1. Mechanism for Voluntary Mitigation of GHG Emissions in Colombia GEF and Carbon Finance Meeting Washington, DC - November 15 th, 2010

2. Content 1. Project Context and Rationale Project Context and Rationale 2. Justification of GEF Involvement Justification of GEF Involvement 3. Objective of the project and components Objective of the project and components 4. Risks and challenges

3. 1. PROJECT CONTEXT AND RATIONALE The international response to climate change and the increasing concentrations of GHG in the atmosphere has given a framework for pricing carbon into the economy UNFCCC  Kyoto Protocol  market mechanisms: Allowances (EU- ETS), CDM and JI A regulated market with multiple barriers and unclear long-term signals In this framework, access to carbon finance for developing countries is limited to mostly the CDM Other emerging regulated markets: RGGI, NSW, WCI Supply of low-cost mitigation is limited

4. 1. PROJECT CONTEXT AND RATIONALE While the voluntary markets still remain as a small fraction of the overall carbon market (1%), they have shown consistent growth in the last years In 2009, the voluntary markets had transactions for a total value of $387.4M, 49% less than 2008. The OTC represented 84% of this

5. 1. PROJECT CONTEXT AND RATIONALE Although pre-dating compliance markets, voluntary transactions of carbon offsets are gaining momentum due to: –CSR/Branding –Industry front-runners in Sustainability –Pre-compliance (very small) –Other climate-related policy, mainly through trade measures and information disclosure requirements (emerging) During 2009, voluntary purchases of VERs remained primarily driven by private sector and NGOs for immediate retirement (48%) Transactions occur primarily Over the Counter (OTC) or through an exchange (e.g.CCX)

6. 1. PROJECT CONTEXT AND RATIONALE Disadvantages Their non-regulated nature makes them volatile and with limited capacity Highly affected by international and national policy frameworks Higher risks of non-delivery and permanence Limited capacity to have a large scale impact Disadvantages Their non-regulated nature makes them volatile and with limited capacity Highly affected by international and national policy frameworks Higher risks of non-delivery and permanence Limited capacity to have a large scale impact Advantages Reduced costs and time Forestry and REDD projects are accepted After the wild west, a “regularization” process has occurred: - Verification and certification requirements - Registration - Uniformity of proprietary units transacted (standards)  Transparency, credibility and robustness

7. 2. JUSTIFICATION FOR GEF INVOLVEMENT Although Colombia’s contribution to global GHG emissions is approx. 0.37% of the world’s total, the country’s emissions volume continue an upward trend Many corporations have started including Climate Change within their Corporate Sustainability or Social Responsibility policy; yet only a few have started taking action or know what to do Airline companies and others are preparing for stricter market regulations in the EU regarding their carbon footprint Some companies have started their own GHG accounting efforts and offsetting programs, but with little credibility Minimal capacity in the country for generation and commercialization of VERs, specially from the Forestry/REDD+ sectors Lesser capacity for creating national transparent, credible and reliable market transactions

8. 2. JUSTIFICATION FOR GEF INVOLVEMENT Increasing interest from large scale companies to participate in a GHG carbon footprint mitigation and offsetting program Increased interest from national consumers to offset their own carbon footprint Supply awaiting market opportunities Increased interest from international buyers in the country Key national stakeholders, including the Stock Exchange and Mercantile Exchange have a mandate to open new business opportunities in the carbon markets

9. 3. PROJECT OBJECTIVE AND COMPONENTS Formulate and establish the technological and institutional platform basis for a Verified Emission Reduction Unit (VER) market mechanism to facilitate the voluntary mitigation of GHG emissions in Colombia, through: (i) creating a market platform for nationally produced VERs accessible to national or international buyers; (ii) supporting the issuing of VERs from agriculture, forestry and/or REDD projects developed in Colombia; and (iii) fostering local demand of VERs through corporate carbon mitigation and offsetting strategies

10. VERs supply Capacity building for MVR Support in the verification, validation, certification, registry and commercialization Financing instruments to support implementation Marketing and promotion Offsets/VERs Demand Recognition and training program for Companies that supports GHG accounting, mitigation and offsetting Promotion campaign to sensitize consumers and possible international buyers Incentives to support corporate engagement VER market platform Certification and Issuance (VCS, CCB, VER+) Registry NATIONAL INTERNATIONAL 3. PROJECT OBJECTIVE AND COMPONENTS

11. 3. Risks and challenges Low market take from national buyers --> low prices may make mitigation efforts unworthy Narrow and sporadic supply of VERs going to national markets Companies are more interested in selling their own VERs than in offsetting Slow market growth makes it unviable in the mid-term Regulated markets take off again, driving prices up

12. 4. Summary Current efforts in the international arena appear to be insufficient for providing the right incentives in pricing carbon into the economy Developing countries have a large range of low-cost mitigation options which are being untapped due to access to carbon finance, particularly VERs markets This project aims at catalyzing the conditions for a market of colombian-based VERs through comprehensive and sound processes and technologies, within the principles credibility, transparency and competitiveness

13. Carolina Jaramillo IDB-GEF Technical Focal Point carolinaj@iadb.org THANK YOU !