantly below technical capacity, because of growing inefficiencies The project could save more than 8 million tons of CO2 per year and is seeking qualification under the Clean Development Mechanism (CDM). In conjunction with the loan, the EBRD has sourced technical assis- tance to support regulatory reform in the power sector. 22 JOINT MDB REPORT TO THE G8 ON THE IMPLEMENTATION OF THE CLEAN ENERGY INVESTMENT FRAMEWORK (CEIF) AND THEIR CLIMATE CHANGE AGENDA GOING FORWARD the cities of its countries of operations, the EBRD has also The Clean Energy and Development Investment Framework of placed a particular emphasis in the context of the SEI to the AfDB emphasizes increased use of gas for power production increase the EE of district heating operations. and clean coal power generation. Good examples of opportuni- ties to increase use of gas in power production are the West In 2007, the EU adopted the European Technology Platform for African Gas Pipeline project and the Nigeria Liquefied Natural Zero-Emission Fossil Fuels Power Plant (Zero Emissions Gas projects cofinanced by the World Bank. The latter enables Technology Platform, ZETP) and started working on the design gas produced as a byproduct of Nigerian oil production to be of a mechanism to stimulate the construction and operation exported to Ghana, Togo, and Benin. by 2015 of up to 12 large-scale demonstration CCS plants. The EIB is actively considering measures to finance such CCS Methane Capture demonstration plants and prototypes for other experimental Methane capture as part of solid waste management programs clean coal technologies as Research, Development and offers one of the most financially attractive climate change mit- Innovation projects on a case-by-case basis. It is intended that igation options. Methane capture option has the potential to be China and/or India should host at least one such flagship rapidly mainstreamed in the urban strategies for developing plant. The EIB is working with the European Commission and countries as shown in box 4. the ZETP, with particular regard to the development of appro- The MDBs have initiated programs to provide analytic support priate financial support mechanisms for the flagship program. for landfill methane capture programs. For example, the World Given total costs, which could be on the order of $10 billion, Bank ESMAP program is supporting a two-phased landfill gas there will inevitably be significant recourse to market-based initiative in its Latin American and Caribbean Region (LAC). The financial mechanisms. first phase aims to assist LAC client countries to better under- The World Bank's Global Gas Flaring Reduction Partnership stand the best-practice business models and institutional (GGFR) Phase II 2007–09 focuses on high-impact flaring countries arrangements for development of nonconventional energy and regions such as Russia, the Middle East, and the Gulf of sources at large city landfills in the LAC region by means of land- Guinea. Gas flaring reduction projects under preparation include fill gas recovery and utilization systems. This would be accom- the Danilovsk gas-to-power JI project in Russia and the AFAM plished through documentation and dissemination of best gas–to–power project in Nigeria. The Medco Kaji gas-to-liquefied practices and sound technical guidance. Discussions with the petroleum gas (LPG) demonstration project in Indonesia is task teams of the two LAC pilot landfill gas–to–energy projects, undergoing validation. Brazil's Petrobras, in collaboration with which still have to be implemented, indicate that there is a lack GGFR, agreed to explore gas flaring reduction opportunities. of already-compiled, easily accessible knowledge about this Identification of additional gas flaring reduction and gas utiliza- subject. The second phase aims to identify potential new proj- tion projects that leverage carbon finance, continue to take place ects that could form the basis of a regional Bank program and with three new projects identified in Ecuador. A new methodolo- carry out pre-investment work at each site. The EIB is focusing gy for a Clean Development Mechanism (CDM) has been devel- on similar landfill as well as wastewater treatment investments, oped for the Nigeria project and is currently under evaluation. If particularly in the Southern Mediterranean region. The WBG is successful, it has the potential to open up significant carbon also involved in systems focused on reducing methane emis- finance opportunities in that country. The IDB is also in the sions from sludge and animal waste. The IFC has invested in process of identifying a gas flaring reduction project though a Animal Waste Management Systems (AWMS) in Brazil and technical assistance grant in Ecuador. Mexico that capture and dispose of methane produced by biological decomposition of animal waste.5 The World Bank's 5 http://www.ifc.org/ifcext/enviro.nsf/Content/OurStories_CarbonFinance_AgCert http://ifcln001.worldbank.org/ifcext/pressroom/ifcpressroom.nsf/PressRelease?openform&DE2C308A50202B0A8525704B0052146B R E S U LT S O F T H E C E I F A N D R E L AT E D C L I M AT E C H A N G E S T R AT E G I E S 23 Box 4: Tunisia Municipal Solid Waste Management This $27 million IBRD-financed project assists the Tunisian government in developing the key elements of environmentally and finan- cially sustainable municipal solid waste management. The project includes assistance to improved solid waste management at the national and local levels and rehabilitation of environmentally harmful dumpsites into modern landfills with biogas collection and uti- lization capacity. These actions will enable the Tunisian government to access additional revenue through the CDM, thus improving cost recovery for the solid waste management sector. Institutional support and capacity building will support the establishment of national coordination of the solid waste management sector plus a decentralized municipal solid waste management system at the regional and intermunicipal level focused on introducing modern solid waste management, as well as measures to achieve cost optimization and cost recovery. The project will finance construction of a fifth cell in the Djebel Chekir landfill (the largest landfill in Tunisia) including the construction and operation of a biogas management system, and nine new landfills designed along the principles of sustainable management of municipal solid waste in Bizerte, Nabeul, Sousse, Monastir, Kairouan, Sfax, Gabes, Jerba, and Medinine. Project outcomes include institutional strengthening of the sector, policy instruments for sustainable waste management, introduction of a national cost recovery system, outreach and communication to change citizens' behaviors, and incremental revenue generation from reductions in GHG emissions. carbon funds have supported projects to reduce methane ty and supplies methane to residents and nearby industries. It and nitrous oxide in urban wastewater treatment. was seen as a viable carbon investment opportunity and The IDB has developed a series of assessments of opportunities through the ADB's credit marketing facility, attracted strong for landfill gas capture and energy generation potential, includ- interest from buyers. The ADB has also supported numerous ing an evaluation of waste disposal systems and landfill condi- landfill gas projects, as well as methane capture and utiliza- tions in Central America, and initial assessments of carbon tion projects in agricultural waste. In another example, the potential in specific landfill sites in the region. As a result of ADB recently approved a technical assistance (TA) project for these assessments, the Bank is now assisting countries in the the development of biomass power generation in rural areas preparation of methane capture projects for financing under in China. The ADB and the World Bank are active members of the CDM. The Bank also commissioned an economic assess- the Methane to Markets Partnership promoted by the U.S. ment of methane capture and its use for energy generation, Environmental Protection Agency. taking a wide sample of landfills across the region. This infor- Improved water management is gaining increasing impor- mation was used as input for the development of a screening tance within and outside Europe partly reinforced by the cli- tool that is helping project sponsors in the region and project mate change problem. The EIB is reviewing its lending policy teams in the Bank carry out preliminary assessments of carbon in the water sector with the aim to establish adaptation as an potential in landfills. The IDB is also engaging resources in area of intervention alongside mitigation. Among the others, developing landfill gas–to–energy projects with CDM compo- this will include (a) requesting promoters to consider cost nents for a number of cities in Latin America. effective adaptation and mitigation measures at master plan- The ADB has also supported several coalmine methane ning and infrastructure design stages; (b) using existing TA extraction and utilization projects in China. One of them is mechanisms to support promoters to carry out integrated the Fuxin Coalmine Methane Utilization Project in Liaoning and comprehensive climate change risk assessments; (c) pro- Province. It has improved safety conditions in the communi- moting EE in the water sector; (d) seeking to capture and 24 JOINT MDB REPORT TO THE G8 ON THE IMPLEMENTATION OF THE CLEAN ENERGY INVESTMENT FRAMEWORK (CEIF) AND THEIR CLIMATE CHANGE AGENDA GOING FORWARD reduce methane and other GHGs emissions from biological Efficiency and Climate Change Considerations for On-road water treatment plants and support their use as alternative Transport,� which presents one of the first comprehensive energy sources. Sound solid waste management is crucial for efforts to analyze the relationship between the transport sector the sustainability of economic growth, as it results in both the and climate change in Asia. The study concludes that a para- reduction of GHG emissions and the recovery of secondary digm shift, resulting in a new Asian consensus on economic raw material and the generation of energy. Recently, the EIB development mobility, will be required to guide policy making has accorded solid waste management projects higher priori- and investment decisions in urban development and transport. ty status in its Corporate Operational Plan. The quantity of To accomplish the vision, the study recommends a number of solid waste generated in Europe is increasing, and by the year policy interventions to improve EE in transport (box 5). The work 2020 one projection is that some 45 percent more solid waste set clear guidance on priority areas, including (a) integrated will be generated in the EU than in 1995. According to EU GHG urban reform, land use and transport planning, (b) promoting targets on the other hand, net emissions must fall, an aim that energy efficient modes of transport, (c) improving vehicle will be supported among the others via an increase in the engines and fuel technology, and (d) fiscal measures to influ- capacity of recycling centers. EIB's work in the New Member ence travel behavior patterns. States, which is in part carried out through the JASPERS pro- In 2007 a regional TA study examined 5 cities (Dhaka, Colombo, gram, will help achieve EU GHG emission reduction targets Kathmandu, Harbin and Changzhou) to explore where urban and in some cases also lead to power and heat generation transport policy, planning, infrastructure and service provisions from a partly RE source. were failing to meet the growing and changing demands of Reducing Carbon Emissions in Transport urban travel. The findings provided objective analysis of city Estimates indicate that the transport sector contributes about capacities, institutional structures and financial resources to 14 percent of global emissions, making this a key sector for cli- address these emerging challenges. In 2008, a follow-on study mate change interventions. In 2002 the transport sector is preparing a strategic development framework for enhanced accounted for 21 percent of worldwide energy consumption engagement with cities, building on previous city case studies and is projected to generate more than 60 percent of the and ADB urban transport operations. The work will define a new increase in total energy use through 2025. The strong connec- approach for urban transport development and 'rules of tion between economic growth and transport-generated GHGs engagement' for sustainable transport solutions and services can be moderated over time by changes in travel behavior, including clear criteria on types of support and interventions. logistics decisions, technology choices, and transport modes. Complementing these studies are three related activities being These factors can, in turn, be influenced by planning, fiscal, and undertaken in 2008, all directly related to the transport sector regulatory measures, as well as through public investments in and climate change. The first is a data collection and forecasting infrastructure. The MDBs are currently reviewing their transport exercise to assess the magnitude of GHG contributions from all strategies and programs with a view to making them more cli- modes of transport, namely, air, water, road, and rail. The work mate friendly. output will provide important baseline information and future growth trend scenarios as an integral part of the wider ADB The ADB is addressing the transport sector's changing environ- activities to monitor and address climate change. The second ment through its Sustainable Transport Initiative, an approach piece of work will assess the applicability of European models to realign sector interventions and place them on a more sus- incorporating “visioning and back casting techniques� for GHG tainable footing to mitigate the negative externalities of climate emission targets and associated reduction policies to Asian change contribution, local air quality, energy use and safety, DMCs. The third piece of work will explore the role that biofuels while supporting continued and sustainable economic devel- can play in transport sector GHG mitigation. opment. In 2006, the ADB prepared a report on “Energy R E S U LT S O F T H E C E I F A N D R E L AT E D C L I M AT E C H A N G E S T R AT E G I E S 25 Asia's rapid urbanization is one of the defining trends in its Strategy, the ADB has initiated programs to improve its under- recent development history, but the growth of most cities has standing of how best to reduce GHG emissions in Asia's cities outpaced the ability of urban planners to direct the develop- while accommodating their continued growth (as well as their ment process so that cities remain livable and efficient from adaptation to climate change; see below). Programs also have the standpoint of their energy use and the mobility of their been initiated to support development of related investments. residents. Based on recommendations from the recently com- Urban GHG emissions are derived from transport, residential pleted Managing Asian Cities study and reviews of its Urban and commercial buildings, industry, and waste management. Box 5: Principal Policy Interventions to Reduce GHG Emissions I Integrate urban reform, land use planning, and transport planning. I Adopt integrated transportation systems to promote energy-efficient modes of transport. I Improve vehicle engines and fuel technology. I Use fiscal measures to influence travel behavior patterns. Many investments to mitigate GHG emissions from these The ADB has been continuously involved in the integration of air sources also offer strong potential for so-called co-benefits— quality management and sustainable transport into the econom- generating other environmental and social gains through ic and social strategies, policies, programs, and projects of its reduced local air pollution, traffic congestion and better waste DMCs. Clean Air Initiative for Asian Cities (CAI-Asia), established in management, among others. 2001 with support from the ADB, has taken the sustainable urban Box 6: Sustainable Urban Mobility in Asia The Sustainable Urban Mobility in Asia (SUMA) program focuses on improving urban air quality, improving road safety, and reducing transport's contribution to climate change. This will be accomplished primarily through assistance to Asian countries and cities in strengthening the formulation and implementation of sustainable transport policies and projects. The SUMA program, funded by the Swedish International Development Cooperation Agency (SIDA), is being implemented by the ADB through the Clean Air Initiative for Asian Cities (CAI-Asia) and in partnership with other leading international organizations promoting sustainable urban transport. Activities being undertaken in SUMA include (a) a study on motorized two- and three- wheelers in Asia and how these modes can be better integrated in the urban traffic systems; (b) assisting the city of Ahmedabad, India, to develop a Bus Rapid Transit (BRT) operations and business plan; (c) how cycling and non-motorized transport can be inte- grated into urban and transportation planning of cities; (d) a capacity-building program to develop future trainers on a range of topics such as mass rapid transit options, non-motorized transport planning, transportation demand management, and financ- ing sustainable urban transport; (e) develop a national framework and action plan for the Philippines on environmentally sustain- able transportation; (f) environmental impacts of electric bikes in China; and (g) the development of social impact assessment guidelines that can be used for urban transportation projects. 26 JOINT MDB REPORT TO THE G8 ON THE IMPLEMENTATION OF THE CLEAN ENERGY INVESTMENT FRAMEWORK (CEIF) AND THEIR CLIMATE CHANGE AGENDA GOING FORWARD transport agenda forward with the Partnership for Sustainable expanding inland waterways as a transport mode with low Urban Transport in Asia (PSUTA) program and the SUMA program energy intensity. Rates for bulk freight for water transport are (see box 6). The Partnership for Sustainable Urban Transport in Asia a fourth of the rates for road transport. Connectivity of parts of project undertook case studies to examine transport impacts on the rural population depends on services provided by opera- pollution, congestion, and safety in Hanoi, Pune, and Xian. tors of river transport. The installation of proposed new gear- As part of its effort to mitigate the impacts of climate change on boxes in boats used in rural areas, being supported by the the transport sector the ADB has increased lending for railway Bank, could decrease fuel consumption by 30 per cent, sector. It will maintain its presence in the road sector, but will increasing the EE and the affordability of transport services by develop a broader portfolio, including urban public transport, the poor. Finally, a study on the China Emission Intensities of railways, water transport, and traffic management including Large-Scale Road and Rail Projects is expected to be complet- innovative financing options to promote energy efficient trans- ed shortly and a report on Carbon Finance and Urban port modes, especially in urban areas. Several sustainable trans- Transport in India report is currently being prepared. port projects are being developed, which include traffic man- The EBRD is developing investment opportunities to reduce agement and integrated public transport (bus rapid transit, BRT, municipal infrastructure emissions with a particular focus on and light rail transit, LRT) components; urban rail projects with urban transport. The SEI supports feasibility studies and insti- innovative and sustainable financing solutions to improve tutional strengthening (with special attention to tariff reform financial viability; railway projects with components to enhance and measures to improve affordability), and assistance to EE; and integrated transport projects with intermodal solutions. develop land use–mobility policies and/or sustainable trans- The ADB is also assisting in preparing the Energy Efficiency port strategies in various cities of the region. The EBRD invest- Strategy for road and railway sector in the member countries. ments in that area almost doubled in 2007 compared to the In May 2008 the World Bank Group issued a new Transport year before. There is a major opportunity to build upon the Business Strategy for 2008–12 entitled Safe, Clean and significant public transport networks existing in most Eastern Affordable Transport for Development. Among its strategic European cities to reduce the carbon emissions related to objectives, it addresses the sector's contribution to climate urban transportation. change, with a view to both mitigating the impact of trans- The AfDB will focus on transport systems improvement, includ- port operations and adapting transport infrastructure to take ing the selective support of mass rapid transport (MRT) invest- into account climate change effects. Interventions will include ments, including low-emission bus rapid transit networks and (a) restraining transport energy consumption, (b) assessing high-speed electric-powered light rail networks, especially in and controlling transport emissions, (c) promoting shifts to mega cities such as Addis Ababa, Cairo, Johannesburg, Lagos, low-carbon modes, and (d) establishing guidelines for envi- Kinshasa, and Nairobi. Mass transit combined with adequate ronmentally effective transport planning and decision making. road pricing and non-motorized, transport-friendly urban plan- Several new projects designed to reduce CO2 emissions in ning will reduce traffic congestion and contribute to more transport have been initiated, for example, the KSRTC Bus effective vehicle and traffic maintenance and policing. Biofuel and Maintenance Program for India will support engine tuning and tire replacement, replacements of water The IDB has been expanding its support of BRT systems, with induction kits, and the introduction of biofuels. The Trans more than 10 operations in nine countries. The bank is prepar- Santiago Urban Transport Modernization Plan will support the ing an additional eight BRT operations. The bank has engaged introduction of low-emission buses—compressed natural gas, resources for the assessment of carbon reduction potential and hybrid, or electric engine technologies. A recent World Bank CDM opportunities in urban transport. The IDB has also financ- study on Bangladesh inland waterways shows the benefits of ing efforts to address key methodological challenges in build- R E S U LT S O F T H E C E I F A N D R E L AT E D C L I M AT E C H A N G E S T R AT E G I E S 27 ing up CDM projects in urban transport (focusing on baseline In the area of avoided deforestation, the World Bank has been development and additionality), and is now identifying carbon working closely with donor and developing countries, interna- finance opportunities in urban transport projects in a number tional organizations, and the private sector and indigenous of midsize cities in LAC. people and forest dwellers to design the Forest Carbon Partnership Facility (FCPF). The FCPF aims to assist IDA and IBRD In mid-2007, the EIB adopted a renewed transport lending member countries in their efforts in REDD and, in piloting new policy partly as a response to EU new targets with respect to mechanisms (both market and nonmarket) for countries to climate change. The renewed transport lending policy puts a avoid deforestation and degradation, which are not currently clear emphasis on environmentally friendly modes of trans- addressed through the carbon market. port, such as railways, inland waterways and maritime proj- ects, since these are intrinsically the most promising in terms The FCPF will comprise a Readiness Mechanism and a Carbon of reducing GHG emissions per transport unit. More rigorous Finance Mechanism. The Readiness Mechanism will help more climate change considerations will also be more consistently than 20 developing countries build their capacity to participate applied to urban transport and intermodal hubs. Further in future REDD incentive systems, by supporting design and emphasis will be given to Research, Development and implementation of measurement and reporting systems, devel- Innovation activities, including engine and fuel technologies, opment of national reference scenarios for REDD, and develop- which improve EE and reduce emissions. More generally, the ment and adoption of national REDD Strategies reflecting Bank will seek to assess the impact of its transport projects on national priorities and constraints. The Carbon Finance GHG emissions. Mechanism will offer positive incentives for reducing emissions- from tropical forests, which can improve the livelihoods of poor Reducing Emissions through Reforestation and people who depend on these natural resources, while also pro- Avoided Deforestation tecting natural assets. Ultimately, the FCPF seeks to foster new Reduced emissions through reforestation and avoided defor- and additional financing for forest protection and sustainable estation (REDD) are particularly important opportunities for mit- forest management. igating GHGs in developing countries. Emissions from defor- estation and land use changes are estimated to account for The FCPF has been approved by the World Bank Board and 34 more than a third of total emissions each year from developing developing countries have expressed their interest in participat- countries. Using carbon markets to provide long-term incen- ing. A number of existing programs are also providing support tives for curbing deforestation is widely cited as an attractive to REDD activities, such as the Proposals Program on Forests and option. Progress on reducing deforestation will have both miti- Forest Law Enforcement and Governance (FLEG). In addition, gation and adaptive value for developing countries. regional programs such as the Pilot Program/G7 in Brazil are intended to develop capacity for successful implementation of The World Bank's BioCarbon Fund was set up in 2004 to deliver any program that would compensate developing countries for cost-effective emission reductions through carbon sequestra- reducing emissions from deforestation. tion, while promoting biodiversity conservation and poverty alleviation. The fund is composed of two tranches: Tranche 1 Under Tranche 2 of the BioCarbon Fund, the World Bank has ini- started operations in May 2004, has a total capital of $53.8 mil- tiated analytical work on how to develop CDM-eligible pro- lion, and is closed to further participation. Tranche 2 became grams for conserving soil carbon in agricultural areas and operational in March 2007. Tranches 1 and 2 are mainly support- rangelands. A pilot operation is being planned to be undertak- ing afforestation and reforestation projects eligible under the en in SSA. Agricultural wastes—from crop residues and from liq- Kyoto Protocol; however, they also support pilot projects that uid and solid waste from livestock and industrial food produc- avoid deforestation, currently not Kyoto compliant. tion—are a significant source of GHG emissions. The Bank is supporting a broad range of projects to utilize such wastes 28 JOINT MDB REPORT TO THE G8 ON THE IMPLEMENTATION OF THE CLEAN ENERGY INVESTMENT FRAMEWORK (CEIF) AND THEIR CLIMATE CHANGE AGENDA GOING FORWARD while reducing GHG emissions, such as the use of rice husks and cially to a small but growing number of forestation and refor- sugarcane bagasse for energy generation. Several related proj- estation schemes. It is following the World Bank–led work on an ects were prepared and contracted in fiscal 2007 under the FCPF, and has initiated, with a group of European private sector WBG-administered carbon funds, including a demonstration in entities, a joint review of the market opportunity for an ecoys- Nepal that carbon finance revenues can completely guarantee tems fund. finance for biodigesters at farm level through programs imple- Relative to the importance of land use change and deforestation mented at the national level. for global GHG emissions, the MDBs' efforts in this area are still In June 2007 the IDB organized a regional workshop on techni- modest. However, they are committed to raise the priority of this cal and scientific aspects of avoided deforestation relevant to subsector and to develop a set of appropriate interventions. LAC. The purpose was to gather policy makers, scientists, and New Financial Instruments and Methodologies for NGOs from the region to enhance the understanding of the ben- Carbon Finance efits of and opportunities for reducing emissions from deforesta- All the MDBs have embarked on efforts to catalyze low-carbon tion and degradation in LAC. As a follow-up, the Bank is prepar- investments through the mobilization of funding that can pro- ing technical assistance for countries to support the develop- mote innovation and help fund the incremental costs of these ment of methodologies and capacity building on a pilot basis projects. These efforts include innovative financial products and that will enable the use of carbon financing for lowering GHG support for the further development of the carbon market. emissions related to avoided or reduced deforestation. The WBG since 2000 has pioneered the carbon market and con- The ADB is initiating work on REDD in Southeast Asia under its tributed to its emergence, evolution, and growth by managing Greater Mekong Subregion Core Environment Program and a a number of carbon funds and facilities, today reaching more planned rainforest conservation activity in Borneo. Under the than $2 billion in value. Based on this experience, the WBG con- Greater Mekong Subregion program, the Biodiversity tinues to facilitate the expansion of the carbon market by acting Corridors Initiative is testing conservation approaches on as trustee for carbon funds and facilities, developing new lands outside of formal protected areas, including options for methodologies, and testing new approaches to structuring and the use of carbon finance to encourage forest protection and financing carbon asset creation. Most of these funds and facili- land use practices to reduce GHG emissions, provide local ties provide incremental revenue to low-carbon investments, livelihoods, and conserve biodiversity. In Borneo, the ADB is and provide only limited upfront financing for the investments working with government agencies and NGOs to develop themselves. The carbon purchase contracts, however, are struc- and implement plans for conservation of remaining upland tured to enable project sponsors to borrow against them. forests, including the potential application of REDD approaches attracting carbon financing. The WBG's long-term productive partnership with the GEF has been a major force in advancing the climate change agenda. In addition to its forestry portfolio the AfDB is in the process of GEF grant funding focuses on global environmental benefits establishing the Special Fund for the Congo Basin Forest and is available for piloting and innovating new approaches, as Ecosystems with initial financing of about $100 million to slow well as creating enabling environments for market transforma- the rate of deforestation by developing the capacity of commu- tion by removing barriers, capacity building, and institutional nities and institutions in the Congo Basin countries to manage development. GEF resources have been often combined with their forests and develop livelihoods that are consistent with IDA, IBRD, and IFC products, which allowed strengthening of cli- forest conservation objectives. mate change objectives in WBG lending. In particular, the GEF's The EIB has is actively considering possible ways in which it shift from project-by-project to programmatic actions is helping could intervene in this complex sector. It has contributed finan- countries take a broader and longer term view in addressing R E S U LT S O F T H E C E I F A N D R E L AT E D C L I M AT E C H A N G E S T R AT E G I E S 29 barriers and strengthening national capabilities to understand mitted $135 million in 12 transactions to purchase credits and tackle both mitigation and, more recently, adaptation chal- from more than 40 projects. The IFC also recently launched a lenges. GEF has played a critically important role in developing new product for the carbon market, the Carbon Delivery a knowledge base for adaptation. At the Conference of Parties Guarantee, that provides transparent connectivity between (COP13) in December 2007, the governance and management the primary and secondary markets, and guarantees delivery arrangements for the new Adaptation Fund were agreed, with of carbon credits from projects in developing countries to GEF acting as the secretariat. companies and financial institutions in industrialized coun- tries, thereby enhancing the value for sellers while eliminating Two important new facilities have recently been approved by the project delivery risk for buyers. Two deals were recently World Bank's Board. The first, the Carbon Partnership Facility (CPF), announced two projects to which it is providing the Carbon will provide funds for carbon asset development and purchase Delivery Guarantee for a total of 1.7 million Certified Emission emission reductions well beyond the current commitment peri- Reductions (CERs) and expects to significantly ramp up over od of the Kyoto Protocol , emphasizing programmatic and sector- the next 2–3 years. based approaches that would deliver significantly larger reduc- tions in GHG emissions and promote lower-carbon development The EBRD is working with two Carbon Credit Funds: the paths in developing and transition economies. The CPF gover- EBRD/EIB MCCF and the Netherlands Emissions Reduction Co- nance structure is aimed at bringing together both the buyers operation Fund (NERCoF). The EBRD together with the EIB and sellers of carbon assets in a partnership. Furthermore, the established the MCCF as an instrument in their strat¬egy for new facility is expected to contribute to continuity in the carbon addressing climate change. The MCCF is one of the few carbon market while international negotiations of a post-2012 regime funds dedicated specifically to countries from Central Europe continue under the UNFCCC and to provide practical experiences to Cen¬tral Asia now accounting for €190 million ($285 mil- that could assist regulators in developing a legal, regulatory, and lion). It purchases carbon credits from projects financed by the institutional framework for GHG mitigation efforts. EIB and/or the EBRD and can provide up to 50 percent of car- bon finance upfront under certain circumstances. It also has a The second new facility, the FCPF, aims to assist IDA and IBRD €40 m window for green investment schemes. The member countries in their efforts to reduce emissions from Government of the Netherlands and the EBRD created togeth- deforestation and degradation. The FCPF will work to develop er one of Europe's first carbon funds, which closed for further mechanisms (both market and nonmarket) to provide incen- investments on 1 December 2007. Through this fund carbon tives to avoid deforestation and degradation, which are not cur- credits from EBRD projects were purchased for the account of rently addressed through the carbon market. The FCPF will the Netherlands government for compliance with its 6 per include significant resources through a Readiness Mechanism cent emission reduction commitment under the Kyoto for capacity building and technical assistance, as well as a fund Protocol. This is done using the Joint Implementation (JI) for piloting incentives and the purchase of carbon assets. Other mechanism of the Kyoto Protocol. NERCoF results to date innovative approaches the Bank is developing in cooperation include the signing of 4 projects in 2007 for an aggregate of with its client countries include green investment schemes in 2.1 million Carbon Credits and total contract amount of about Central and Eastern European countries, which will channel the $22 million. The delivery period has started for a portfolio of 7 revenues from emissions trading to further emission-reducing projects reflecting an expected reduction of 3.5 million tons of activities and development of mechanisms to improve carbon CO2 equivalent during the Kyoto Protocol commitment peri- price discovery through the use, for example, of auctions of od (2008–12). emission reduction credits. The EIB has significantly raised its profile in the carbon sector, The IFC has recently closed out its two carbon facilities that it with three funds operational as of mid-2007, all in partnership has managed since 2002 for Dutch government and has com- with other MDBs, and each targeting a niche in the market. The 30 JOINT MDB REPORT TO THE G8 ON THE IMPLEMENTATION OF THE CLEAN ENERGY INVESTMENT FRAMEWORK (CEIF) AND THEIR CLIMATE CHANGE AGENDA GOING FORWARD first of these is the above-mentioned €190 million MCCF with assistance aims to boost the number of projects that can con- the EBRD, the second was the €50 million Carbon Fund for tribute to climate change mitigation. Europe with the World Bank, and the third was the €100 million In May 2008, the ADB established a Climate Change Fund, with EIB–Kreditanstalt für Wiederaufbau (KfW) Carbon Programme. In an initial contribution from the ADB's Ordinary Capital addition, a Facility for Energy Sustainability and Security of Resources (OCR) 2007 net income, to address climate change Supply (ESF) was approved in 2007, which enables the EIB to through technical assistance, investment components for commit up to €3 billion outside the EU, from its own resources, both private and public sector projects, and other forms of for projects in developing countries on top of the 2007–13 cooperation that may be agreed upon with other develop- external lending mandates. This facility aims to promote envi- ment partners. The fund aims to support knowledge products, ronmentally sustainable, cleaner energy growth paths by pro- as well as business and/or financial advisory and engineering moting the transfer of clean technologies between the EU and services to (a) undertake economic and sector work linking cli- developing countries. A first operation under this facility was mate change to sustained growth and related areas; (b) pre- signed in November 2007 to establish the China Climate pare projects, transactions, and programs to investment; (c) Change Framework Facility (€500 million), and others are under share costs in implementing climate change investment pro- preparation. grams in combination with other government, donor, and The Carbon Market Initiative (CMI) is one of the ADB's new ini- commercial funding; (d) support cooperation relating to sci- tiatives under its Clean Energy and Environment Program that ence and technology for facilitating transfer of technology, support the development of clean energy, EE, and other GHG knowledge, and experience; and (e) build the capacity of mar- abatement projects in those developing countries in Asia and ket actors in the context of implementing climate change the Pacific that are eligible under the CDM of the Kyoto investments and programs. Protocol. Most of the existing carbon procurement funds pro- The IDB is working with public and private sector clients in the vide payment only upon project completion and when the car- region to increase the number of projects eligible for carbon bon credits are delivered. As a result, many clean energy proj- financing and to facilitate access of the LAC region to interna- ects face a critical upfront financing gap that prevents them tional carbon markets. In addition to financing the underlying from being undertaken in the first place. The ADB proposes to projects, IDB efforts are focused on reducing transaction costs address these barriers through a dedicated comprehensive and related to low-carbon projects (carrying out prefeasibility and integrated CMI. It has three components: feasibility studies; supporting the preparation of project docu- I The Asia Pacific Carbon Fund (APCF), a trust fund of $151 mentation related to the CDM project, including development million, provides upfront cofinancing for 25–50 percent of of methodology; assisting in the marketing of CERs; promot- future carbon credits from CDM projects in its DMCs. ing programmatic and sector approaches to scale up the low- I The Technical Support Facility provides comprehensive carbon impacts; and lowering risks for project development technical support to project sponsors to develop CDM-eligi- and delivery). The IDB also is working with local financial enti- ble projects. ties to increase domestic and international financial flows and I The Credit Marketing Facility provides marketing support serv- investment in low-carbon projects in the LAC region by set- ices to project sponsors in obtaining optimal prices and sale ting up lines of credits, providing guarantees to loans granted terms for CERs not purchased by the APCF in the open market. by local banks, and fostering equity investment in clean ener- gy funds oriented to identify and develop small and medium To date, 41 projects have been identified in 16 DMCs and are low-carbon projects in the region. Some specific examples of currently being processed for technical support and cofinanc- SECCI support for carbon finance include the development of ing by the CMI. The unique combination of ADB-underlying a CDM methodology to generate CERs associated with a new finance, upfront carbon finance, and comprehensive technical R E S U LT S O F T H E C E I F A N D R E L AT E D C L I M AT E C H A N G E S T R AT E G I E S 31 IDB-supported metropolitan train line in São Paulo; support national trust funds (FOMECAR) and development banks for a Brazilian water and sanitation utility in the evaluation of (NAFIN, BANOBRAS) in Mexico; and contributions to the the Carbon Finance potential for the capture of methane development of a methodology for assessing carbon credits from sludge in the context of an investment program associated with an EE program for housing (presented to the financed by the IDB; support for CF programs involving UNFCCC for approval) in Chile. Box 7: The Nairobi Framework In November 2006, the Nairobi Framework was established as an interagency capacity-building mechanism focusing on developing the carbon market in Africa. Partner agencies in this framework are the World Bank, UNDP, UNEP, AfDB, and UNFCCC. The framework builds on the work already being done by the U.N. agencies, including the Bank's Carbon Finance Assist (CF-Assist), and aims at substantially scaling up the participation of Africa in the carbon market through improved coordination among the partner agencies and increased funding by donors. As an initial activity, the partners have conducted a mapping exercise to identify potential overlaps in the current work and opportuni- ties for sharing and complementing each other's programs. The World Bank also has undertaken an Africa-wide assessment of potential for carbon mitigation projects, based on available secondary information. In meetings organized around the Subsidiary Body for Scientific and Technological Advice (SBSTA) in May 2007, the partners have also agreed upon a number of coordination measures for sharing and enriching the capacity-building activities. As part of the market development activities in Africa, the World Bank has launched project identification and preparation activities in 16 countries, and signed several emission reduction purchase agreements, especially by the Community Development Carbon Fund. Notable projects in this regard are the 85 MW geothermal project in Kenya and the municipal solid waste project in Durban. Capacity-building programs under the CF-Assist have been launched in nine African countries, with a principal focus on CDM project portfolio development and institutional strengthening. As part of this effort, the World Bank supported 23 host countries from Africa to participate in the Carbon Expo, the premier event for the carbon market, and provided them with an opportunity to conduct project transactions with carbon buyers from Europe and Japan. The World Bank also cosponsored a Carbon Finance Investment Forum in South Africa in May 2007, aimed at attracting bankers and mainstream financial institutions into the carbon market. In order to scale up the participation of Africa in the carbon In this connection, it is important to recognize that these five market, the AfDB is working with the World Bank and other countries have initiated work on developing low-carbon U.N. agencies under the Nairobi Framework to improve coor- growth strategies. China has recently published its low-carbon dination among the varied capacity-building activities and strategy to 2010 and will now embark on lengthening that increase donor funding opportunities (see box 7). time horizon to 2030. India's Planning Commission guided the preparation of alternative low-carbon development paths The “High-Impact� Countries published last year and plans to build upon that work to con- In determining their country priorities, the MDBs have taken solidate the government position by the end of this year. In into account the differing magnitudes of GHG emissions by 2007 Mexico published a National Strategy on Climate individual nations. For example, more than half of the GHG Change that forms the basis for deepening the analytical work emissions in developing countries come from Brazil, China, and facilitating implementation of low-carbon projects. Brazil India, Mexico, and South Africa. has created a secretariat in the Ministry of Environment for 32 JOINT MDB REPORT TO THE G8 ON THE IMPLEMENTATION OF THE CLEAN ENERGY INVESTMENT FRAMEWORK (CEIF) AND THEIR CLIMATE CHANGE AGENDA GOING FORWARD Box 8: World Bank Support to Assessing “Low-Carbon� Growth Strategies for India The Government of India requested that the World Bank help assess (a) India's future GHG emissions across various sources, (b) the costs and local benefits of several alternative scenarios with different emission levels, (c) the incremental costs and other barriers of “lower carbon�growth trajectories, (d) the financial needs in different sectors for adopting technology options and programs, and (e) appropri- ate financing instruments to meet these needs. The work, led by the Government of India's Planning Commission in coordination with the ministries including Environment and Forests, Power, New and Renewable Energy, Transport, and Agriculture, as well as agencies, started in December 2006. The scoping phase of the study has been completed and points to some important features of India's economy with respect to its GHG emission performance. Based on available data, methane emissions from agricultural activities are the largest source of India's current GHG emissions. India's CO2 emissions, mainly from fuel use, currently account for 55 percent of its total GHG emissions, but the share is rising, as about half of the population currently lack electricity access and energy supply shortfalls constrain its fast economic growth. India has been relatively successful in delinking economic growth and energy use. Recently, economic growth has been increasing 8 per- cent a year, while commercial energy consumption has been growing just 3.7 percent. A new model for estimating future GHG emissions under different scenarios and calculating marginal abatement costs—so that the model structure, data inputs, and underlying assumptions will be made as transparent as possible—will be used to generate a cost- effective strategy for further lowering the CO2 and GHG intensity of the economy at the macro and sector levels, and identify opportu- nities for leveraging financial resources needed to achieve so without compromising growth. The study will also help formulate specific regulatory and investment programs in a range of sectors and develop a strengthened multisectoral program of WBG support. The strat- egy will highlight the many benefits that India can capture with a well-designed low-carbon strategy, including energy security, rural access through distributed renewable applications, cleaner air in cities and homes, reduced congestion, better waste management, and even less water-intensive agriculture technologies. Interim results, analyzing GHG scenarios, costs, financial gaps, and available instruments to meet those gaps, for select sectors—ther- mal power, hydropower, energy use in building and households, and transport fuel economy—have been prepared and the full analy- sis and final report will be completed by summer 2008. Climate Change and is in the early stages of developing a cli- GHG reductions could potentially involve areas, such as coal mate change strategy. South Africa established a National power plants; hydropower; EE in commercial buildings, house- Climate Change Response Strategy in 2004 and is currently holds, and industrial sectors; transport fuel improvements; and preparing a long-term climate change mitigation scenario land use changes in the agricultural sector (see box 8). due to be finalized in mid-2008. The World Bank is assisting all Differences in the GHG reduction opportunities for China and the above countries in developing these strategies. India are also evident, despite the existing widespread use of coal, given the differences in the level of per capita consumption The preliminary analysis to identify priority areas for a low-car- and access to modern fuels. The uniqueness of each country bon development path already demonstrates the unique GHG case suggests that a “bottom-up� approach is a crucial comple- reduction potential and key sectors for each country. For exam- ment—for identifying opportunities in country-level, sector-spe- ple, avoided deforestation, hydropower, and biofuels appear to cific mitigation actions—to the existing broad, global-level be some of the key areas for Brazil, whereas the oil and gas and analysis carried out in the reports discussed above. transport sectors are important for Mexico. In the case of India, R E S U LT S O F T H E C E I F A N D R E L AT E D C L I M AT E C H A N G E S T R AT E G I E S 33 The EIB has recently approved a multiproject facility of €500 including PPPs that invest in projects that contribute to the million for China to support projects that contribute to cli- avoidance or reduction of GHG emissions through the use of mate change mitigation. The beneficiaries are government renewable energies, EE, or the capture and use or storage of agencies, municipalities, public utilities, and companies, GHG. Adaptation to Climate Variability and Change The earth's climate is already changing because of human activ- and policy responses. This involves the development of screening ities, primarily the combustion of fossil fuels and land manage- tools in order to assess and mitigate climate risk in vulnerable ment practices, and is projected to continue to change in the projects. This will not only protect their investments from possible coming decades. Developing countries, and poor people with- future damage, but is essential for achieving poverty reduction. in developing countries, are already suffering the greatest In the area of climate risk management and assessment, the impact from climate-related disasters, which threaten to under- World Bank is developing robust and easy-to-use information mine their development. During the 1990s, an average of 200 and tools for assessing development projects and programs for million people per year from developing countries were affect- potential sensitivities to climate change for Bank and client ed by climate-related disasters, whereas only a million or so country staff. A screening tool is now available and covers people from developed countries were affected. aspects of agriculture, water use, biodiversity, and some infra- Climate change has serious implications for the MDBs' poverty structure and coastal issues. The screening tool is seen as part of reduction efforts. It will affect areas of major economic and a wider range of tools to support development practitioners. social importance for developing countries, such as water avail- These include good practice guidance notes and structured ability, agriculture, health, the durability of major infrastructure, sets of climate change training and leadership programs. The and the sustainable use of natural resources. While adaptation Bank, both internally and in cooperation with other agencies, is has hitherto not received the same attention as the mitigation developing a comprehensive “portal� to provide ready access to agenda, the MDBs, whose member countries will be most information and data relevant to climate change. As part of the impacted by climate change, are making efforts to help these effort to develop methodologies for assessing the impact of cli- countries adapt to climate change extremes and variability mate change and determining appropriate strategies to through regional and country-specific programs. Institutions respond, the World Bank, the ADB, and the Japanese Bank for such as the World Bank, the ADB, and the AfDB are also in the International Cooperation (JBIC) Institute, are working together process of upgrading their staff capacity in identifying and on a study of Climate Change Impact and Adaptation in Asian preparing adaptation activities. The majority of MDBs are now Coastal Cities (see box 9). expanding their knowledge of climate risk management, imple- The ADB, AfDB, and IDB are also focusing on similar climate menting this knowledge in operational programs, and building risk management initiatives in order to ensure that their oper- more comprehensive screening tools and best-practice guid- ations are less vulnerable and more resilient to climate risk. ance to support their clients' long-term sustainable develop- The IDB is focusing on disaster risk mitigation and is making ment goals. headway in mainstreaming disaster risk prevention in its Climate Risk and Assessment operations. The ADB will assist its member countries in inte- Most MDBs are now “climate-proofing� projects that are climate grating CRMA into broader development and natural sensitive and developing advisory assistance and capacity sup- resource management decision making, whenever possible port mechanisms, as well as preparing systematic institutional urging that adaptation concerns, whenever possible, be com- 34 JOINT MDB REPORT TO THE G8 ON THE IMPLEMENTATION OF THE CLEAN ENERGY INVESTMENT FRAMEWORK (CEIF) AND THEIR CLIMATE CHANGE AGENDA GOING FORWARD Box 9: A Study of Climate Change Impact and Adaptation in Asian Coastal Cities A study of Climate Change Impact and Adaptation in Asian Coastal Cities is being undertaken by the World Bank jointly with the Japan Bank for International Cooperation (JBIC) Institute, and ADB to assist the respective governments in identifying (a) what they should expect in the way of climate change impacts, and the scale of those impacts; (b) what adaptive measures they could employ to address the threat of climate change related impacts; and (c) what are the key policy priorities for decision makers to deal with the threat of cli- mate change impacts. The IPCC in its Fourth Assessment Report has identified megadeltas and the megacities in these deltas as hot spots, which will be impacted by sea level rise; increasing frequency and intensity of flooding from river drainage, storms and storm surges; and land subsi- dence resulting from both natural and manmade causes. Other studies, including the OECD's “Ranking Port Cities High Exposure to Vulnerability and Climate Extremes,� have indicated that Asian coastal cities are particularly vulnerable, and also noted the long lead time necessary (30 years or more) to plan and implement effective coastal and flood defenses on the scale necessary. To understand the socioeconomic vulnerabilities and developmental consequences better, the World Bank, JBIC Institute, and ADB have worked together to develop common terms of reference for city case studies and divided responsibility for the initial studies on four cities: Bangkok and Kolkata (World Bank), Ho Chi Minh City (ADB), and Manila (JBIC Institute). Other cities might be added later. These studies will provide an opportunity for cross comparisons to evaluate similarities and differences and to develop common approaches to adaptation that may have value for other Asian coastal cities. Building on the IPCC consensus, the JBIC Institute, with experts from the University of Tokyo and Ibaraki University, have adapted IPCC global climate models to forecast key climate variables on a regional level for the A1FI and B1 scenarios for the year 2050. These forecasts on changes in temperature, precipitation, storm surge, and sea level rise, which also incorporate other key historical and projected information on demographics, land use, land subsidence, and sector assess- ments, are being applied to the four city studies, which are now under way. A midterm synthesis report, which will be based on the case studies' first two tasks (historical data collection and hydrologic modeling), is expected shortly. A detailed impact analysis (task 3), together with suggested adaptation strategies for various sectors, including energy, transportation, water supply and sanitation, public health, and building and housing (task 4), will follow. The proposed adaptation measures will include a range of options, including (a) spatial or land use planning that directs new development toward areas less exposed; (b) upgrading protective defenses; and (c) reduc- ing the human induced factors causing land subsidence. bined with efforts to assess risk and reduce vulnerabilities to The IDB has done an initial assessment of the vulnerability of its natural disasters. The ADB is incorporating these concerns portfolio to climate change impacts. The results indicate that a into the country environment analyses as part of Country significant number of the Bank's projects could be sensitive to Partnership Strategy (CPS) and program preparation. This climate change. This is driving the Bank to factor climate-risk ensures that adaptation issues, where relevant, are included concerns into sector policies, country strategies, and project in the ADB's programs of cooperation at the country level. design and implementation. As a first step, the IDB is focusing The AfDB will include systematic climate risk management on integrating adaptation issues in disaster risk prevention in its analysis as part of due diligence in country planning and pro- operations and in country programming, as well as develop- gramming, and project preparation. ing guidelines to climate-proof infrastructure investments (see box 10). R E S U LT S O F T H E C E I F A N D R E L AT E D C L I M AT E C H A N G E S T R AT E G I E S 35 Box 10: IDB Support for Adaptation to Climate Change and Disaster Mitigation—Township Planning Strategies for Storm Surges in the Caribbean The general objective of the project is (a) to assist Caribbean countries in developing the adaptation strategies required to deal with the impact of natural disasters and severe weather events that are anticipated to occur in association with climate change; and (b) to strengthen their capacity for adaptation to this phenomenon. The specific objective of the project is to develop the capacity and method- ology for incorporating risk analysis into the long-term development strategies of town planners and emergency managers. The project has three components: Risk Assessment of Pilot Sites: Storm surge risk assessments have been conducted in two pilot areas—St. Peter Township, Barbados, and Portmore, Jamaica—utilizing applications of the TAOS* storm surge risk assessment model. The risk assessments were prepared in close collaboration with the Caribbean Institute of Meteorology and Hydrology and in consultation with the regional emergency man- agers, town planners, and communities. The study also included (a) an institutional analysis for the implementation of risk manage- ment, monitoring and forecasting; (b) proposals for raising awareness; and (c) recommendations for the promotion of improved pre- paredness through early warning systems, contingency planning and shelters, and potential mitigation investments and cost-effective use of economic incentives for their execution. Development of Toolkit: A toolkit targeting four types of users—town planners, emergency managers, community groups, and pri- vate sector providers of risk transfer services—will be developed. The toolkit will include criteria and guidelines for risk assessments, institutional issues, awareness raising and improved preparedness, and potential prevention and mitigation measures. Dissemination: The toolkit will be published and disseminated throughout the Caribbean. * The Arbiter of Storms. The EBRD region of operations is expected to be less affected by on managing climate risk. The World Bank will conduct a wide adaptation issues than other regions in the world where climate variety of sector and country assessments that include the change may have very significant impacts on the ecology and effects of different climatic conditions on the main sectors of economy of entire countries. Building on its experience in cli- the economy and a review of institutional capacity to manage mate change mitigation financing, the EBRD is working on the the climate variability. They will build on existing in-country or development and implementation of a targeted operational Bank-led initiatives, and will be designed to identify specific, approach to climate change adaptation. Within the EBRD's achievable, prioritized actions. Particular attention will be given region of operations, the operational focus is likely to be on the to “low-hanging fruit� opportunities, as well as institutional and management of water resources. Furthermore, the environ- governance bottlenecks for the implementation of adaptation mental due diligence of projects will need to enable the EBRD measures. In this connection, each World Bank regional office is to “climate proof� its investments. Finally, better knowledge is currently engaged in formulating a business plan for dealing required to guide the development of adaptation activities, with the threats and opportunities associated with climate since issues are local in nature. change tailored to the specific needs of its client countries. The ADB is working with the World Bank on a similar initiative to Good-Practice Development assess the impacts of climate change in several large Asian Many of the MDBs are undertaking a series of country, regional, coastal cities in relation of local and national economic growth, and sector studies to build a body of good-practice guidance 36 JOINT MDB REPORT TO THE G8 ON THE IMPLEMENTATION OF THE CLEAN ENERGY INVESTMENT FRAMEWORK (CEIF) AND THEIR CLIMATE CHANGE AGENDA GOING FORWARD as well as regional and global economics. The World Bank will investments to reduce vulnerability to climate risk of urban and also review the role of insurance and other modes of risk trans- regional infrastructure. This involves identifying and protecting fer as a means of reducing vulnerability to climate change. The capital assets at risk to climate change impacts, preparation of AfDB is undertaking a study on the impact of climate change on loans to finance risk-reduction investments, and the design the Gambia River Basin. In addition, there is a proposal to and development of vulnerability components and activities in extend such a study to cover all the river basins in Africa. investment loans. In addition, SECCI has generated two PBL— programmatic loans—to Mexico and Colombia, respectively, Financing Climate Risk: Assessment and Adaptation to help these countries develop climate change strategies and The majority of the MDBs will be focusing on mainstreaming cli- action plans. These action plans will include climate change mate change adaptation into development planning, poverty impact analysis, and options for mitigation and adaptation reduction strategies, policy work, and project activities. This within each subsector (energy, transport, housing, agriculture, involves financing country-level assessments of climate change and forestry services). The IDB has also commenced work on an vulnerability and risk assessments at both the strategy-program adaptation toolkit. and project levels. The ADB will finance climate risk assessments at both the The World Bank has programmed a number of projects to regional and national level through such programs as the address known risks to climate change. The lessons learned from Climate Change Adaptation Program for the Pacific (CLIMAP), these investments, together with the results of a series of pilots which will review climate change risks (for example, sea level directly linked to Bank operations, will provide guidance on how risk) while producing guidelines for development planners on to approach climate risk in upstream analytical and planning how to climate-proof coastal infrastructure. The ADB also led processes, as well as in the project and program implementation the Central Asian Countries Initiative for Land Management, phase. Much of the work focuses on agricultural and water issues which brings together the five countries of that region to and rural infrastructure, since these are fundamental to poverty address land degradation problems, some of which are attribut- reduction in most regions of the world. Not only are they very vul- able to climate change. In addition, the ADB is sponsoring cli- nerable to climate risk, but typically they have had less work done mate change risk analysis on natural resource productivity in on them than the more spectacular climate threats, such as a rise the Greater Mekong subregion (see box 11). in sea level and wind storms. Adaptation-related activity by the World Bank has increased from only about 10 projects, and tech- Africa is highly vulnerable to climate change with the areas of nical assistance and advisory activities before the CEIF have risen particular concern being water resources, agriculture, health, to about 40 projects (loan and grant) in 30 countries and 25 tech- ecosystems and biodiversity, forestry and coastal zones. The nical assistance advising activities. longer-term impacts will include changing rainfall patterns affecting agriculture and reducing food security, worsening The IFC is in the early stages of identifying appropriate method- water security and economic growth prospects, shifting tem- ologies for evaluating the risks of climate change to its invest- perature affecting vector diseases, and more challenging hur- ments and clients. In consultation with experts and other inter- dles in reaching the Millennium Development Goals. According ested IFIs and private companies, the IFC has embarked on a to the recent IPCC report, the cost of adaptation in Africa could series of case studies, to be completed by June 2008, to test avail- be as high as 5–10 percent of the continent's GDP. The AfDB, in able risk assessment tools, illustrate potential portfolio risks, and addition to its policy-related work, is preparing a formal propos- explore the feasibility of insurance and other response measures. al on the establishment of a CECAFA to galvanize its operations The IDB will integrate climate change adaptation initiatives into in this emerging area (see the section, New Financial its disaster risk prevention activities. This not only includes Instruments and Methodologies for Carbon Finance, above and mainstreaming climate risk in country programming, but also section 4 below). The AfDB is also increasingly engaged in activ- R E S U LT S O F T H E C E I F A N D R E L AT E D C L I M AT E C H A N G E S T R AT E G I E S 37 Box 11: ADB Support to Climate-Proofing Pacific Countries The ADB recently completed a three-year project to help selected Pacific DMCs to adapt to climate change and variability. The project produced a climate change stocktaking and risk profiles for eight countries, together with a support kit and guidelines for mainstream- ing adaptation, with several examples of project briefs. The analysis demonstrated the importance of mainstreaming adaptation in the Pacific, including strengthening the enabling environ- ment to increase the likelihood of successful adaptation at project and community levels. The “National Guidelines for Mainstreaming Adaptation to Climate Change� were adopted by the governments of each country, and are now being used as the main references for adaptation mainstreaming at the national level. These are based on the approach presented in the widely disseminated main report from the study “Climate Proofing: A Risk-Based Approach to Adaptation.� Capacity building for responsible government agencies and related stakeholders was also provided. This project is being used by the ADB to expand its adaptation support not only to Pacific Island countries, but also to replicate across Asia through its Climate Change Adaptation Program, supported by the Regional Technical Assistance Project Promoting Climate Change Adaptation in Asia and Pacific (2007–11). ities to reduce land degradation and soil erosion in partner- increasingly affect hydrological regimes and water availability, ship with the secretariat of the United Nations Convention to particularly in developing countries located in especially cli- Combat Desertification (UNCCD) and the World Bank, NEPAD mate sensitive regions. One of the areas to which the EIB is pay- and other agencies within the Terrafrica/SIP sustainable land ing particular attention is flood risk management. In the Africa, management program. In particular, a number of projects are Caribbean, and Pacific regions and in the Asia and Latin America under preparation to promote sustainable land management regions, the EIB will continue supporting the EU development and rural livelihoods and climate adaptation in partnership policy centered on the achievement of the Millennium with GEF, the World Bank, and IFAD within the GEF-financed SIP Development Goals and related goals. These include MDG 7, program. The AfDB has also initiated work on a portfolio of which aims to halve the proportion of people without sustain- investment projects, including the Malawi Climate Adaptation able access to safe drinking water by 2015, and the similar for Rural Livelihoods and Agriculture project (CARLA), which is target adopted by the international community with regard to already under implementation (see box 12). Preparation work access to sanitation. on two others, in Burundi and Mauritania, is well advanced. The GEF is currently the world's largest funder of activities to The EIB may finance adaptation investment opportunities in address the adverse impacts of climate. Several MDBs, includ- sectors such as water resources, agriculture, coastal zone man- ing the World Bank, ADB, and AfDB, are working closely with agement and marine resources, forestry, and ecosystem man- the GEF, which has funds available on the order of $200 million agement. For example, climate change is affecting and will at this point. 38 JOINT MDB REPORT TO THE G8 ON THE IMPLEMENTATION OF THE CLEAN ENERGY INVESTMENT FRAMEWORK (CEIF) AND THEIR CLIMATE CHANGE AGENDA GOING FORWARD Box 12: African Development Bank–Malawi Climate Adaptation for Rural Livelihoods and Agriculture (CARLA) Project The project objective is to “improve resilience to current climate variability and future climate change by developing and implementing cost effective adaptation strategies, policies, and measures that will improve agricultural production and rural livelihoods.� The project is aimed at implementing the National Adaptation Programme of Action (NAPA) of Malawi and is eligible under the GEF LDCF, since it follows the principles and criteria outlined in the programming paper on the implementation of NAPAs under the LDCF. Malawi's 2005 NAPA, based on a multistakeholder consultative process, identifies two urgent and immediate priority actions that consist of (a) improving community resilience to climate change through the development of sustainable rural livelihoods, and (b) improving agricul- tural production under erratic rains and changing climatic conditions. The proposed LDCF project addresses these priority actions by implementing climate change adaptation measures to improve resilience and adaptive capacity in vulnerable districts in Malawi. It builds on the baseline AfDB development project Smallholder Crop Production and Marketing, which has two main components: irri- gation development and farmer support. The NAPA component, financed by the GEF LDCF grant, will address the impacts of climate change by supporting the following: I Investments aimed at improving agricultural, land management, and natural systems, as well as rural livelihoods through targeted, on-the-ground adaptation interventions, and through fostering adaptation of individuals, communities, and the private sector. I Climate risk management, including plans, policies, legislation and regulations, and resource allocation; institutional coordination; generation and tailoring of knowledge on climate risk management for specific user groups (particularly in the context of the invest- ment component); and awareness raising. The project is targeted on strengthening the productive capacities of vulnerable communities, securing their livelihoods against the adverse impacts of climate change, and sustaining poverty reduction. R E S U LT S O F T H E C E I F A N D R E L AT E D C L I M AT E C H A N G E S T R AT E G I E S 39 4: THE WAY FORWARD The Collective Ambition of the MDBs Based on their individual and collective experiences in imple- objectives of these programs. The MDBs would support this menting the CEIF, the MDBs are in the process of refining and country led approach through finance, technology transfer, and deepening their climate change interventions to reflect capacity building. Success in this endeavor will also require the emerging global priorities. This includes scaling up current development of enhanced MDB assistance products, significant and developing new activities with respect to access, mitiga- additional increases in the staff resources devoted by the MDBs tion, and adaptation. Much of this new agenda can be accom- to this effort, and further improvements in the way in which plished through the existing assistance instruments and they work together. These issues and plans are discussed in resources already available to the MDBs. However, to support more detail below. further scaling up, it is also critical that they have access to On the assumption that the above plans are realized the additional sources of targeted concessional finance if they are MDBs would expect to see a continuing and substantial to maximize their impact on the reduction of carbon emis- growth in their collective CEIF and climate change related sions in their client countries. lending and investment programs, including their energy The overall ambition of the MDBs going forward can be sum- access and low-carbon portfolios. These are summarized in marized as a logical evolution of their climate change agendas. table 1. It is important to emphasize that all the MDBs' public In this process, the emphasis shifts from broad global aspira- and private sector lending and investments programs are tions toward a much more explicit focus on assisting each of demand led and are ultimately determined by client govern- their developing and middle-income country clients integrate ments and private investors. The numbers given below are climate change issues, including adaptation and the identifica- projections not targets. They are based on requests and activ- tion of low-carbon growth opportunities, into their develop- ities currently in the pipeline and as such may be subject to ment programs while being careful to keep the focus on the key significant changes. Access Despite the progress made by the MDBs in improving energy public services. The inability to meet basic household needs access, power development, particularly in Africa, continues to through simple lighting further diminishes social welfare. represent one of the most difficult infrastructure challenges. The Given recent levels of growth in GDP and accompanying elec- shortcomings of the power sector are manifold: insufficient tricity demand of 5 percent per year or more in many SSA coun- investment in generation capacity, transmission systems, and dis- tries, generation capacity needs to expand by about 4 GW per tribution grids; poor efficiency and reliability of existing supply year, but only about 1 GW is being added annually. Serious systems; and high costs of service. The resulting low reliability of drought in many countries has reduced hydropower genera- electricity supply negatively impacts business activity, through tion, and inadequate maintenance and reliability of power lower productivity and competitiveness, as well as the delivery of 40 JOINT MDB REPORT TO THE G8 ON THE IMPLEMENTATION OF THE CLEAN ENERGY INVESTMENT FRAMEWORK (CEIF) AND THEIR CLIMATE CHANGE AGENDA GOING FORWARD Table 1: MDB CEIF/Climate Change Lending/Investments ($ billion) 2003/05a 2006 2007 2008 2009 2010 Energy Lending/investments 6.0 9.4 10.0 13.8 15.7 16.2 Total cost of projects/ 17.6 28.1 24.9 35.8 39.5 42.4 programs supported Energy Accessb Lending/investments 1.3 2.0 2.4 4.4 5.3 5.8 Total cost of projects/ 3.4 5.5 7.5 12.2 14.9 17.4 programs supported Low Carbonc Lending/investments 1.9 3.7 4.7 7.6 9.4 10.6 Total cost of projects/ 7.9 16.8 15.4 28.6 36.2 41.3 programs supported CTFd Total cost of additional projects/ n.a. n.a. n.a. 9 15 programs assuming CTF materializes n.a. Not applicable. Note: The numbers for EIB in this table include only EIB lending/investments to middle-income and developing countries outside the EU. Adaptation investments are excluded. a. Annual average 2003-05. b. For countries eligible for access to the soft loan windows of the MDBs, these include all generation, transmission, and distribution projects, since they are all needed for increased electrification. For the other developing countries, only projects specifically aimed at increasing electricity access, such as rural electrification, are included. c. Low-carbon projects include RE projects (including all hydropower projects), EE (including EE resulting from investments in water sector, mass transit, and industrial investments), power plant rehabilitation, district heating, biomass waste, gas flaring reduction, high-efficiency, coal-fired thermal plants (supercritical and ultra-supercritical), methane capture and reduction, and forestry. d. This assumes that $1.5 billion of CTF will be committed in 2009 and $2.5 billion will be committed in 2010. systems has exacerbated the shortfalls in supply. Load-shed- diseconomies of scale. Many are landlocked, which further ding and unplanned power outages are frequent across the increases fuel and other costs. Even though tariffs are high com- continent. African manufacturing enterprises report an average pared to other developing countries, averaging about $0.13 per of 56 days of outages per year, and sales losses of 5–6 percent kilowatt-hour. In most cases, this barely covers operating costs and more because of power shortages. Many firms must oper- and leaves little cash flow available for investment in expansion. ate their own generators at costs of around $0.50 per kilowatt- Even though there is room for tariff reform in many countries, hour, and the cost of emergency power supplies has become a issues of affordability and political pressures have meant that major burden to a number of countries. very few utilities have tariffs that reflect long-term costs. Poor financial performance and high costs in many power sys- The severe power shortage gripping the subcontinent during tems have hampered their ability to extend their distribution the last two years has further threatened sector outcomes. A systems and impeded the affordability of electricity to lower combination of oil prices at historical highs and drought- income levels. Most of SSA's power systems and generating induced hydrological stress has exacerbated existing supply units are small by international standards and have substantial constraints. The focus of policy makers, for example, Ghana, has T H E WAY F O R WA R D 41 recently shifted to alleviating the immediate power crises. The sector participation in some projects, the results have been WBG has reacted by reallocating its resources to meet this chal- mixed and uneven across the continent. It has been become lenge, assisting several countries with financial support for apparent that the types of reforms pushed during the last emergency measures, such as in Senegal, Sierra Leone, and 10–15 years have been problematic in many countries, particu- Uganda. The combined effect of these funding shortfalls and larly those with small systems and inadequate investment envi- power supply shortages in many countries, as well as weak ronments. Greater pragmatism is called for, and a recognition planning, policies, and capacity has meant that the goal of that power systems dominated by the public sector are likely to increasing access is being seriously threatened. prevail in most of SSA for some time. While it is too early to conclude that the objectives of the Fresh approaches are needed to engage the private sector, and Action Plan to increase modern energy access cannot be to address the capacity and performance problems of the SSA achieved, indications to date are that the earlier targets will power utilities. Some power companies have reasonable levels need to be scaled down unless and until concessional funding of performance, but more common are those with frequent and private investment are scaled up at least to the levels fore- outages, high losses, low collection rates, other inefficiencies, seen in the plan. China, a major new actor in the sector, has and an inability to contribute meaningfully to future investment committed very large amounts of funding in a number of from cash generation. While management contracts have had countries, but it remains to be seen how quickly project imple- mixed results, and privatization has been very limited, there are mentation will occur. More recent analysis indicates that the lessons to be learned and applied that might work more effec- increase in required funding foreseen earlier to about $4 billion tively in a larger number of countries. annually is an underestimate, given the recent investment A concerted effort is required on the part of governments, utili- shortfalls and widespread increased rates of growth in demand ties, donors, private investors and regional organizations to and increased equipment costs. Much more work needs to be address the opportunity of large regional projects with the done with the donor community, private investors, govern- accompanying cross-border transmission interconnections. ments, and utilities to determine how and whether the While such hydropower prospects as Inga in DRC and Gilbe required levels of funding can be achieved. Gibe in Ethiopia and gas-based systems in Nigeria and else- While the earlier premise that the key ingredient to mobilizing where have been discussed for years, a concerted international funding was getting the sector policy and governance frame- effort to bring these into fruition could help to transform the work right, this has proved to be somewhat challenging to African power sector, supplying large amounts of power at implement. Too many countries simply do not have the gover- lower costs than today's expensive systems, and doing so with nance and capacity to establish satisfactory policy frameworks substantially lower carbon emissions that the current tendency and an attractive environment to attract increased conces- toward more fossil-fueled capacity would produce. sional funding or private investment in the required time Contrary to the original expectations, financial instruments exist- frame. This means that the MDBs' other donors will have to be ing at the time of the Action Plan have not proved adequate to more pragmatic and flexible in their approach, appreciating meet the requirements. While the MDBs demonstrated that their that developing the requisite investment climate will likely take mix of instruments including grants, credits, partial risk guaran- longer than expected. tees, MIGA, the IFC and carbon funds can be deployed to great The prevailing view held during the 1990s and early 2000s that effect in many circumstances, it is evident that new financing the private sector should become the main source of power sources and tools need to supplement this mix. There are investment funding has simply proved to be unrealistic in most prospects for bonds in some countries and new carbon facilities of SSA. While there has been a substantial increase in private that could help to fill the financing gap that still persists. 42 JOINT MDB REPORT TO THE G8 ON THE IMPLEMENTATION OF THE CLEAN ENERGY INVESTMENT FRAMEWORK (CEIF) AND THEIR CLIMATE CHANGE AGENDA GOING FORWARD Both the AfDB and the World Bank plan to further scale up their averaged around $2 billion per year. It is promoting a doubling of energy access activities, as well as to explore new approaches these resources to $4 billion per year. At this level of financing, designed to tackle the issues highlighted above. Specifically, the however, the AfDB has noted that access to electricity in SSA World Bank is updating the Action Plan that was incorporated would increase from the current level of about 24 percent of into the CEIF framework approved in March 2007, and the the population to 35 percent in 2015 and 47 percent in 2030. AfDB's own CEIF, of which increased energy access is a signifi- While realizing that the 2015 target may be somewhat ambi- cant component, was approved by its board in March 2008. The tious, reflecting the realities highlighted above, the AfDB key factors to achieving success lie in simultaneously tackling believes that the 2030 target is too timid, and has urged that power availability, the extension and reliability of distribution net- it be revised upwards. They note that the latter target com- works and affordability. Africa's formidable energy resources pares unfavorably against a projection of 50–55 percent of SSA remain largely untapped: less than 10 percent of potential population dwelling in urban areas by then. It would mean hydropower capacity has been exploited (the AfDB estimates that a large segment of the urban population would still lack that at least 50 percent of SSA's electric power needs under the access to electricity in 2030, or very little change would have scenario of attaining universal access by 2030 could be supplied taken place in the rate of rural electrification. These scenarios from hydropower); the reserves-to-production ratio for natural may thus be reconsidered. gas and coal are 79 years and 192 years, respectively; and the In developing Asia, there are large variations in access among energy dissipated via gas flaring alone would be enough to meet countries, for example, electricity access rates are 20 percent in half of the continent's energy demand. Most countries, if acting Cambodia, 56 percent in India, and 99 percent in China. The in isolation from their neighbors, would be forced to develop ADB has been very active in providing financing for rural electri- assets that would be higher in cost than regional projects fication projects and policy advice especially on subsidy and because of the modest size of their markets. To reduce costs, the cost recovery mechanisms. As highlighted in section 3 above, MDBs are increasingly emphasizing the need to develop the ADB has been particularly active in expanding access in resources as regional projects, reducing unit costs of supply and rural energy. The ADB intends to further drive this agenda making electricity access a real and affordable prospect. In paral- through its recently approved Energy for All initiative. The initia- lel, adequate investments in deploying wind, solar, and biomass tive will make available more than $2.4 million of funds to devel- resources are also required to reach isolated communities. op new approaches and methodologies for promoting access The World Bank estimates that combined concessional of the poor to reliable and affordable modern energy services, resources from bilateral and multilateral financing institutions in and then to scale up to levels that can be supported by conces- support of energy sector operations in SSA in recent years have sional funds. Mitigation Assisting Clients in Integrating Low-Carbon Growth Africa, which account for more than half the GHG emissions of Opportunities into Their Sustainable Development the developing world, is well under way. It is important that MDB Strategies support for these efforts be progressively expanded to other key The identification of low-carbon growth opportunities within developing countries while at the same time not undermining their own sustainable development strategies is a key challenge the principle of country ownership. In this connection the EBRD facing the developing countries. As noted in section 3, country- has been developing comprehensive approaches to major GHG- led work on these issues in Brazil, China. India, Mexico and South emitting countries in its region of operations, including Ukraine T H E WAY F O R WA R D 43 and Kazakhstan (in addition to Russia), and the World Bank has Fine-Tuning the MDB Mitigation Strategies initiated similar work in Indonesia. Candidates for the next round As the lessons of experience of the post Gleneagles period include Colombia, Egypt, Pakistan, Thailand, and Vietnam, become apparent, each MDB has been engaged in a continu- among others. The ADB has also been assisting Indonesia, ous process of refining their climate change interventions. For Pakistan, the Philippines, and Vietnam on key aspects of this example IDB is focusing implementations and translating its work, particularly with respect to EE opportunities. IDB is work- broad targets into specific programs and projects; the ADB is ing on similar issues in Chile and Nicaragua, in addition to Brazil striving to transform its project pipeline to help its DMCs and Mexico. Given the need to avoid duplication and ensure move toward lower-carbon economies, considering ways to maximum leverage of limited resources, particularly with respect leverage better the resources available from its public and pri- to scarce staff expertise, the MDBs are committed to working vate windows, and targeting the removal of barriers to the closer together in assisting their clients to integrate climate introduction of cleaner technologies in its client countries change into their development strategies. and; the EBRD is focusing on further scale-up, as well as inno- vation in both instruments and new thematic areas. Many of It is important to note that some of this analytical work has already these emerging perspectives are discussed in section 3 above, achieved some early results. An important recent set of findings but some additional priorities going forward are highlighted indicate that there may be considerable “no-regrets� potential for below. GHG emission reduction by improving the effectiveness of the existing assets through better use of technology, improved financ- Since launching their new initiatives, the MDBs have shown that ing capacity in the sector and institution-building. For example, if a significant scaling-up of investment activities can be achieved the bottom 70 percent of the thermal power plants in India were in a short time. Since many of the opportunities for climate operating at the same efficiency as the top 30 percent, emissions change mitigation are accessible using the MDBs' existing and would reduce power sector CO2 by 16 percent. Taking assets out proven instruments, future activities will focus on opportunities of service to upgrade them is not feasible in states that face load to further scale up the deployment of these instruments, thus shedding problems. Therefore a three-pronged approach is being promoting the transition to lower-carbon economies through developed in which (a) improving the financial health in the sec- demonstration of energy savings, overcoming of market barri- tor to enable accelerated implementation of new assets will ers, and mobilization of the private sector. In the context of ris- decrease emissions from existing plants by enabling better main- ing energy prices, both as a result of global market trends and tenance practices and decreasing their duty cycle; (b) rehabilita- as a consequence of continuing reform driving down subsidies tion of existing assets that still have more than 10 years operation and internal energy market distortions, industrial EE is expected left; and (c) replacing plants coming near to the end of their eco- to remain a strong activity area, particularly for the EBRD and nomic life with new, more efficient plants. The World Bank is cur- the private sector arms of the other MDBs. The World Bank is rently preparing two such pilot projects in India and China with also consulting with other MDBs and development partners to GEF support, with opportunities for further scale-up once the new identify key gaps and barriers in the financial architecture for CTF, under discussion with donors, is operational. Within the over- low-carbon and climate-resilient investment, and to explore all LCGS framework, the MDBs will continue to highlight the key ways to make more effective use of existing instruments to policy issues that must be addressed by governments in order to finance climate-friendly investment. unlock the potential for climate change mitigation investments, particularly from the private sector. These include cost reflective The scope for further EE investment in district heating, housing, and nondistorting pricing that incentivize energy saving, appro- and water systems also remains significant. For example, build- priate regulatory frameworks that promote RE, realizing opportu- ing on its strong network of relationships with municipalities nities within the Kyoto carbon trading regime, standards and across the Eastern European region, there is a good potential to labeling, incentive schemes and, appropriate housing legislation. further increase the EBRD's investment in municipal infrastructure 44 JOINT MDB REPORT TO THE G8 ON THE IMPLEMENTATION OF THE CLEAN ENERGY INVESTMENT FRAMEWORK (CEIF) AND THEIR CLIMATE CHANGE AGENDA GOING FORWARD EE, provided that appropriate grant support remains available, ects. Order books for the main international suppliers for these particularly in the poorer countries of the region. The buildings advanced technology plants are already filled for several years. sector currently accounts for around 40 percent of global total For existing capacity, the MDBs will continue to emphasize final energy consumption. It has been identified as offering the improving the net efficiency of the power plant focusing on its largest single potential for EE as much of this consumption can operations and maintenance. For investment projects in the be avoided through the use of currently available, commercial- medium to longer term, the MDBs will attempt to actively pro- ly viable, EE technologies. However, achieving this huge poten- mote the transfer of advanced technologies, particularly for the tial is not straightforward because of the highly disaggregated larger plants where these processes are more attractive. nature of investments consisting of thousands of individual Another possible initiative is the development of a joint pro- projects, and a number of intricate barriers to investment that gram designed to support the development and commercial- need to be overcome. Another critical issue is the principal ization of IGCC with CCS. In this connection it will be vital to agent problem in which the owner of the assets is often not the ensure that the lessons of experience gained by the EIB from its same entity that pays for operating costs. However on average, CCS projects be transferred to the clients of all the MDBs. energy savings of around 50 percent can be achieved through While there is significant scope for the development of RE, the renovation and thermal modernization of these buildings. including hydropower, wind, geothermal, and biomass, overall Virtually all the MDBs are therefore planning to strengthen their RE investment and financing, with the exception of hydropow- interventions in this area, including channeling additional fund- er in some countries, remain very limited. It is therefore impor- ing through financial intermediaries (ADB, EBRD, IFC, and IDB), tant that the MDBs continue to innovate in these areas. For and renewed support for ESCOs whose performance across the example, in most EBRD countries with significant forest cover emerging markets and the developing world has been uneven (Albania, Belarus, Bulgaria Bosnia and Herzegovina, Czech to date. Republic, Croatia, Estonia, Georgia Latvia, Lithuania, Poland, There appear to be significant opportunities for the MDBs to Russia, Serbia, Slovakia, Slovenia, and Tajikistan, and with forest further leverage their collective efforts on thermal power and to cover exceeding 30 percent), the average use of biomass is less help their clients achieve significant GHG reductions per than 1 percent of primary energy supply (IEA 2007)—this com- megawatt. With the aging of power network infrastructure, pares with countries like Finland and Sweden with 15–20 per- demand on the MDBs for rehabilitation and in certain cases cent. There is thus great potential for increased use of biomass. replacement financing is likely to increase (particularly in Barriers to growth in the sector, including reluctance among Eastern Europe, the FSU and South and East Asia). The role of major energy and fuel suppliers, a lack of focus by vehicle and coal as a major energy source for power generation, particular- boiler on the sector; lack of appropriate policies, and political ly in Eastern Europe, India and China, is likely to remain signifi- uncertainty about how to support the sector; technological and cant and in many cases to increase as a result of rising energy process costs that make biomass uncompetitive compared to security and costs concerns. A shift to ultra-supercritical boilers conventional fossil-based sources; lack of awareness among would allow efficiency increases to rise from a current average consumers of the benefits of biomass; and fuel chain complex- of about 34 percent for a new conventional power plants to ity resulting from logistical problems in collection, distribution, about 43 percent with significant benefits in CO2 reduction and and storage of biomass fuels. Furthermore, while the uptake of reduction of other emissions. Advanced technologies may per- solar panels of solar thermal or PV technology has so far been mit efficiencies of up to 50 percent. The investment capital cost very modest in those countries with good grid access—for increment of a shift from conventional to supercritical is esti- example, Eastern Europe and China—the prospects for these mated at around 5 percent. Furthermore, the power equipment technologies in those countries with low grid penetration—for manufacturing industry is experiencing a substantial increase in example, SSA—are promising in some markets, even at current their turnover, making them extremely selective on new proj- investment costs. The scope for additional interventions by the T H E WAY F O R WA R D 45 MDBs in these areas, particularly if more concessional financing they need access to further capital in order to grow. For the first becomes available, is significant. time in nearly 10 years, the Bank invested in 2006 in a venture capital fund as the industry slowly emerges in the region. The Related to the above, the MDBs are also increasingly focusing EBRD hopes that this trend would lead to an expansion of on the development of strategies designed to overcome the clean technology-related investments. The key market con- barriers to accelerated deployment of advanced clean energy straint expressed by RE developers appears to be on early technologies in developing countries. The World Bank has stage project development funding. Accordingly, a fund that recently completed a report that examines the need for new can invest in multiple small development stage investments clean energy technologies to address climate change, the bar- would allow the Bank to play an active role in this segment of riers to accelerated commercializing such technologies, and this nascent market. examples of novel approaches to innovation from nonenergy sectors that could be applied to clean energy. The Bali Action The AfDB proposes to create a multidonor funded Clean Energy Plan, the IPCC Fourth Assessment Report and the Stern Review Access and Climate Adaptation Facility for Africa (CECAFA). This make clear that a renewed push on clean energy technology facility will be designed in such a way as not to duplicate other development is essential to stabilize and then reduce anthro- international and regional funds (like the Climate Investment pogenic CO2 emissions. Activity in this area had fallen consid- Facility and Congo River Basin Fund that are currently being erably after peaking in the early 1980s. However, in recent established to address similar issues) but will be complementa- years, this trend has reversed as climate fears and high oil ry. It is expected that the CECAFA will be one of the financing prices are rapidly increasing interest in new, alternative mechanisms for channeling some of the resources from these sources of energy. This “green tsunami� of public and private funds to African countries. The CECAFA will do the following: investment nevertheless faces a number of barriers, among I Support suitable activities in all the Bank's RMCs on key issues them an uncertain carbon price, difficulties adapting and dif- in clean energy access and climate adaptation in Africa. fusing technologies in the developing world, and the “valley of death� wherein technologies languish whose scientific proof I Create a critical mass of technical expertise in the Bank. of concept has been proven by basic research, but which are I Focus particular attention on the challenge of overcoming still viewed as too risky by the private sector to take up. In rural energy poverty by sustainably harnessing local RE order to inform novel and creative approaches to clean ener- potential. gy research, development, and deployment (RD&D), the World I Ensure flexibility in order to allow the facility to finance activ- Bank report examined four case studies of successful technical ities of a wider range of stakeholders, to process smaller- innovation from nonenergy sectors (vaccines, biotech, agricul- scale operations, undertake riskier piloting operations, and ture and software) that have overcome barriers similar to disburse at a faster rate than are possible under the principal those faced in clean energy. financing windows of the Bank Group. I Target awareness raising, economic and sector studies, techni- The EBRD is also exploring novel approaches in this area. The cal assistance, advisory services, internal and capacity building, development of clean technologies in the Bank's region of and project preparation financing for clean energy strategies. operations can provide a relevant input to promote accelerated I Provide assistance will be provided on integrating clean EE gains and carbon intensity reduction. There is rising demand energy access in national poverty reduction strategies and for clean technologies in the eastern European region, which regional development strategies. already has the needed strong engineering basis to develop I Provide support to project developers in RMCs (including innovative technological solutions. However, there is a funding local communities) to strengthen their capacity to formulate gap for these technology based businesses. There are already CDM-eligible projects. many such companies active in the private sector; however, 46 JOINT MDB REPORT TO THE G8 ON THE IMPLEMENTATION OF THE CLEAN ENERGY INVESTMENT FRAMEWORK (CEIF) AND THEIR CLIMATE CHANGE AGENDA GOING FORWARD I Continue the mandate of the FINESSE program in support of the mainstreaming of RE and EE and energy poverty reduc- As noted in section 3 above, the transport sector is a major tion strategies in the development plans of RMCs and in source of carbon emissions in the developing world. Given the operations of the Bank Group. critical impact of road transport on climate change in Asia, the ADB, as highlighted above, has completed an important ana- Finance for the fund is being sought from the Bank Group's lytical paper on this issue and is developing an action plan regional and nonregional shareholders. In addition, considera- designed to address the problem; however, implementation tion is also being given to inviting major private sector corpora- has only just commenced. Given the significant investment tions and nongovernment entities to participate on a selective made over time in the cities of most of its countries of opera- basis. The funding structure and the governance of the facility tions, the EBRD is also giving particular attention to the devel- will provide not only oversight, but also a platform upon which opment of public transport rehabilitation projects that result to build effective partnerships to tackle the constraints to ener- in both increasing the EE of public transport networks and gy access, clean energy and low-carbon development, and providing a lower carbon urban transport alternative. The poverty reduction in Africa. World Bank has also updated its transport strategy to fully reflect the new climate change priorities. However, it needs to The ADB is also developing a proposed Future Carbon Fund be emphasized that most of the MDBs have only begun to (FCF) designed to leverage post-2012 carbon market credits for tackle this agenda item. In light of the enormity of this prob- clean energy projects through upfront financing using the CMI lem, the difficult policy issues involved, and the formidable model. This holds significant implications for investment, since challenges of implementation, the MDBs are committed to a typical wind or hydropower project will continue to generate individually and collectively focusing their professional expert- emissions reductions well beyond 2012; the combination of the ise on this subsector, with a view to raising its priority and existing APCF and proposed FCF could conceivably finance developing effective interventions. between 20 percent and 40 percent of total project cost. Despite the importance of deforestation as a major contributor to For IDB, SECCI has proven to be an excellent generator of new GHG (close to 20 percent of the total emissions), the MDBs' assis- operations and a useful mechanism to strengthen existing tance programs in this area remain quite modest. Reducing the operations. During the first quarter of 2008, the demand for rate of deforestation is an exceedingly complex policy, regulatory, operations with SECCI components was high, and has already governance, and financial challenge that the traditional products reached 60 pipeline operations—all approved during the of the MDBs are not necessarily well suited to meet. However, course of this year. Throughout the course of 2008, SECCI will be given the importance of urgently tackling this global issue, the expanding the ways in which it supports national Banks (such MDBs, particularly those with the most seriously affected client as Bancomext-Nafin in Mexico), and regional Banks (such as countries, are committed to substantially raising the priority they Brazil's BDMG), and private Banks (Bancolombia, Colombia). attach to reducing the rate of deforestation and to articulating a Funding will be provided for a number of activities, including consistent set of remedial strategies and programs. The advent of pre-investment studies to identify sustainable projects, EE eval- the FCPF will hopefully provide an opportunity to make further uations, carbon finance, and technical assistance for compo- progress on this cooperative endeavor. nents within the project cycle. T H E WAY F O R WA R D 47 Adaptation As indicated in section 3, the work of the MDBs on adaptation climate change, the AfDB has initiated a process to develop a to climate change remains quite modest, relative both to their comprehensive CRMA. An approach paper was discussed by mitigation activities and the global adaptation challenge. the Bank's board in early April, and the new strategy is expect- Indeed, the MDBs are only now staffing up in response to these ed to be finalized by October 2008. The approach paper empha- demands. This is not surprising, given that adaptation has only sizes country ownership and alignment, integration of current recently been recognized as a major global priority and that the and future climate risks, selectivity and complementarity, the challenges of adapting to climate change are both complex importance of playing a catalytic role, and partnerships at the and not yet fully understood. Moreover, the impact of climate local and international level, particularly with the other MDBs. change varies significantly from one region to another. For The strategy is expected to stress the need to ensure that Bank example, the clients of the AfDB, ADB, and IDB will be far more Group operations, starting with those that are most climate sen- seriously affected than those of the EBRD. The current food price sitive; have sufficient resilience to projected climate change; crisis and the expected early impacts from rising temperatures have support for RMCs capacity building and awareness raising on agricultural production in developing countries underline of country-specific vulnerabilities, climate risks, threats, and the need for prompt adaptation interventions that will avoid or opportunities; support for RMCs to implement effective CRMA at least cushion the adverse impacts on poor communities. In in national planning and to develop sectoral strategies for cli- light of these realities, the MDBs, especially the World Bank, ADB, mate-sensitive sectors, such as agriculture, natural resources IDB, and AfDB, are developing a more ambitious and coherent management (including reforestation and afforestation), health set of adaptation products (investment and policy) designed to and human settlements, water resources, urban and other key leverage each other's strengths and build the needed staff infrastructure and disaster risk reduction, and the integration of capacities. For example, the ADB has recently initiated these activities, to the extent possible, in regular Bank opera- Promoting Climate Change Adaptation in Asia and the Pacific, a tions. The AfDB is also reviewing its assistance instruments and technical assistance project that is designed to mainstream business processes to ensure that they are supportive of the adaptation into investment planning, and to broadly dissemi- evolving strategy. nate the results to member countries and donors so that a As noted above, the AfDB is currently preparing a formal pro- strengthened international community response for adaptation posal for the establishment of CECAFA to support both its miti- can occur. In parallel, the ADB is also developing measures to gation and its new adaptation agenda. By 2010, the bank integrate risk management and adaptation concerns into coun- expects to be able to provide financial support for 5–10 climate- try and sector strategies The EBRD has also begun a process of adaptation activities per year in all the WBG's RMCs. Eligible evaluating the potential impacts of climate change on its coun- adaptation activities will include the following: tries of operations and assessing operational implications, both in the areas of environmental due diligence and strategic envi- I Increasing public awareness of vulnerability to country-spe- ronmental assessments and with regard to operations and cific climate change, including support to the Action Plan for instruments. The EIB has also recently issued a new statement Africa on Climate Information for Development Needs on its Environmental and Social Policy (Principles and (ClimDev Africa) jointly implemented by UNECA, the AfDB, Standards) that commits EIB to climate proofing projects partic- and GCOS, under the leadership of the African Union. ularly sensitive to climate change. The World Bank has also initi- I Building or reinforcing private sector and public institution- ated a global study designed to better understand the econom- al capacities at community, national, and subregional levels ics of adaptation to climate change (see box 13). to manage increasing climate variability and extreme Reflecting the reality that Africa is the most vulnerable region to weather events—including emergency response logistical 48 JOINT MDB REPORT TO THE G8 ON THE IMPLEMENTATION OF THE CLEAN ENERGY INVESTMENT FRAMEWORK (CEIF) AND THEIR CLIMATE CHANGE AGENDA GOING FORWARD Box 13: The Economics of Adaptation to Climate The World Bank in partnership with the British and Dutch governments is conducting a worldwide study on the economics of adapta- tion to climate change. Building on significant knowledge and analytical work on adaptation measures in several case studies that include Bangladesh, Brazil, Ethiopia, Ghana, Mozambique, Peru, and Vietnam, the study will provide recommendations and inform the international development community in the context of the United Nations Framework Convention on Climate Change 15th Conference of the Parties in Copenhagen in December 2009. The report aims to help policy makers in developing countries understand better the risks and tradeoffs posed by various adaptation measures. A prior understanding of how to estimate the costs and benefits of adaptation measures and how to prioritize policies that embrace both development and climate change issues in the context of uncertainty is a crucial requirement for integrating robust adap- tation strategies in the development plans and budget management of developing countries. A core team will be responsible for reviewing existing analytical and practical knowledge and methodologies on adaptation. This team will work closely with local institutions and experts who will be responsible for carrying out the country case studies. The core team will provide overall support and technical assistance, and will ensure consistent approaches. Both microeconomic and macroeconomic per- spectives will be used, based on national, sectoral, and local level of analyses, as well as integrated assessments. Lessons from the coun- try case studies will be generalized to other developing country contexts. Given the urgency of both industrial and developing countries to find adaptation experience from the perspective of developing coun- tries, the study will inform further new initiatives in respect to the adaptation agenda. capabilities, strategic stockpiles (such as food and medi- I Climate risk management in Bank Group projects, programs, cines), disaster insurance, and reinsurance. plans, and strategies. This includes, on the one hand, due I Mitigating the increasing threat of vector and waterborne diligence in AfDB Group projects, and on the other hand, diseases engendered by rising surface temperatures—by integration of climate risk management in Country Strategy expanding the Bank Group's Rural Water Supply and Papers and sector strategies. For projects, systematic climate Sanitation Initiative (RWSSI), financing related activities risk management should be included in the preparation, also under the African Water Facility programs, and includ- resulting in all Bank Group operations having sufficient ing support to fight malaria and other waterborne dis- resilience to current climate variability risks and projected eases. climate change threats and making effective use of oppor- tunities. Over time, this should become systematic good I Countering rising stress on ecosystems and natural practice in all operations, but in the short term, the Clean resources, including biodiversity support to concerted Energy Access and Climate Adaptation Fund for Africa pro- efforts to preserve coastal mangrove forests and other wet- gram (CECAFA) will support building tools and best prac- land ecological systems, and efforts to arrest deforestation of tices in selected projects, including the following: mountain slopes and soil erosion. • Retroproofing previously approved operations still under I Protecting against the increasing threat of extreme weath- implementation or post completion (where still practical er events and the flooding of coastlands and small islands and beneficial. from the rising sea level, with accompanying loss of infra- structure; supporting research into more ambient, resilient, • Systematic climate risk management in new operations, safe, energy- and water-efficient housing design and build- leading, in high-risk cases, to modified investments, ing materials; reviewing possible defenses, for islands and including climate risk management components addi- coastal lands, against flooding and the rising sea level. tional to standard project design. The project-level climate T H E WAY F O R WA R D 49 risk management would be implemented through a two- Initial World Bank estimates (spring 2006) suggested that step process: (a) initial—also simple and cheap—tool- $1–4 billion per year would need to be directed to adapta- based climate risk screening, possibly building on the tion actions to “climate proof� global concessional finance World Bank's efforts in this area; and (b) in-depth risk assess- for development, which is an order of magnitude greater ment for projects or components at substantial risk (often than current funding levels. During 2007 a study coordinat- using specialized consultants). ed by the UNFCCC secretariat of the investment needs for mitigation and adaptation in 2030, it was estimated that the To some extent, the MDBs' overall progress on implementing adaptation needs would be $28–67 billion. Other groups widespread adaptation has been hindered by the lack of sound using slightly different approaches and assumptions to get estimates of the scope of the task and the financial implications. compatible estimates. With the initial support of the Developing countries are often unwilling to borrow for discrete Netherlands and the United Kingdom (other donor coun- adaptation activities, and some appear to be reluctant to act tries have expressed interest), the World Bank is leading a until resources that are clearly “additional� to ODA budgets are Global Economics of Adaptation study to “understand how made available for the imposed costs of adaptation. Although to identify and prioritize adaptation measures and to esti- most donors agree with the need to support adaptive actions in mate the financial costs of ensuring national development the most affected developing countries, progress has been dif- plans are climate resilient.� The study will focus on several ficult, since there were no clear estimates of the likely scale of countries and will be executed in cooperation with several the financial support. There is also still little agreement over research organizations in both developed and developing what is meant by the “costs of adaptation.� It is clear that the countries. costs of some development actions will increase as a conse- quence of climate change (for example, greater expense on In light of the above, the World Bank is placing priority on coastal defenses, and more damage from extreme events). The piloting a comprehensive and integrated adaptation planning capacity building and analyses required to factor in climate process in a select number of developing countries over the change are additional and will require new resources, although next few years, with donor support under the proposed CTF. these are relatively modest (a few tens of millions of U.S. dollars Such trials will require the full engagement of all levels of gov- per year). The bulk of the new investment will be needed to ernment within the selected countries and significant modify and expand infrastructure (existing and planned), to resources to not only implement fully integrated planning, but make changes in livelihoods, such as changes in farming prac- to support immediate actions that are identified. Resources tices, and even to facilitate migration where that proves neces- would be made available to support governments to assess sary. However, specific adaptation actions would usually only be risks and plan for cost effective climate resilient development; implemented where benefits outweigh the costs associated to develop comprehensive, nationally owned frameworks, with alternative actions or inaction. Thus there is still disagree- integrated into PRSPs and other core planning processes; and ment over how these additional costs and investment flows to strengthen institutional arrangements. Lessons learned and should be calculated. Also, many agricultural systems and much knowledge generated through the pilot program should sup- infrastructure are not adequately adapted to current climate port programs under the CTF, as well as IDA and other highly conditions and the question arises as to whether making up this concessional finance and grant resources through normal aid “adaptation deficit� should be included in cost estimates? channels. 50 JOINT MDB REPORT TO THE G8 ON THE IMPLEMENTATION OF THE CLEAN ENERGY INVESTMENT FRAMEWORK (CEIF) AND THEIR CLIMATE CHANGE AGENDA GOING FORWARD Mobilizing the Private Sector Success in achieving a global low-carbon growth trajectory is of reflects the significance of their investments, as well as their course ultimately dependent on climate friendly investments capacity to mobilize concessional funds. The potential role of by the private sector—the expected source of more than 80 new donor funds (see next section) in helping to facilitate percent of investments for climate change mitigation and adap- and leverage climate-friendly private investment will thus be tation according to UNFCCC and other estimates. Given the critical. EBRD's overall mandate, the private sector has been at the core The negative net cost of many EE projects implies that the pri- of the EBRD's approach since the inception of the SEI. Indeed, a vate sector should be financing them once a range of market major contributory factor to the rapid scale-up of the SEI has failures can be overcome. Policy reform can deliver important been its business-driven imperative. For example, in 2007, 84 gains here. Yet mobilizing the private sector for such measures percent of the EBRD's investments of €1 billion under its SEI remains problematic, as it does for those measures where car- went to the private sector. The IFC and the private sector arms bon abatement carries a financial cost. The role of the MDBs is of the other MDBs are now expanding their own programs to important in opening new markets by addressing barriers to respond to the private sector challenge. For example, the IFC is entry and demonstrating technologies and practices, as well placing increased emphasis on “cleaner� production in its sup- as overcoming private sector perceptions of risk, the transac- port for general manufacturing projects, an initiative that to tion costs of smaller projects, and behavioral inertia and low some extent mirrors the EBRD's success in identifying energy prioritization of such investments. The EBRD, the IFC, and the efficiency opportunities early in the project cycle. private sector windows of the other MDBs are therefore A successful and large-scale private sector approach in turn strengthening their ability to take on these challenges in the requires a continuing focus on country policy and regulatory following ways: regimes to ensure a conducive enabling environment that pro- I Leveraging their clients' own internally generated cash as a vides the needed incentives for low-carbon and climate- complement to MDB finance. resilient projects, as well as specific support for private sector operations. For example, the EBRD has linked its transition ori- I Syndicating their loans to commercial providers of finance. Such syndication introduces the market to new risks and ented investments to policy dialogue with authorities at the types of lending. sovereign and subsovereign levels. The SEI is highlighting the key policy issues that must be addressed by governments in I Increasingly cofinancing with financial intermediaries, which order to unlock the potential for climate change mitigation allows the aggregation of small EE projects and builds investments, particularly from the private sector. These include capacity in financial intermediaries who also put their own capital at risk in supporting projects. cost-reflective and nondistorting pricing that incentivizes ener- gy saving, as well as appropriate regulatory frameworks that I Helping their clients to draw on possible sources of carbon promote RE, realizing opportunities within the Kyoto carbon finance. trading regime, standards and labeling, incentive schemes, I Investing in entities—for example, utilities, ESCOs, private and appropriate housing legislation. In a number of countries, companies—in such a way as to strengthen them while the EBRD is developing Sustainable Energy Action Plans for demonstrating the benefits of sustainable energy investments. discussion with the authorities that set out the investment The MDBs thus help to create a demand, both in these entities objectives and key related policy issues. The other MDBs, par- and in others that emulate them, for future financing from commercial sources. Simultaneously, such projects demon- ticularly the World Bank, have also continued to place heavy strate to commercial providers of finance that these invest- emphasis on such policy work in their client countries. The ments deliver returns at acceptable risk. leverage that the MDBs are able to apply on these issues T H E WAY F O R WA R D 51 I Looking at sectors with substantial GHG reduction oppor- initiative, starting in China, to explore opportunities for tunities, but that have not been significant MDB areas of investments in subsectors with significant GHG reduction focus in the past. For example, the IFC is developing a pilot potential. Mobilizing Additional Concessional Resources to Fund the MDBs' Climate Change Agenda While the MDBs have made good progress in implementing The GEF has provided incentives to promote a shift in lower-car- their climate change agenda, the current scale of financial sup- bon technologies through up-front grant financing. Its mandate port is not at the levels required to address the challenges that in the area of climate change provides financing (a) to pilot and lie ahead. IEA's projection of energy investment needs of $22 tril- demonstrate innovative technologies; (b) to remove barriers to lion (in 2006 dollars) from 2006 to 2030 in their Reference transform markets, particularly for RE and EE; and (c) for capacity Scenario split roughly 50-50 between developing countries and building, in particular the creation of an enabling environment, OECD plus transition economies. Roughly half of total invest- including establishment of codes, norms, and standards. However, ments are expected to take place in the power subsector, with there is a need to take the important lessons learned from pilot oil and gas sharing most of the remainder. At roughly $260 bil- and prototype projects and programs and capacity-building lion per year for developing countries' power sectors, the needs efforts, such as those supported by the GEF, to broader programs are considerably greater than for the past decade. Studies that that help reduce poverty, foster growth, and increase energy took place earlier in the CEIF process indicated that financing for access using new low-carbon approaches to development. about half the total needs were readily identifiable with the gap With respect to climate adaptation, demands for additional financing narrowing to about 40 percent in the past few years funding are expected to increase sharply across the develop- because of accelerated investments in China. Recent data indi- ing countries especially as the capacity of governments to pre- cates a further increase in equipment prices, possibly exacerbat- dict impact scenarios with higher confidence is strengthened. ing the financing problem. Such funding will be needed in several sectors, and will put Drawing on the IPCC's models, the World Bank estimated in pressure on the MDBs' existing trust funds and financing part- 2006 that the incremental cost to enable power investments in nerships, for example, those for investments in water services developing countries to reach a low carbon threshold was of to cities and agricultural areas, and for river basin management the order of $30–40 billion per year. Global incremental costs for and disaster-risk reduction. a low-carbon trajectory, including all sectors, are estimated to be $100–500 billion per year. These incremental costs of low- The Proposed Climate Investment Funds Within this context, and recognizing that climate change is cen- carbon investments compare to the CDM market, which was tral to the sustainable development and poverty reduction about $7 billion in 2007, and GEF financing of about $300 mil- agenda, the MDBs, in consultation with developed and devel- lion per year. Over the long term, this gap may be filled by com- oping countries, other development partners, and stakeholders, bination of a growing market for carbon trading and policy are seeking to establish the strategic Climate Investment Funds instruments, such as carbon taxes following a post-Kyoto glob- to mobilize new and additional financing for activities and al agreement. However, in the interim, concessional financing is investments that demonstrate how financial and other incen- critical to catalyze increased flow of commercial capital and to tives can be scaled up to support adaptation and mitigation in support early action by the developing countries to address the a coherent and integrated manner. Recognizing that UNFCCC challenges of climate change. 52 JOINT MDB REPORT TO THE G8 ON THE IMPLEMENTATION OF THE CLEAN ENERGY INVESTMENT FRAMEWORK (CEIF) AND THEIR CLIMATE CHANGE AGENDA GOING FORWARD deliberations on the future of the climate change regime potential for long-term GHG emissions savings. The CTF will do include discussions on a future financial architecture and fund- so by supporting policies, measures, and programs that reduce ing strategy for climate change, the Climate Investment Funds the costs and risks imposed on developing countries by the will be an interim measure designed for the MDBs to assist in fill- adoption of low GHG-emitting technologies. ing immediate financing gaps and building the necessary The CTF would fill a specific financing gap in providing finance knowledge base in the development community. The funds, at more concessional rates than standard MDB terms and at the therefore, will include specific sunset clauses linked to the scale necessary to help provide them incentives to integrate low- agreement on the future of the climate change regime. carbon strategies into their development plans and investment In developing the Climate Investment Funds, the following decisions. The CTF thus responds to the Development principles have been taken into account: Committee's mandate of September 2006, which called for “for deeper cooperation between the World Bank, regional develop- I The core mission of the multilateral development banks is ment banks, and other development partners in their engage- sustainable economic growth and poverty reduction. ment with middle-income countries, and encouraged the World Climate change mitigation and adaptation considerations Bank to develop a menu of options to respond to country need to be integrated into the sustainable development process. demand-driven initiatives for targeted blending of concessional donor support with multilateral development bank loans in cases I Multilateral development banks can and should play a role in of market failure or where there are affordability issues.� ensuring access of developing countries to adequate financial resources and appropriate technology for climate actions. A key feature of the CTF would be its ability to blend financing to I The multilateral development banks should mobilize new tailor terms to a target level of concessionality, which would vary and additional financing for adaptation and mitigation pro- depending on project-specific factors. As noted in the grams to address climate change that are country-led and Development Committee paper, “Strengthening the World Bank's integrated into country-owned development strategies, con- Engagement with IBRD Countries�(2006), in many middle-income sistent with the Paris Declaration focus on country ownership. countries, while multilateral development banks would be ready I The United Nations is the appropriate body for broad policy to provide additional lending for projects and programs related to setting on climate change, and the multilateral develop- the Millennium Development Goals and global public goods ment banks should not preempt the results of climate (such as climate change mitigation activities), governments are change negotiations. Actions to address climate change reluctant to borrow on nonconcessional terms for projects and should be guided by the principles of the UNFCCC. The mul- programs that generate little additional revenue. Concessional tilateral development banks should assist developing coun- forms of finance could help unlock demand for the financing of tries in building country-level knowledge, capacity, and such projects and programs. Blending CTF resources and multilat- development project experience with the feasibility and eral development bank loans could augment the volume of implications of addressing climate change. financing available and tailor concessionality to needs better, with It is proposed that the Climate Investment Funds include a CTF the degree of concessionality calibrated to achieve transformative and an SCF. investments that would otherwise not proceed. The CTF would provide positive incentives tailored to cover the The Clean Technology Fund identifiable additional costs of low-carbon investments neces- The CTF would promote scaled-up deployment, diffusion, and sary to make a project viable. In order to maximize impact, the transfer of clean technologies by funding low-carbon programs CTF will work with the private sector, as well as the public sec- and projects that are embedded in national plans and strategies tor, to bring sufficient technological know-how and capital to to accelerate their implementation, and that have significant dramatically scale up clean technology deployment, while T H E WAY F O R WA R D 53 remaining technology neutral. The CTF will utilize a range of con- • Energy-intensive industries and equipment (motors and cessional financing instruments, such as grants and concessional boilers). loans, and risk mitigation instruments, such as guarantees. The starting point in developing operations to be cofinanced by the CTF would be a request from a country for a program- Country access will be based on (a) ODA eligibility (according to ming mission to be undertaken by the relevant MDBs to begin OECD/DAC guidelines); and (b) an active MDB country program. a dialogue on how the CTF may contribute to scaled-up, low- Financing from the CTF could cover, among other low-carbon carbon activities. It is envisaged that the government will play a technologies, one or more of the following proposed transfor- central role in programming the CTF's public sector–related mational investments:6 projects and in donor coordination. The investment plan would a. Power sector: take into account the framework of the MDBs' Country i. Increase substantially the share of RE (including solar, wind, Assistance/Partnership Strategies, other relevant national plan- hydropower, biomass and biofuels, geothermal, and waste- ning exercises, and activities of other international programs, to-energy), in the total electricity supply. including the GEF. A key feature of the programming missions ii. Switch to highly efficient gas plants resulting in reduced would be engagement at the country level with the United carbon intensity of power generation. Nations and bilateral development and investment agencies, iii. Achieve significant GHG reductions by adopting best avail- particularly with a view to mobilizing cofinancing and ensuring able coal technologies with substantial improvements in EE harmonized policy support. Investment plans, and the pro- and readiness for implementation of CCS. posed pipeline of projects and programs, will be assessed and iv. Promote grid interconnection schemes that support lower- prioritized on the basis of the following four sets of criteria: carbon energy production and/or significant transmission a. Potential for long-term GHG emissions savings: efficiency improvements. i. Cumulative emission reductions, or emissions avoided, v. Large reductions in transmission and distribution losses from the investment and per-unit cost. (new transmission and distribution systems using energy- ii. Reductions in carbon intensity. efficient technologies, or retrofits/upgrades). iii. Scalability and replicability of low-carbon investments, vi. Adopt utility managed demand management programs for given carbon intensity of GDP and electricity generation, retail and wholesale customers. economic growth rates, and sector expansion plans. b. Transportation: iv. Significant opportunity for reducing growth in GHG i. Make a modal shift to public transportation in major metro- emissions. politan areas, with a substantial change in the number of b. Demonstration potential—accelerate deployment, diffu- passenger trips by public transport. sion, and transfer of low-carbon technologies, consistent ii. Improve fuel economy standards and fuel switching. with the objectives of the CTF, at the following scale: c. EE in buildings, industry, and agriculture: i. Thematic programs and large-scale projects. i. Large-scale adoption of energy efficient technologies that ii. Sector or subsector in a given country. lowers energy consumption per unit of output in the fol- iii. Subnationally, by focusing activity on a particular province, lowing areas: state, or municipality. • Building design, insulation, lighting and appliances. iv. Regionally, particularly where regional cooperation is • District heating. required. 6 The Fund would not support technologies that are still in the research and development stage, but should be focused on deployment that may include demonstration of new low-carbon technologies. 54 JOINT MDB REPORT TO THE G8 ON THE IMPLEMENTATION OF THE CLEAN ENERGY INVESTMENT FRAMEWORK (CEIF) AND THEIR CLIMATE CHANGE AGENDA GOING FORWARD v. Through the private sector or PPPs. including details of the fund's portfolio, status of implemen- c. Development impact: tation, funding allocations for the previous period, pipeline of projects and funding projections, administrative costs i. Poverty alleviation, fuel savings, efficiency gains, air and incurred, and other pertinent information. water quality, energy security and access, economies of scale, economywide impact, local industrial development d. Serve as a forum to ensure effective operational coordination, potential, and environmental co-benefits. exchange of information, and experience among the MDBs. d. Implementation potential: e Liaise with other development partners, including bilateral development agencies and banks, for purposes of promot- i. Technology development or commercialization status, and ing cofinancing of activities through an annual consultation the presence or the possibility of developing in the short between the MDBs and development partners, including term policies and capacity to support technology adoption. bilateral development banks. ii. Minimum level of macroeconomic stability and stable budget management. The Strategic Climate Fund iii. Commitment to an enabling policy and regulatory environ- The proposed SCF would finance targeted programs designed ment, including planning commitment and expenditure to pilot new development approaches or scale up activities framework in the sector or subsector. aimed at a specific climate change challenge. The SCF will iv. Incentives for leveraging private sector financing. remain flexible and open to the establishment of new programs as new challenges are identified and circumstances change. v. Institutional arrangements for implementation of policies. Resources will be mobilized and pledged to specific programs Investment plans will be submitted to the Trust Fund within the SCF. Arrangements to guide the program, ensure Committee to endorse further development of activities for effective partnerships, and provide accountability would be Trust Fund cofinancing and to facilitate prioritization of the defined for each program to ensure the effective operations of pipeline of projects. Subsequently, a proposed program or proj- the program. ect, developed pursuant to the investment plan, will be submit- ted by the relevant MDBs, prior to its appraisal, to the Trust Fund A Pilot Program for Climate Resilience will be the initial program Committee for approval of trust fund financing. The further pro- of the SCF. The aim of the Pilot Program for Climate Resilience cessing of a program or project will follow the MDBs' polices (PPCR) is to support rapid learning-by-doing on an integrated and procedures for appraisal, as well as MDB board approval approach to climate resilience and programmatic lending, in and supervision. order to provide lessons that will feed into the operation of a successful Adaptation Fund under the Kyoto Protocol. The PPCR A key feature of the governance structure of the CTF is the pro- will move quickly to provide about 5–10 countries with scaled- posed establishment of an MDB Committee to facilitate collab- up support for integrating climate resilience into their develop- oration, coordination, and information exchange. The MDB ment planning and financing. Committee will, among other things: Two types of activities will be supported during the next three a. Identify specific areas of MDB cooperation to harmonize their climate change programs and actions, linking their ini- to five years in recipient countries: tiatives with Climate Investment Trust Funds programs and I Technical assistance to enable developing countries to build projects. on existing national work, including the national communi- b. Monitor progress in implementing programs and report to cations and National Adaptation Plans of Action, to integrate the Trust Fund Committee on compliance with approved climate resilience into core development plans and budg- criteria and priorities on the use of trust fund resources. ets. Approximately $1–2 million dollars will be allocated to c. Review a draft annual consolidated report on the Climate each pilot country for this phase. Investment Trust Funds activities, performance, and lessons, T H E WAY F O R WA R D 55 I Finance for investments identified in the climate resilient change related instruments, such as carbon credits. In addition, development plans. In this phase, there will be an emphasis a proposed Timberland Private Equity Investment Fund would on budget support approaches, where possible, and blend- target investment opportunities involving the creation of new ing with national financing and existing international sup- timber assets meeting EIB social and environmental criteria and port mechanisms. including biodiversity improvement, climate change mitigation The EIB is also in the process of expanding its product range to and the utilization of carbon credits. The fund is currently in enhance its role in the finance of clean energy investments. To advanced design stage. complement the three funds highlighted above, EIB has estab- The EIB and the European Investment Fund (EIF) are actively lished a Post-2012 Carbon Fund. The purpose of this Fund is to involved in the implementation of the EU Global Energy contribute to EU climate change mitigation policies through Efficiency and Renewable Energy Fund (GEEREF), which was the promotion of confidence in the emergence of a post-2012 officially presented to the public in December 2007 on the carbon credit market, as well as support mitigation projects occasion of the UNFCCC conference in Bali. GEEREF is a fund through monetization of their post-2012 emission reduction of funds aimed at investing in regional risk capital funds flows. In March 2008, the fund closed with commitments of catalyzing private investment in EE and RE projects in devel- €125 million. oping countries and economies in transition. Finally, the The EIB is also promoting activities related to biological carbon EIB has issued a Climate Awareness Bond combining innova- sequestration. A European Ecosystems (Biodiversity) Investment tive features focused on climate protection with unique Fund is being considered, which would serve as a pioneering investment opportunities. Named EPOS II (European Public initiative to develop, test, and demonstrate the use of proven Offering of Securities), the bond provides for the earmarking financial frameworks—in this case, an equity fund—for biodi- of funds raised to be invested in EIB lending projects in versity conservation. The fund would include private sector the fields of RE and EE (including wind, hydro, solar and geot- investment, and it would aim to enhance its commercial suc- hermal production and district heating, cogeneration, build- cess by the successful application of biodiversity credits compa- ing insulation, energy loss reduction in transmission and rable to those already implemented in connection with climate distribution). Working Together: Strengthening the Partnership It is evident from the foregoing that the MDBs share a com- cooperative framework for their climate change activities was mon vision concerning approaches and actions to tackle the absent. challenge posed by climate change. Prior to Gleneagles, they In the post-Gleneagles period a coherent and focused collective had a long history of close cooperation in such areas as EE, RE, MDB climate change agenda has emerged. In particular, each MDB clean coal technologies, urban transport, forestation, and has consulted closely with its sister institutions in developing and environmental protection. Cooperation included cofinancing revising its overall climate change and energy strategies to of key projects, as well as joint or closely coordinated country respond to the new global priorities. The result is a largely consis- policy advisory work designed to improve the overall efficien- tent set of policies, programs, and instruments across the IFIs. cy of the energy sector and to encourage the development of Further initiatives, designed to increase the level of collaboration, appropriate regulatory regimes. However, while all these activ- are under way; these are considered particularly important, since ities had important implications for climate change, an overall 56 JOINT MDB REPORT TO THE G8 ON THE IMPLEMENTATION OF THE CLEAN ENERGY INVESTMENT FRAMEWORK (CEIF) AND THEIR CLIMATE CHANGE AGENDA GOING FORWARD the pace of implementation picks up and as new sources of use, what sectors to cover, and how to aggregate and report what financing for climate change programs, such as the proposed CTF, they find. This initiative was started by the IFC and EBRD's become available. For example, an MDB workshop on main- approach to reporting the carbon footprint of their projects. The streaming climate change mitigation and adaptation was hosted reports are consistent with Scopes 1 and 2 of the GHG Protocol, by the EBRD in June 2007. This working session focused on some which is designed to address the exposure of their portfolio to of the practical issues faced by MDB staff in scaling up climate possible changes in treatment of CO2 emissions. The IFC current- activities, and covered such topics as organization, targets, incen- ly reports the gross CO2 emissions of projects with annual outputs tives, measurement, and reporting. More recently, an MDB work- (direct and indirect from electricity consumption) exceeding shop was held in Washington, D.C. at World Bank and Inter- 100,000 tons of CO2 per year. American Development Bank (January 17–18, 2008) to discuss The World Bank has commissioned a series of studies on method- how to move forward with joint efforts to scale up funding for ologies for assessing GHG emissions, which are being carried out high-impact public and private sector investments to reduce GHG in close collaboration with the MDBs. The objective of the exercise emissions and strengthen climate resilience. In another example, is to determine the impacts of MDB-funded projects in an effort to the AfDB and the World Bank have initiated a series of joint consul- determine the impact of MDB interventions on climate change. tations with a view to developing a consistent approach to clean The options that are being considered for MDB-funded projects energy development and adaptation strategies for Africa; a meet- include (a) gross CO2 impacts; (b) direct, net CO2 impacts; and ing was held in early May 2008 and several follow-up sessions are (c) direct and indirect net impacts. These options, their impacts planned. The EBRD and EIB cosponsored a workshop on adapta- on projects and project design, the feasibility of these tion in April 2008. The paragraphs below highlight some of these approaches, and the impact on the cost of project preparation cooperative endeavors, as well as the mechanisms through which will be analyzed to help determine the best approach. Based on the needed enhanced cooperation will be achieved. the outcome of the studies highlighted above, it is expected Scaling Up Joint Sector Work that the MDBs will move toward a standard set of practices with The sheer scope and complexity of the climate change agenda respect to carbon footprint measurement in the near future. and the overriding imperative for a coherent and consistent Improved Economic Analysis of Projects—Shadow Pricing approach on the part of the MDBs require that they further Carbon strengthen collaboration with respect to their analytical work and Now that there is widespread acceptance of global warming related methodologies. Areas of potential mutual interest include and climate change and an economic cost associated with this, the development of the low-carbon country growth strategies it is important to understand the implications of these costs for highlighted above, measuring the carbon footprint and carbon MDB interventions. The standard in all MDBs is that project eco- impact of MDB-funded projects, the application of shadow pricing nomic analysis needs to be sufficiently robust to include all for GHG emissions in project analysis, project identification, and project costs and benefits, including identifiable externalities. preparation and knowledge sharing and dissemination. Some While the MDBs are not making investment decisions based on examples are given in the following paragraphs. a shadow price for carbon, it is logical is to start developing capacity for and understanding the implications of including Carbon Foot Printing GHG emissions as a component of the broad economic analy- Recognizing the link between carbon emissions and financing sis. Shadow pricing carbon can also help ensure that the incen- policies and practices, the MDBs have agreed to collaborate in tives are identified and mobilized for project preparation, selec- developing a harmonized approach to assessment and reporting tion, and design, which properly takes climate change into of portfolio GHG emissions. Most of these financial institutions are account. It should be noted, however, that the economic only at the beginning stages of assessing their portfolio emissions, analysis of MDB projects, particularly supporting public sector and are still deciding key questions such as what methodology to T H E WAY F O R WA R D 57 investments in developing countries, should be in line with the While the MDBs' enunciated goals will be critical in assessing their prevailing practice worldwide, and until developed countries collective and individual performance, it is important to empha- routinely use the price of carbon in their investment decision size that they are output as opposed to outcome targets and do making, this should not be expected for similar projects in poor- not measure the carbon impact of the MDBs' programs on the er countries. ground. However, once standard practices on carbon impacts are agreed upon and low-carbon growth strategies are completed, EIB has been applying an economic cost of carbon in its ERR cal- the basis for determining clear outcome targets (which can in turn culations for several years; this results in some projects being more be incorporated into country and regional strategies) may, togeth- attractive in economic terms and others being less, and such an er with the client countries, be established. At that point, the MDBs approach has begun to demonstrate its potential value in influ- plan to explore the feasibility of establishing and committing to encing choice in favor of cleaner technologies. such outcome goals. However, in this connection, it is important The IFC has committed to pilot the use of a carbon shadow price to emphasize that MDB-funded projects are client driven; as such, in its economic analysis to test what the impact would be on proj- these institutions have limited direct control over their lending ect financial analysis starting in July 2008. The purpose of this pilot and investment programs. As an alternative, the MDBs may con- will be to provide information on the impact on expected finan- sider establishing guidelines for project analysis in which all proj- cial returns of including a price for carbon, including the impact ects could include an explicit consideration of GHG emissions in on less GHG-intensive alternatives. The analysis will not be used to the economic analysis of projects, as with the carbon pricing exclude otherwise profitable and developmentally beneficial approach described above, thus providing an appropriate incen- investments. There is currently no agreement on the cost to be tive for project selection and preparation. used, although there are reference points in the literature and in Low-Carbon Projects: Joint Work on Identification and some government practices; most likely the IFC will use a range Preparation encompassing different views. The problem is made difficult by The sustainable development strategies that emerge from the the life of CO2 in the atmosphere (about 100 years) and the country driven work described above, are expected to include uncertainty of its longer-term impacts, the nonlinear nature of marginal carbon abatement curves in which low-carbon proj- impacts, and the “size of the tail� regarding low-probability, ects, their costs, and expected impacts are specifically identi- high-impact events. fied and prioritized. The identified projects that make up these Measuring and Monitoring Performance marginal carbon abatement curves would then need to be All the MDBs and their shareholders have recognized the impor- prepared by a sponsor. For those projects that have a large tance of setting monitorable targets if they are to achieve their global public good component, concessional financing for climate change agenda. Each MDB has enunciated specific tar- project preparation may need to be mobilized, since the pub- gets. As examples, the EBRD is committed to investing $2.2 bil- lic good component of the project may make them riskier and, lion in EE and renewables in the three-year period following the thus, a lower priority for project developers. It is important launch of the initiative in May 2006; the EIB has incorporated its that the MDBs work together to catalyze this process. For clean energy targets into a rolling three-year plan that aims cur- many projects, it is expected that client countries would rently for €800 million annual investment in RE; and the World approach the MDB that has a comparative advantage in local Bank plans to double RE investments to $2 billion in fiscal knowledge, technology or sector expertise or speed in deliv- 2006–08, compared with the previous three-year period. The ery, for example, EE for the EBRD, the EIB for CCS, the IFC for World Bank is also committed to assisting its client countries to renewables, and the ADB for transport. However, for selected complete their ongoing and planned work on low-carbon larger, more complex projects, the MDBs expect to work growth strategies. together jointly, since resource needs—both capital and human—could be considerable. 58 JOINT MDB REPORT TO THE G8 ON THE IMPLEMENTATION OF THE CLEAN ENERGY INVESTMENT FRAMEWORK (CEIF) AND THEIR CLIMATE CHANGE AGENDA GOING FORWARD Knowledge Sharing and Dissemination As the MDBs' climate change activities expand, it has also been As the MDBs progressively broaden and deepen their climate increasingly important that each knows what the others are doing change activities, it is important that the lessons of experience at the operational level, both to leverage their individual efforts are promptly shared across the institutions and more impor- and to help identify key gaps. In this connection, the MDBs have tantly with the clients themselves. For example, key countries established a common data base on their activities. This site, in Asia and Latin America could profit significantly from the which the MDBs are committed to updating regularly, is accessi- knowledge gained by the EBRD in implementing its EE pro- ble at www.worldbank.org/environment/ccandmdb. grams; it is also now critical that the World Bank share the expe- rience it has gained from its LCGS work in the high-impact Improved Governance Mechanisms The heads of the environment departments of the MDBs meet countries. Furthermore, given the hitherto limited MDB inter- twice a year at the Multilateral Financial Institutions-Working ventions in the transport sector, it is vital that they collectively Group on the Environment (MFI-WGE) to exchange information learn from recent ADB initiatives in this sector. Similarly, IDB will on their respective programs, agree on mutual priorities, and so gain valuable insights from its work on biofuels, and the AfDB forth. This forum has helped to foster cooperation on climate will go through a significant leaning curve as it ratchets up its change policies and practices. For example, it was instrumental in adaptation programs. It will be equally vital that EIB shares its promoting the joint work on foot printing discussed above. experiences from its planned CCS projects, particularly with However, the MDB staff who participate in this group do not have China and India. direct responsibility for developing operations within their respec- The MDBs have therefore committed themselves to establish- tive institutions. Given that the climate change agenda has major ing more systematic knowledge exchange mechanisms. As implications for virtually the entire range of activities of the MDBs, part of this overall effort, the MDBs have agreed to pilot the this representational gap undermines the effectiveness of the MFI- establishment of climate change thematic groups across the WGE as coordinating body for operational work. banks. Such groups would be organized by topic and would The work of the MDBs in the context of the proposed Climate include all staff, working on these issues across the MDBs. The Investment Funds provides the suitable occasion to improve experience in other organizations is that such virtual groups, these collaborative mechanisms. Specifically, the MDB committee, which at their minimum are little more than a consolidated e- which will be established as a part of the governance framework mail list, can be extremely cost-effective mechanisms to trans- for the CTF, will complement the activities of the MFI-WGE. This fer subsector knowledge on a just-in-time and demand-led committee, which will meet quarterly, and be composed of basis. As part of this pilot the EBRD has agreed to take the lead members with direct operational responsibility for climate on EE, the ADB on transport, the IDB on biofuels, the EIB on change agenda of their respective institutions, will, among CCS, the AfDB on adaptation, and the World Bank on renew- other things, have direct responsibility for operational collabo- ables and clean coal. ration across the institutions. T H E WAY F O R WA R D 59