BioCarbon Fund

Harnessing the carbon market to sustain

ecosystems and alleviate poverty

World Bank Carbon Finance Products

Total funds currently under management: $400-450 million
Prototype Carbon Fund. $180 million. Multishareholder
Community Development Carbon Fund. $40 million
target of $100 million; Multi-shareholder
$30 - $60 million; Multi-shareholder
$125 - $180 million: Dutch Government
$95 - $200 million; Italian Multi-shareholder
Netherlands
JI Facility

$40 million. Economies in Transition only

Prototype Carbon Fund Participants

Public Sector (6) Governments of Netherlands,
Finland, Sweden, Norway, Canada, and Japan
Bank for International Cooperation
Private Sector: (17) RWE - Germany, Gaz de
France, Tokyo Electric Power, Deutsche Bank,
Chubu Electric, Chugoku Electric, Kyushu
Electric, Shikoku Electric, Tohoku Electric,
Mitsui, Mitsubishi, Electrabel, NorskHydroNorway, Statoil -Norway, BP, Fortum,
RaboBank, NL
Community Development Carbon Fund Participants
Public Sector: Governments of Italy, Netherlands,
Canada, KfW-Gemany
Private Sector: Daiwa Securities, Nippon Oil, Idimetsu
Oil, BASF, Okinawa Electric, ENDESA (Spain)

Private
Companies
are more
than Double
Public Sector
Shareholders
in Bank
Carbon
Funds

10

How the Funds Work

The Carbon
Funds do not
invest in the
underlying
projects. They just
buy carbon.

Nature of Carbon Funds and Financing

Investor

Banks

Equity

Debt

Power Purchase Agreement

$$
Electricity

Carbon
Credits

Carbon
Fund
2

$$

Emission Reduction
Purchase Agreement
7

The Carbon Market

Carbon market based on

Greenhouse gas effect being a global phenomenon => location of

abatement is irrelevant; and

difference in cost of abatement between OECD and developing

countries

OECD private sector

invests in less greenhouse gas (GHG) intensive project/ technology in

developing country and

receives credit for GHG emission reduction

Developing country receives increased investment and better technology

Key figures in the carbon market:

70 million tCO2e traded in 2003 (vintages up to 2012) (valued between

$200-300 million)

2.5 times more than 2002

220 million tCO2e traded since 1996

World Bank/CDM Project Cycle The

Manufacturing Process for Emissions Reductions
Project completion

Preparation and review of the

Project Project Idea Note
Project Concept Note

ont
h

Up
to
2

1y
ea

rs

3m

2 mon

1-3

2m
on
th

rs
yea

Supervision

ths

Periodic
verification &
certification
Verification and certification

3 months

Baseline Study and

Monitoring
Project Design Document
Plan
ER estimates
Monitoring Plan

Validation process
Validation by independent
Accredited Operation Entity
Submission of new method
to CDM Executive Board if
needed

Negotiation
of Project
Construction/Implementation and start
up
Initial verification report
Agreements
Project Appraisal and related documentation
Term sheet (if needed)
Emission Reduction Purchase Agreement

Main Driver: Compliance

Volume traded in project-based transactions, million
tCO2e

60
Kyoto Pre-Compliance
Not Kyoto Pre-Compliance

40

20

0
1996

1997

1998

1999

2000

2001

2002

2003 up
to Q3

Prices in 2003

(in U.S.$ per metric tonne of CO2e)

$6.00

$4.00

$2.00

$0.00
ER
Not Kyoto Pre-Compliance

Buyer takes
Registration Risk

Seller takes
Registration Risk

Kyoto Pre-Compliance

Location of Projects
In million tCO2e sold from 2002 to Q3 2003

Africa

60

Latin
America

40

20

Asia
0
OECD

Transition Economies

Developing Countries

Private Investment in CDM

Increases

(million tCO2e from 2002 to Q3 2003)

60
Private
Private/Public
Public

40

20

0
OECD

JI

CDM

BioCarbon Fund: Rationales

Improved land use is part of the

solution to climate change

Open carbon market to rural

communities

Inform debate
Create synergies among

Conventions

UNCCD

Goals
Atmospheric: Reduce GHG concentrations

over baseline
Cost-effective: Buy low-cost climate

change mitigation opportunities

Social: Improve livelihoods (employment

income, know-how)
Environmental: Conserve biodiversity,

rehabilitate land
Adaptation: Increase social and ecological

resilience of local communities

Two Windows
1st Window:

Eastern Europe: Afforestation/Reforestation, forest

management, cropland management, grazing land
management

Developing Countries: Afforestation/Reforestation

Biofuels

2nd Window to explore activities beyond

Afforestation/Reforestation

Subject to the same standards as all other activities

(additionality, permanence, measurement, verification)

Explore new modalities and procedures

Portfolio First Window

In-fill planting for forest

restoration

Community forestry
Agroforestry
Biofuels

Portfolio Second Window

Forest

restoration &
conservation

Reduced

tillage

Revegetation

Project Portfolio
100 Project Idea Notes received already
Diversity of projects (project types and regions)
Supply > Demand: Buyers market
Willingness to pay: $3-4/tCO2e
At $20 million, BioCarbon Fund will be able to support 8

projects

Second Window: 1 project

Early screening on financial, environmental and social

criteria
Focus on top candidates

Project Portfolio: Top 6

Costa Rica Cooperative Reforestation

Honduras Agroforestry and Reforestation
Madagascar Biodiversity Corridor
Mexico Seawater Agroforestry
Romania Shelterbelts
Tanzania Small Group Tree Planting

Portfolio: Top 30 - Technology

Com m ercial
Plantation
4%

Agroforestry
23%

Environm ental
Plantings
23%

Com m unity
Reforestation
30%

Avoided
Deforestation
4%

Forest
Rehabilitation
9%
Sust Agric
2%

Biofuels
5%

Portfolio: Top 30 - Geography

Asia
17%

SS Africa
27%

East Europe
3%
C Am erica
30%

N Africa
3%

S Am erica
20%

Portfolio: Top 30 - Ratings

Additionality
Price
Financing
Paym ent Schedule
Sponsor Quality
Environm ental
Social
0

Env & Soc co-benefits do not

come at the expense of price
6
5

$ / t CO2e

4
3
2
1
0
0

Combined Environmental & Social Score

The Business Case

Cheap: all-up cost ~ $2-4/tCO2e (present value)

Tradable: additional and with co-benefits

Knowledge about the carbon market: deals + intelligence

Carbon strategy: sinks will remain competitive over energy for

long time

Climate change portfolio diversification: pool vs. go it alone

Corporate sustainability commitment: green carbon with a human

face

Policy debate: inform negotiators and public

Project finance: cash flow enhancement

Modest investment: $2.5 million

Annual draw-downs: $150-350k p.a. over 10 years

Impact of Carbon Finance on

LULUCF Projects
Honduras Agroforestry and Reforestation:

IRR with 14 years of carbon sales @ $3/ tCO2e: 2%

Mexico Seawater Agroforestry

IRR with 15 years of carbon sales @ $3.6/ tCO2e: 5%

Costa Rica Cooperative Reforestation

IRR with 8 years of carbon sales @ $3.6/ tCO2e: 6%

Plantar Sustainable Fuelwood and Charcoal Project,

Minas Gerais, Brazil

IRR with 7 years of carbon sales @ $3.5/ tCO2e: 5%

Financial Model

Participation: $20M by May 2004

2 Participants (as of 3/19/04)

Okinawa Electric

$2.5M

Government of Canada

$2.5M

2 Committed Participants

Government of Italy

$2.5M (end Apr) + $2.5M (2005)

Agence franaise de dveloppement

$2.5M (end Apr)

17 EoI Signatories

Chugoku Electric, Citigroup, Conservation International, Eco-Carbone,

European Investment Bank, Fuji Photo Film, Future Forests, Hokkaido
Electric, Japan Energy, Kyushu Oil, NTI Data Management,
STMicroelectronics, Sustainable Forest Management, Swiss Oil, The
Nature Conservancy, Tohoku Electric, Tokyo Electric

www.biocarbonfund.org
www.carbonfinance.org