INTERNATIONAL SUPPORT FOR DOMESTIC ACTION
INTERNATIONAL SUPPORT FOR DOMESTIC ACTION Outline • Incremental costs + shifting investment • Bottom up – what needs to be done B tt h t d t b d • Options for instruments p • Options for institutions • The broader framework Th b d f k
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 450 a 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 EU c 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 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 [2] N i d Oth t i b f t t l i f 2030 i t ti d t ti i f 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 Significance of Agriculture Consumers in Power Significance of Agriculture Consumers in Power Si ifi ifi f A f A i i lt lt C C i i P P Sector (Anoop Singh, IIT Kanpur) Sector (Anoop Singh, IIT Kanpur) Share of Agriculture in Energy Sale and Revenue (2005-06) 60 Sales Share (%) Revenue Share (%) 48.89 50 43.39 42.27 re 40 0 37.54 entage Shar 32.55 28.74 30 24.99 23.94 21.99 21 99 21 89 21.89 Perc 20.75 18.31 20 13.07 10.20 10.07 10 10 6 73 6.73 6.48 3.15 2.94 0.27 0 ndia adu ana jab Pr. Pr. aka arat han tra Uttar P Andhra P Harya Karnata Tamil Na Punj Rajasth Maharasht All In Guja So: PFC(2007)
INTERNATIONAL SUPPORT FOR DOMESTIC ACTION Drivers for CSP rollout 3.3 to 5.4 times the total electricity requirement l t i it i t 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 Brazil’s biggest problem: Intensive use of Road Transport Country study by • Energo-intensive mode; Márcia Valle Real and Haroldo Machado Filho • High costs for commodities transport; • Infrastructure in bad conditions; • Low safety traffic; 100% Sea Sea 90% 90% 80% 70% Pipelines 60% 60% Freight Transport 50% Inland (tkm) 40% Waterways 30% 30% Rail 20% 10% Road Road 0% EU ‐ 27 USA China Russia Brazil Sources: EU Energy in figures, 2007/8; PNLT, 2007
INTERNATIONAL SUPPORT FOR DOMESTIC ACTION Federal Government Plan “ The National Plan on 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 The reduction of freight by 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 Public Sector Role of Public Sector Role of Public Sector Role of Private Role of Private Role of Private Role of Private Sector Sector Domestic Domestic International International Capacity building / Technical assistance Capacity building / Technical assistance Technical assistance Technical assistance Technical assistance Technical assistance Capacity building Capacity building Capacity building Capacity building New business New business Transparency, outside Transparency, outside Technical assistance Technical assistance practises practises commitment commitment Remove regulatory Remove regulatory Experience / barriers barriers Technology gy Technology / Technology / Subsidy removal Subsidy removal Carbon markets Carbon markets Skills Skills Public transfers Public transfers Carbon pricing Carbon pricing $ billions $ billions in 2030 in 2030 Incremental Incremental Support incremental Support incremental r r Energy Energy Energy Energy costs costs costs costs costs costs costs costs 250 250 250 250 Additi Additional Additional Additi l l Power secto Power secto fuel supply fuel supply cost savings cost savings Offset mechanisms (e.g. CDM) Offset mechanisms (e.g. CDM) 200 200 Shift operation Shift operation costs to costs to costs to costs to ment Costs P ment Costs P 150 150 investment investment Shift Shift Loans Loans finance / finance / 100 100 investment investment Investm Investm Risk guarantees Ri k Risk guarantees Ri k t t 50 50 Reference Reference Mitigation Scenario Mitigation Scenario (Conventional (Conventional (Conventional (Conventional (Low carbon (Low carbon (Low carbon (Low carbon technology & practises) technology & practises) technology & development) technology & development)
INTERNATIONAL SUPPORT FOR DOMESTIC ACTION A Aspects arguing for: t i f Aspects arguing for: A t i f direct transfers facilitate financing Addressing constraints to capital access due to: • C Country/regulatory risks t / l t i k • 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 Rural-RE Ghana CSP Aggri pump EE-HH Transport South Africa India South Africa Brazil
INTERNATIONAL SUPPORT FOR DOMESTIC ACTION Public Finance Mechanism Up-front grant Grants, capital subsidies p - Standard S d d •Easy to implement Technical assistance grants •Reduces cost of capital on to t and - ‘Smart’ grants Contributio investment F Feed in, CDM, Carbon pricing/removal d i CDM C b i i / l operation Funding during of energy subsidy operation •Incentives for performance of project C o i •Where comprehensive risk coverage necessary Provision of equity finance - Private equity •Initial experience to subsequently attract private - Venture capital sector investment sector investment access to fi Provision of debt - Loans - Credit lines Risk coverage Risk coverage Facilitating - Full or partial guarantee - Policy to cover specific causes of non performance Targeted to specific risk components or all - Other financial products Other financial products ( (regulatory, currency) l t ) F
INTERNATIONAL SUPPORT FOR DOMESTIC ACTION Direct support Direct support Indirect support Indirect support Public Finance International to International National to Mechanism project to national project Up-front grant GEF grants GEF t - Standard S d d Other bilateral and ODA Investment support Technical assistance multilateral DFIs grants on to t and - ‘Smart’ grants *Incremental Contributio Off Offset mechanisms t h i G Grant linked to t li k d t payment to t t investment operation (CDM) continuous renewable Funding during delivery (finance *Removal of energy operation WB support +regulatory subsidies stability) * Carbon tax/cap C o and trade scheme d t d h i Provision of equity finance ADB Clean Energy Carbon Trust VC - Private equity n/a PE fund fund - Venture capital g access to f Provision of debt IMF and WB IFIs e.g. EBRD, IFC - Loans loans - Credit lines MIGA political risk WB/IFC Partial Export credit Risk coverage Risk coverage i insurance C Credit and dit d agency guarantees t Facilitating - Full or partial guarantee Partial Risk - Policy to cover specific Guarantees causes of non performance or all - Other financial products Oth fi i l d t F
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 – Using twinning – similar to Paris declaration U i t i i i il t P i d l ti – Cooperation across governance levels possible – Tailor approach & process to national circumstances Tailor approach & process to national circumstances – Requires robust framework to ensure transparency!
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