Beyond Low Hanging Fruits:
A Programmatic Environment forResilient, Low Carbon Economies
The Clean Energy Investment Framework in a RegionalContext

Jose Alberto Garibaldi

Developing Visions for a Low Carbon Society Through Sustainable
Development
Tokyo, 13-16 June

Argument• Low carbon society requires policy and regulatory enabling
environment for long term investment; market key, but unlikely
to change trends.
• Public and investment sectors involved through public programs
crucial to induce the required step change• Opportunities for win – win still untapped in terms of combining
domestic policy, facilitating investment flows and carbon finance.
• New Climate Change Arena in Development Banks and Financial
Institutions

A regional discussion to illustrate common, but specificproblems in the context of the Gleneagles induced
Clean Energy Investment Framework.

Contents
1. Energy and emissions trends in the Latin America andthe Caribbean (LAC) region

2. What could prompt a change in the policy anddevelopment pattern?

3. The potential role and opportunities for the the G8
Investment framework in the LAC (and other) regions.

4. Opportunities to engage in a Investment Framework (IF)regional consultation process in other regions throughUN commissions.

Source: Energeia, CAIT
National CommunicationsIBrazilMexicoVenezuela
Argentina
Colombia
Peru
Bolivia
Ecuador
Chile
GuatemalaNicaragua
PanamaParaguay
Cuba
GuyanaHonduras
Dominican Republic
BelizeCosta Rica
Trinidad & Tobago
El Salvador
Jamaica
Haiti
Suriname
BahamasBarbados
Antigua & Barbuda
UruguaySaint Lucia
Saint Vincent & Grenadines
Dominica
GrenadaSaint Kitts & Nevis

An overview of regional emissions
Mils Ton. C. equiv.

6005004003002001000CO2 energyCO2 LandCH4 N2O HFCs PFCsLatin America Energy Efficiency Lag
1970 – 2005 Tenuous decoupling between energy
consumption and economic growth120

LAC +2%110

INDICE 1980=100100908070

OCDE – 24%6050
1970

1975

1980

1985

1990
OCDE

1995

2000

2005

LAC

A word of caution:• Aggregates relatively clean power and transport in Brazil with high fossil fuel intensive
Mexico• Disguises internal changes within industrial structure and growth pattern

Nevertheless, shows an effective tendency

Shifting Paths?
LATIN AMERICA INDUSTRIAL
ENERGY INTENSITYMEXICO INDUSTRIAL
ENERGY INTENSITY
3.83,7003.6

3.4

3,200

3.2

3

2,700

2.8

2,200

2.6

2.4
1,700

2.2

2
1,200
1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

1.8
1965

ARGENTINA

BRASILMEXICO

1970

1975

1980

1985

1990

1995

2000

2005

América Latina y Caribe

Although with exceptions, industrial energy intensity mostly increasing inthe region…

Hydrocarbons dominated energy supply
HYDRO

3.8 %

GEOTH

0.1%.

BIOMASS

21.1%

1970

RENEWABLES
25%
COAL
3%
NUCLEAR
0%

OIL
61%

NAT.GAS
11%

HYDROCARBONS 72%

With the entry of cleaner fossil fuels the mostsignificant change….

2003
HYDRO 10.5%
RENEWABLES
26%

GEOTH 0.5 %BIOMASS 15 %

OIL
45%
COAL
4%
NUCLEAR
1%NAT.GAS
24%

However:

HYDROCARBONS 69 %• Fiscal, Energy and Environment policies frequently at odds; subsidies todirtier, scarcer fuels•Power sector expansion more likely to rely now on gas than hydropower as inthe past
• Overall Infrastructure investment decreasing the last decade•Crucial role to policy coordination, long term planning, and energy efficiency

So, what direction?
GREENHOUSE GASES (CO2) EMISSIONS IN ELECTRIC GENERATION AS AN EXAMPLE
0.33

0.31

0.29

KG CO2/KW H

0.270.25?

- 27 %

0.23

0.21+ 14.6- 10%
0.19

0.170.15
1965

1970

1975

1980

1985

1990

1995

2000

2005

An Emerging Consensus:
what could prompt a change?
LAC likely to require 0.6 trillion in clean energy plus massive
adaptation insurance/mechanisms.
Access, security and competitiveness common
interconnected challenges• Carbon Markets so far very minor fraction of investment
flows• Carbon revenue could play crucial role in catalyzing policyto• Improve policy coordination• Enhance project return rate
• Facilitate enabling environment.

Low Hanging Fruits:• Number of projects and the value of CERs has multiplied.
• But carbon instruments like CDM shifting towards high GHG effectgases..
Emission reductions by type of project

Total number of projects and CER value

15 March 2006

15 March 2006
400

annual volume (MtCO2-eq)
project-based emission reductions traded

12,000,000x 3.4

350

10,000,000

8,000,000

6,000,000

250

2,000,000

150

Energy dist.

BiogasFugitive

Fossil fuel switch

CementWind

Geothermal

EE, industry

Biomass

Hydro

HFCs

Agriculture

N2OUS$ 4.99/tCO2e1000

Type of project

US$ 7.23/tCO2e200

INCREASEDIMPORTANCE
OF POST 2012
REGIME

4,000,000

Landfill gas

TCO2e/year

300

LOW IMPORTANCE OF
ENERGY PROJECTS IN
TERMS OF CO2REDUCTION

US$ 11.45/tCO2e500

1998

1999

2000

2001

2002

2003

2004

2005 1stQ06

An Agenda:

1. Focus on areas where domestic co-benefits and synergies exist
with low carbon•Programmatic low carbon approaches combining policy, finance, andtechnology introduction to catalyze policy change, offset transition costs, andpromote investment.
•Opportunities in Public Transport, Waste Management, Lightning, Energy
Efficiency, Cogeneration, Fuel switching, and large city based projects•Already multiple private and public instruments; but long term Climate Regime
crucial

2. Investment Framework preparation to help identify opportunities
and finance a regional transition.

Energy and Climate linked to economic development
agenda.

Opportunities for Reduction
Contributory Factors in CO2 Reduction, 2002-2030
100%

20%

21%

15%

5%

80%

10%

60%

17%

5%
7%

12%

21%

8%

1%

4%
7%

10%

40%

58%

63%

67%

Transition economies

Developing countries

49%
20%

0%WorldOECDEnd-use efficiency gains

Fuel switching in end uses

Changes in the fossil-fuel mix in power generation
Increased renewables in power generation

Increased nuclear in power generation

General direction of IEA coincident with these diagnosis:
opportunities lie in increased efficiency –and also in improved
policy coordination and planningBeyond low hanging fruits
Sustainable low carbon development is as much a policy and financial
issue as an information and capacity building exercise
PublicPublic/Multilateral

Private

Risk

Information and Technology
Inventory and Opportunity Information
Government (subnational and national) and Private
Sector Coordination
Technology transfer and development

Policy and Regulatory
Public - Private
Cooperation

Regulatory (interconnections, transmission,capacity, EE)
Fiscal, Tax and Sectorial policy coordination
Stake holder alignment

Financial
Combining multilateral, private and publicresources

FruitsReturn Expectations throughout time

Collateral and guarantee schemes
Increasing linkages to carbon
Domestic funds, option contracts

Programmatic Approaches to decarbonization
Policies

Governmental Function – SectorialPolicies

Programs Governments / Private Parties –• Specific incentives for policy goals• Govt. Agent(s) involved in program coordination, promotion,barrier removal.
• Financial Mechanisms (funds, option contracts, investmentfairs)

ProjectActivity

Private Parties / Public Sector•Carbon finance operating incentive, complementary role
• Carbon finance, IFI and domestic guarantees (Chile, Argentina,Brazil)

Some examples…
Where is such an agenda
now in use?
• Renewable energy in power andtransport (Brazil, Mexico,Colombia)

Where could it be expanded?
• Increased Efficiency in highintensity GHG sectors• Low carbon shifts in resourcebase / fuel mix• Transport and urban corridors(Chile, Colombia, Mexico, Peru)• Sub regional integration• Solid and water waste
management; landfills (Mexico,Colombia)• Rural electrification, access toenergy• Gas introduction assesments• Forestry? An urgent need…

..And a Common Interest in Sustaining Carbon Markets
 Project based assets driven by vibrant carbon market, supported by EU / ETS.
 Energy, environment and financial markets linked
 Not all assets equal: CERs depend on post 2012 regime
Evolution Carbon and Energy markets
Compliance,speculation?

35What Happens next?

P o w e rn e x t - S p o t p r ic e
E C X - D e c '0 8

–Phase II choices: cap
level, other sectors

Coal preferred to gas

20

Market believed
long for Phase I

15

But also…

20

06

06

06

4/

20/0/0/0/0

20

19

21

20

2//1
21

1/

20

06

05

/1
21

2/

20

05

/1
22

1/20

05
20

9//0
22

0/

20

05

05
20/0
23

8/

20/0
24

7//0
24

6/

20

05

05

1020

– Development of U.S.
markets.

25

3/– Unlocking Unused
AAUs

EUA price (€/tCO2)–Role of Canada30•Role of long term, post 2012 regime•Policy signals for long term low carbon development in developed and developing economies•NAI support for voluntary or CER discount measures for preservation and expansion of CM• Framework to support expansion of long term investment flows

What role for a Clean Energy Investment Framework?
What?
G8 invitation to World Bank and RDBs

Why useful?
• Mechanism for long term action• Leverage private and public resources

Included:i) Describe current activities;ii) Analyze barriers;iii) Propose financing portfolio increments;iv) Explore new mechanisms; andv) Develop Work Programme.

• Coordination with carbon finance mechanisms•Banks mainstream CC
Key to tailor framework to regional needs andstrengths`
Future of the UNFCCC
Process (Cop 10, Pew,
IPPR, etc)

OECD SD
Round Table• Work approved at WB development
committee,• Progressing at WB, IADB, EBRD, ADB andothers.

UN Process
COP 11 etc

Continued G8
Evian Technology
Research (UKmeeting)

UK autumn
Business
Event

WEF
DavosStabilisation
Science(UK m eeting)

CSD
EnergyEnvironment &Development
Ministerial

Africa andotherimpactsEnergy &Environment
Ministerial Round
Table

CLIMATE CHANGE UK G8 PRESIDENCY PROCESS

Post-Gleneagles
DialogueWhat can multilateral and RDBs do?
1. MAINSTREAM LOW CARBON AND ADAPTATION•

Project cycle, integration development finance.

•Assess existing instruments; expand innovative ones.

•Donors contribution, develop integrated funds

2. DEVELOP ACTIVITIES THROUGH EXISTING NETWORKS
Large industrial energy users•

Audit, investment and energy management training; Trust funds; public institutions development

Small energy users•SME’s and small renewable energy projects; support local programs.

Power utilities and energy companies•

Cleaner energy supply - power and natural resource sectors; fuel switching opportunities; carbon finance

Renewable energy suppliers•

Promote, support and invest renewable energy

Municipalities and Subnational Governments•

Reduce municipal infrastructure ghg emissions (waste, transport, urban transport, heating sectors

Carbon market institutions•

Complement to set- up of multilateral carbon credit fund

3. WORK AT COUNTRY AND REGIONAL LEVEL• Integrate low carbon and adaptation into country dialogue, assistance strategy, operations andpractitioners networks; work together with regional economic policy bodies.

Regional Action so far
Preparatory Meetings – Opportunities in Mainstreaming carbon• ECLAC regional meeting Mainstreaming Climate Change policies : Towards aLower Carbon economies (CEPAL, Santiago, September, 2005).
• Discussed at Iberoamerican NDA Network & Caracas Environmental Ministers
Summit (October 2005)
Current: Relation with Financing• IADB / ECLAC: Investment Framework Elements, (Washington, March, 2006).
• Role of Private Banks (Mexico City, March 2006).
• Latin American Carbon Forum, Quito, April 2006.
Next Steps: Tailoring the regional IF components• Discussion of WB and IDB draft IF documents, ECLAC, September 2006.
• Side event, WB annual meeting, Singapore September 2006.

And expanding to other regions…
• Exchanges with ESCAP already in place: cooperation in disaster mitigation since2004 and CDM natural resources and trade (Tokyo, June 2006).
• Asian regional meeting, ESCAP: IF and opportunities (August 2006),•ADB discussing contents activities on sectorial IF and Clean Energy Week (June2006)• ESCAP proposal on programmatic approaches and CER discounting

Both ECLAC and ESCAP to present results in October Ministerial – GleneaglesDialogue.
Investment framework needs the support and input of countries and regions tobe effective
Consultations to proceed in LAC and Asia between July and September.

Conclusions•

Markets will not deliver low carbon resilient economies on their own; public
sector programs crucial both to enable an investment environment as wellas support a long term regime•

Potential to develop IF in coordination with existing portfolio of domestic
financial and policy instruments developed for co-benefit purposes•

Key role for developing and developed countries in building IF:– Not a Banks’ framework, but a multilateral one– Developing countries participation in WB & RDB boards and development
committee discussion key to ensure it’s deployed to meet their needs– IF effectiveness depends on the capacity to tailor the framework to regional
strengths and needs and the investment institutions strengths•

Expand discussion from Environment to Energy and Economy Ministries/
Sectors as an economic policy / dev. Issue.

•Engage regions, lower energy consumption countries through regional UN
institutions through schedules 2006 – 2007 consultation process