1. “ Development Finance “Making the Carbon Market work for Development Finance” ADB Carbon Market Program Bruce Dunn Environment Specialist GEF Carbon Finance Meeting 15 November 2010, Washington, D.C.

2. Source: Point Carbon Growing Carbon Market (Forecast) However…

3. 20082009201020112012 Final figuresFinal FiguresForecast Mt€ mMt€ mMt€ mMt EU ETS total3,09166,9935,38669,3745,35095,1656,1406,950 OTC1,81640,0482,31330,1122,30041,4002,6003,000 exchanges1,15225,4882,85137,1102,80050,4003,3003,700 auctions42965781,019901,6207060 options804921441,1341601,745170190 CDM total1,60924,1721,59017,5201,77021,7812,1602,520 primary5496,0393042,5482402,160170130 secondary1,03717,9431,25214,7761,49019,3701,9402,330 options2318934196402515060 JI7272044399554404025 AAU433301381,3791251,2503010 RGGI711787651,7739851,5901,085985 Other total3411975284110440110120 Sum4,92092,5117,99890,7298,395120,6669,56510,610 Global CDM Slowdown? Source: Point Carbon

4.  Kyoto Protocol commitments ending in 2012; no agreed international framework yet on post-2012 Lack of long-term price signal to give incentive for economies to invest in low-carbon alternatives  Lack of investment/equity – carbon market contributing to cash flow of approved projects, but rarely contribute to project financing Issues

5. ? Year: 2009 10 11 12 13 14 15 16 17 18 19 20 21 Project Approval Project Completion Carbon Credit Volume Issue 1: Post-2012 Uncertainty Few buyers End of Kyoto Commitments Emission reduction portfolio (e.g. 10 year period)

6. Source: UNEP Riso Centre (March 2010) Issue 2: CDM adds benefit to entities with (access to) funds in the first place?

7. Distribution of CDM Projects by Scope (Registered as of July 2010)

8. ADB Carbon Market Program Overview

9. ADB’s Climate Change Program FinanceKnowledgePartnership Scaling-up Clean Energy Encouraging Sustainable Transport and Urban Development Managing Land Use and Forests for Carbon Sequestration Strengthening Policies, Governance and Capacity Modalities Priorities Promoting Climate-resilient Development CMP

10. Carbon Market Program Carbon Funds

11. 1.Need underlying finance 2.Require carbon market technical support 3.Desire highest prices/best conditions for CERs 4.Seek upfront payment for credits to fill finance needs Question: “What do you need to scale up low- carbon projects?” Consultation in DMCs (2005-2006) Question: “What do you need to scale up low- carbon projects?”  ADB long-term finance  Expert technical team  Dedicated credit marketing service  Carbon co-finance vehicle: Carbon Funds

12. Ongoing ADB Climate Change Projects (Sample)

13. Underlying Finance: Ongoing projects (sample) CountryProject Type IndonesiaGeothermal power IndiaWind power Lao, PDRSmall hydropower BangladeshWaste composting China, PRGeothermal space heating PakistanHydropower PhilippinesEnergy-saver bulb distribution ThailandBiomass power MongoliaBoiler efficiency improvement UzbekistanSmall hydropower China, PRUrban transport system

14.  Upstream support in project preparation phase Due diligence: technical, financial, legal, safeguards, governance Capacity building trainings Carbon credit valuation Documentation preparation for credits (PIN, PDD, methodology) Obtaining host country approvals Facilitating project Validation & Registration  Downstream support in project execution and commercialization Implementation / commissioning Monitoring & Verification Certification & Issuance of CERs to sponsor/developer & fund Technical Support for CDM

15. Integrate Carbon Credit Valuation

16. Lower Additional Transaction Costs General Project Analyses Additional Analysis for Potential Emission Reduction Projects

17. Credit Marketing Facility

18.  Terms of reference and fee structure pre-negotiated with ADB; contracts directly with project entity as “seller’s agent” to find best offer from buyers  Agents are only allowed to collect fee from the seller in percentage terms of actual funds transferred from the buyer to the seller  Currently retained agents  TFS Green: 2-3.5% charge depending on project size (in CER volume)  CM Capital Markets: 1% charge regardless of project size CMF Agents

19.  Asia Pacific Carbon Fund (APCF) for credits up to end of 2012, and Future Carbon Fund (FCF) for post-2012  Co-finances projects alongside ADB to help fill project financing gap  Purchase of credits generated from now up to 2020  Can purchase 25-75% of expected carbon credits on upfront payment basis and the remaining credits via payment on delivery  Lower transaction cost if debt/equity financier is ADB Carbon Co-Finance: Carbon Funds

20.  Certain funds today, for commodity with uncertain value in the future  Reduced budget commitments to close the financing plan of projects  Comprehensive technical and implementation support  Extra credits from successful project implementation can be marketed with ADB support for further financial upside CMP Summary: Main Advantages for Project Developers/Sponsors

21.  Tech-transfer CDM to accelerate the transfer and diffusion of energy-efficient equipment/appliances and other clean energy technologies using CDM  Broadening the Regional Distribution of CDM through capacity building and project identification/development seminars in collaboration with IGES and UNFCCC Secretariat  Asia-Pacific REDD financing as part of the global REDD partnership (led by the World Bank FCPF and UN-REDD); possible future public-private regional REDD carbon fund Other Ongoing Initiatives

22. THANK YOU! Bruce Dunn / Toru Kubo bdunn@adb.orgbdunn@adb.org / tkubo@adb.orgtkubo@adb.org Regional and Sustainable Development Department General inquiries: adbcdm@adb.org