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INTERNATIONAL SUPPORT FOR DOMESTIC ACTION

INTERNATIONAL SUPPORT FOR DOMESTIC ACTION

Outline

• Incremental costs + shifting investment

B tt h t d t b d

• Bottom up – what needs to be done
• Options for instruments

p

• Options for institutions

Th b d f k

• The broader framework

INTERNATIONAL SUPPORT FOR DOMESTIC ACTION

Incremental costs for low carbon transition Incremental costs for low-carbon transition

Costs in 2020 ($billion) IEA 550[1] Global Developed Developing Power Generation - Additional Investment 66 49 17 Energy Efficiency - Additional Investment 164 85 78 Fuel Savings 384 IEA 450a Power Generation - Additional Investment 197 88 110 Energy Efficiency - Additional Investment 312 181 132 Fuel Savings 318 McKinsey[2][3] y Total Additional costs 266-420 Power Generation - Capital investment incremental to BAU 148 Project Catalyst[4] Total - Incremental Costs 50 80 Power Generation - Incremental Investment 12 Power Generation- Financing needed to make clean power projects economic 10-53 EUc Annual global reduction costs in energy system and industrial sectors 152 81

[1] Assumptions 50% of average costs are faced in 2010, rising to 100% in 2020, Fuel savings are undiscounted. Developed is OECD+, Developing is Other major

i d Oth t i

[2] N

b f t t l i f 2030 i t ti d t ti i f 2026 2030 economies and Other countries, [2] Number for total is from 2030 inc. transaction and program costs, power generation is average per year from 2026-2030

[3] Exchange rate used for conversion €1=$1.4, [4] Number taken at the top-end of their estimate for 2020

INTERNATIONAL SUPPORT FOR DOMESTIC ACTION

+ shifting investment to low-carbon choices

Source IEA Investment volumes reference and low-carbon scenarios for 2030

INTERNATIONAL SUPPORT FOR DOMESTIC ACTION

Si ifi f A i lt C i P Si ifi f A i lt C i P Significance of Agriculture Consumers in Power Significance of Agriculture Consumers in Power Sector (Anoop Singh, IIT Kanpur) Sector (Anoop Singh, IIT Kanpur)

Share of Agriculture in Energy Sale and Revenue (2005-06)

60

Sales Share (%)

43.39 37.54 42.27 48.89

40 50

re

Revenue Share (%)

28.74 32.55 23.94 21 99 21 89 24.99

30

entage Shar

21.99 21.89 6 73 18.31 10.20 10.07 20.75 13.07

10 20

Perc

6.73 3.15 2.94 0.27 6.48

10 ana jab han Pr. Pr. aka adu arat tra ndia Harya Punj Rajasth Uttar P Andhra P Karnata Tamil Na Guja Maharasht All In

So: PFC(2007)

INTERNATIONAL SUPPORT FOR DOMESTIC ACTION

Drivers for CSP rollout

3.3 to 5.4 times the total l t i it i t electricity requirement forecast for South Africa for the year 2025

Source: Fluri, 2009

INTERNATIONAL SUPPORT FOR DOMESTIC ACTION

Investment costs CSP Investment costs CSP

Max Edkins e.a.

INTERNATIONAL SUPPORT FOR DOMESTIC ACTION

Brazil’s biggest problem: Intensive use of Road Transport

• Energo-intensive mode;

Country study by Márcia Valle Real and Haroldo Machado Filho

Brazil s biggest problem: Intensive use of Road Transport

• High costs for commodities transport;
• Infrastructure in bad conditions;

90% 100% Sea

• Low safety traffic;

60% 70% 80% 90% Sea Pipelines 30% 40% 50% 60% Inland Waterways

Freight Transport (tkm)

10% 20% 30% Rail Road 0% EU‐27 USA China Russia Brazil Road

Sources: EU Energy in figures, 2007/8; PNLT, 2007

INTERNATIONAL SUPPORT FOR DOMESTIC ACTION

Federal Government Plan “The National Plan

• n

Logistics and Transport: Logistics and Transport: a policy that can promote a significant change in the modal g g split in the country” The reduction of freight by The reduction of freight by road has potential to mitigate GHG: G G: 10 to 20% of freight emissions Workshop conducted to assess how to to assess how to achieve the target.

Source:PNLT, 2007

INTERNATIONAL SUPPORT FOR DOMESTIC ACTION

Role of Public Sector Role of Private Role of Private Role of Public Sector

Capacity building Capacity building Technical assistance

Role of Public Sector Role of Private Sector

International Domestic

Role of Private Sector

Domestic

Role of Public Sector

International

Technical assistance Capacity building / Technical assistance Capacity building / Technical assistance

New business practises

Remove regulatory barriers Capacity building Technical assistance Remove regulatory barriers Capacity building Technical assistance Technical assistance Transparency, outside commitment Experience / Technology

New business practises

Technical assistance Transparency, outside commitment

Additi l

r

250

$ billions in 2030

Technology / Skills

Incremental costs Subsidy removal Carbon pricing Incremental costs Subsidy removal Carbon pricing

Additi l

Energy Energy Support incremental costs Carbon markets Public transfers Support incremental costs Carbon markets Public transfers r gy

Technology / Skills 250

$ billions in 2030

Additional fuel supply Shift operation costs to

Power secto

200 250

costs costs

Additional fuel supply

Energy cost savings Energy cost savings costs costs

Shift operation costs to

Power secto Offset mechanisms (e.g. CDM) Offset mechanisms (e.g. CDM)

200 250 costs to investment

ment Costs P

100 150

Shift finance / investment Shift finance / investment Loans Ri k t Loans Ri k t

costs to investment

ment Costs P

100 150

Reference

(Conventional

Mitigation Scenario

(Low carbon

Investm

50

Reference

(Conventional

Mitigation Scenario

(Low carbon

Risk guarantees Risk guarantees Investm

50 (Conventional technology & practises) (Low carbon technology & development) (Conventional technology & practises) (Low carbon technology & development)

INTERNATIONAL SUPPORT FOR DOMESTIC ACTION

A t i f A t i f Aspects arguing for: facilitate financing Aspects arguing for: direct transfers

Addressing constraints to capital access due to:

C t / l t i k

• Country/regulatory risks
• Technology risks
• Development of sustainable business model
• Avoiding subsidy of energy services
• Incremental cost exceed grant equivalent loan value
• Collateral too small for loan
• Addressing barriers from transition
• Learning
• Learning

Examples from country case studies

CSP Aggri pump EE-HH Transport South Africa India South Africa Brazil Rural-RE Ghana

INTERNATIONAL SUPPORT FOR DOMESTIC ACTION

Public Finance Mechanism

Up-front grant S d d

Grants, capital subsidies

• n to

t and

• Standard

Technical assistance grants

• ‘Smart’ grants

p

• Easy to implement
• Reduces cost of capital

F d i CDM C b i i / l

Contributio investment

• peration

Funding during

• peration

Feed in, CDM, Carbon pricing/removal

• f energy subsidy
• Incentives for performance of project

C i

• finance

Provision of equity

• Private equity
• Venture capital
• Where comprehensive risk coverage necessary
• Initial experience to subsequently attract private

sector investment

access to fi

Provision of debt

• Loans
• Credit lines

Risk coverage

sector investment

Facilitating

Risk coverage

• Full or partial guarantee
• Policy to cover specific

causes of non performance

• r all

Other financial products

Targeted to specific risk components ( l t )

F

• Other financial products

(regulatory, currency)

INTERNATIONAL SUPPORT FOR DOMESTIC ACTION

Direct support Indirect support Public Finance Mechanism Direct support Indirect support International to project International to national National to project

Up-front grant S d d GEF t

• n to

t and

• Standard

Technical assistance grants

• ‘Smart’ grants

GEF grants Other bilateral and multilateral DFIs ODA Investment support Off t h i G t li k d t *Incremental t t

Contributio investment

• peration

Funding during

• peration

Offset mechanisms (CDM) WB support Grant linked to continuous delivery (finance +regulatory stability) payment to renewable *Removal of energy subsidies * Carbon tax/cap d t d h

C i

• and trade scheme

finance

Provision of equity

• Private equity
• Venture capital

ADB Clean Energy PE fund n/a Carbon Trust VC fund

g access to f

Provision of debt

• Loans
• Credit lines

IFIs e.g. EBRD, IFC IMF and WB loans Risk coverage MIGA political risk i WB/IFC Partial C dit d Export credit t

Facilitating

Risk coverage

• Full or partial guarantee
• Policy to cover specific

causes of non performance

• r all

Oth fi i l d t insurance Credit and Partial Risk Guarantees agency guarantees

F

• Other financial products

INTERNATIONAL SUPPORT FOR DOMESTIC ACTION

What institutional set up is desirable?

• Multilateral

– Example IMF/World Bank, CDM EB, GEF – Transparent, harmonised approach – All inclusive but less flexibility

• Bilateral

U i t i i i il t P i d l ti

– Using twinning – similar to Paris declaration – Cooperation across governance levels possible – Tailor approach & process to national circumstances

Tailor approach & process to national circumstances

– Requires robust framework to ensure transparency!

INTERNATIONAL SUPPORT FOR DOMESTIC ACTION

Illustrative Illustrative Mutlilateral Bilateral Project Country Pro- ject Country Illustrative Mutlilateral Bilateral Project Country Pro- ject Country Mutlilateral Bilateral Project Country Pro- ject Country Illustrative j ant Upfront Majority of grants j ant Upfront Majority of grants M t h M t h j ant Upfront Majority of grants Gra Upfront j y g provided bilaterally Gra Upfront j y g provided bilaterally Match needs

• f

low Match needs

• f

low Gra Upfront j y g provided bilaterally Operation nance Equity Debt Majority of finance provided with multilateral mechanisms Operation nance Equity Debt Majority of finance provided with multilateral mechanisms low- carbon development low- carbon development Operation nance Equity Debt Majority of finance provided with multilateral mechanisms Fin Guarantee with multilateral mechanisms Fin Guarantee with multilateral mechanisms Fin Guarantee with multilateral mechanisms Carbon revenue

• Aviation&shipping
• Auction revenue
• Risk management

Carbon revenue

• Aviation&shipping
• Auction revenue
• Risk management

Increasing role for facilitating access to finance?

• Offsets
• Offsets

access to finance?

INTERNATIONAL SUPPORT FOR DOMESTIC ACTION

Capacity Building Technology Cooperation

• How to access?
• Type of support provided?

M ltil t l/bil t l?

• 3. International

mechanisms

• 1. Low-carbon

Development

• Multilateral/bilateral?
• Detailed actions required?

p Strategy

• Detailed actions required?
• Domestic drivers &

barriers?

• 2. NAMA
• Engagement of private

actors?

• Needs for international
• Needs for international

support?

• 4. Reporting
• Objective of reporting?
• Type of indicators?

Domestic International International Verified

More information about the project: www.eprg.group.cam.ac.uk/isdahome/ and www.climatestrategies.org