The MDG Carbon Facility Presented by Adam Shepherd Regional Workshop on Legal, Institutional and Financial aspects of Carbon Finance Istanbul, Turkey January 2008

1 UNDP MDG Carbon Facility 1 Channeling investments towards clean energy technologies Carbon Finance could raise resources several times greater than what is available through ODA However, carbon finance alone cannot finance the massive investment in sustainable energy development required to address the energy needs of developing countries and to reduce climate change risks. ODA and carbon finance should be leveraged to remove barriers to direct investments. Investment required for the energy supply infrastructure worldwide Over the period : $16-17 trillion Average annual investment: > 500 billion ODA By 2010: < $6 bn Carbon Finance By 2012: $2- $4 billion Up to $14 bn thereafter Relative Importance of Various Financing Sources for Climate Change

2 UNDP MDG Carbon Facility 2 CDM failure to deliver sustainable development dividend Geographical Imbalance (CDM Project Locations) HFC & N 2 O reduction 40% Renewable Energy 23% CH 4 reduction 16% Energy efficiency 7% Cement & Coal mine/bed, 7% Fuel switch, 7% Afforestation & Reforestation, 0.2% Sectoral Imbalance (Anticipated 2012 Cumulative CERs)

3 UNDP MDG Carbon Facility 3 MDG Carbon Facility Mission: Market Transformation MDG Impact Geographical & Sectoral Diversity Current CDM Market Objective for MDG Carbon Facility

4 UNDP MDG Carbon Facility 4 UNDP’s core objectives in carbon finance Improve access to carbon finance for a broader range of developing countries and project types through creating effective carbon markets (capacity development and one-stop shop service in carbon project development in pre-market situations) Maximize carbon development dividend through developing an MDG Carbon portfolio that strike a balance between cost-effective projects (e.g. landfill methane recovery projects) and high development impact projects (e.g. small agro-forestry projects) Develop capacity of programme countries to combine & sequence different funding sources (EFR, ODA, GEF, CDM/JI) to channel direct investment towards climate-friendly technologies

5 UNDP MDG Carbon Facility 5 UNDP approach to promote leverage carbon finance for sustainable development Step 2: Establishment of efficient host-country procedures for CDM&JI review and approval (EFR, ODA) knowledge management platform on CDM rules for bio- carbon; South-South cooperation assistance in establishment of DNA, CERs onwership rights and approval procedures for biocarbon projects training for DNA staff and decision-makers Public awareness raising workshops Step 1: Remove barriers to direct investments in Climate-friendly technologies (EFR, GEF, ODA, foundations) analysis of key barriers for targeted sectors initiation of policy dialogue with regulatory authorities on barrier removal strategies Development of sector- specific strategies Implementation of barrier removal activities Step 3: Provision of project management services to individual project developers (carbon finance) Identify priority sector to maximize the development dividend ( biomass, AR and biofuels production, biomethanation, energy efficiency; ect.) development of demonstration projects with MDG Carbon compilation, analysis and dissemination of experiences and lessons learnt

6 UNDP MDG Carbon Facility 6 MDG Carbon Facility: What it is Fortis Bank CDM Projects UNDP Purchase of Carbon Credits Technical Assistance in Project Development MDG Carbon Facility CDM Activities The MDG Carbon Facility (i) provides technical assistance, to CDM projects and (ii) purchases the credits generated by these CDM projects

7 UNDP MDG Carbon Facility 7 Overview of the MDG Carbon Facility Partnership with Fortis Fortis Project Proponents UNDP Facility Agreement Emissions Reduction Purchase Agreement (ERPA) Payment of Cost Recovery Fee Payment for Credits Delivery of Carbon Credits 15m credits Service Agreement Project Management Services Project Due Diligence Services

8 UNDP MDG Carbon Facility 8 MDG Carbon Facility – Legal Agreements Project Operation Project Operation Five Tools –Carbon Layer –Technical –Finance & Legal –MDGs/Environment –Country risk Five Tools –Carbon Layer –Technical –Finance & Legal –MDGs/Environment –Country risk Project registered UNDP implements monitoring system in project’s first year Fortis purchases carbon credits Project registered UNDP implements monitoring system in project’s first year Fortis purchases carbon credits UNDP signs MOU Fortis signs LOE UNDP signs MOU Fortis signs LOE Identification / Screening Identification / Screening Due Diligence UNDP signs Service Agreement Fortis signs ERPA UNDP signs Service Agreement Fortis signs ERPA Project sourcing UNDP performs initial screening of project Project sourcing UNDP performs initial screening of project Operations pursuant to Facility Agreement between UNDP & Fortis

9 UNDP MDG Carbon Facility 9 MDG CF Legal Agreements Memorandum of Exclusivity UNDP and Project Proponent Exclusivity period Confidentiality obligations UNDP due diligence on project Service Agreement UNDP and Project Proponent UNDP performs project development services Letter of Exclusivity Fortis and Host Country Exclusivity Confidentiality ERPA term sheet attached ERPA UNDP, Project Proponent and Custodian Project Proponent delivers carbon credits Fortis purchase of carbon credits UNDP AgreementsFortis Agreements

10 UNDP MDG Carbon Facility 10 Services Offered by the Facility Project Year MilestoneServices Offered by Facility include Year 1CDM registration; agreement of CER sale - project identification and initial screening - preparation of project documentation - due diligence Year 2Project commissioning - basic oversight and technical assistance on implementation Year 31 st year of credit issuance - monitoring support and pre-verification of credits MDGCF services

11 UNDP MDG Carbon Facility 11 Carbon Projects: MDG Carbon Facility Approach Pre-Market Mature-Market Longer Term Compliance & Voluntary Activities Project Types by Market Launch voluntary activities arm in 2008 Fortis compliance activities end in 2009 Relaunch tender

12 UNDP MDG Carbon Facility 12 For further information: Or Thank-you.