Investment Frameworkon

Clean Energy & Development

Wim Jonker Klunne

Alois Mhlanga

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Outline

1. Background/context of Investment Framework

G8 Gleneagles Communiqué Time frame

2. The MDBs and the Investment Framework

The MDBs response to G8

3. The ADB and the Investment Framework The role of the ADB Conclusion and way forward

Background/context of Investment Framework

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G8 Gleneagles Communiqué (July 05)

Objectives of the Framework: increase the volume of investments on

renewable energy and energy efficiency assist regional member countries to identify less

greenhouse gas intensive growth options support private sector to develop and finance

cost-effective projects on energy efficiency and low-carbon energy sources

Request to World Bank and RDBs to develop a clean energy investment framework

Background of Investment Framework

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G8 Gleneagles Communiqué (July 05)

Focus on Africa and on Climate Change Secure, reliable and affordable energy sources

are fundamental to economic stability and development

Action has to be taken now to slow, stop and reverse greenhouse gas emissions promote energy efficiency conservation of energy improvement of policy-, regulatory- and financing-

frameworks accelerated deployment of cleaner technologies

Background of Investment Framework

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G8 time frame July 2005: request by G8 to MDBs November 2005: meeting with finance ministers

(London) April 2006: World Bank reported at IMF Spring

Meeting 3rd / 4th quarter: MDBs expected to present IF

strategies / action plans to their Boards G8 summit 2007 (Germany): report progress G8 summit 2008 (Japan): report outcomes

Background of Investment Framework

The MDBs and the Investment Framework

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MDBs response to G8

Clean energy and low-carbon economyFocus on cleaner utilisation of fossil fuels Increased used of renewablesAttention to increasing access to energy

Adaptation to climate changeClimate proofing of investments Integration of adaptation into project cycle

MDBs agreed to take a two pronged approach to Climate Change:

The ADB and the Investment Framework

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Outline

Clean Energy and Low-carbon Economy.

Adaptation to climate change.

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A - Clean Energy and Low-carbon Economy

Outline

1. The Challenge.

2. Strategies for Clean Energy Future

3. Investment Needs and Sources

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1.The Challenge Double dividend in development. Major energy challenges :

improving energy services for economic growth and better quality of life;

reducing environmental and human health threats from energy production and use; and

strengthening energy security for macroeconomic stability.

Up to 2050, primary energy demand will increase, so will GHGs since coal, oil and gas will be main sources for energy.

CC major additional challenge to the poor. Low carbon drive must not have additional cost on the poor.

A- Clean Energy and Low Carbon EconomyA- Clean Energy and Low Carbon Economy

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2. Strategies for Clean Energy Future

Focus on clean energy for economic growth and sustainable development.

Criteria that focuses on low-cost and high-impact solutions. changes in national energy fiscal and regulatory policies.

Non-regrets Investments: applying exiting technologies and approaches that are viable financially and yield ancillary benefits.

New Technologies : Focus on technologies that are economically viable but not yet financially viable.

Research and Development : Additional measures to reduce GHGs and Low

carbon economy : aggressive program on efficiency, renewables and fuel switching & adoption of policy targets

A- Clean Energy and Low Carbon EconomyA- Clean Energy and Low Carbon Economy

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3. Investment Needs and Sources

Financing needs are enormous : 300 billion US$/year for Clean Energy for Development. 60 billion US$/year for GHG reduction and Low-carbon economy.

Internal Cash generation, Private financing, Public funding: national investment climate – policies, tariffs, subsidies etc.

IFIs – finance, policy and technical advice.

IFIs – need to expand existing risk management products, mainstreaming carbon finance, accessing sufficient grants, enhance country dialogue etc

A- Clean Energy and Low Carbon EconomyA- Clean Energy and Low Carbon Economy

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3. Proposed New Financial Instruments

Focus:1- buy down cost of investment. 2-mitigate technology risks. 3-fund efficiency improvement of existing assets. 4- strategic research

financing. Clean Energy Finance Vehicle (CEFV) : blend

grants, carbon finance and collateralize clean energy technologies

Power rehabilitation financing facility. Project Development Fund. Development of Bankable

projects.

Venture capital funds for technology adoption : use dedicated venture capital to promote the adoption and penetration in the marketplace of new technologies.

A- Clean Energy and Low Carbon EconomyA- Clean Energy and Low Carbon Economy

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B -Adaptation to Climate Change

Outline

1. The Challenge.

2. Strategies to Adapt to Climate Change.

3. Investment Needs and Sources

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1. The Challenge 1 of 2

Human-induced change: combustion of fossil fuels & land management practices.

All countries vulnerable :the poor are most vulnerable, having the least means to adapt.

Long-term adaptation strategies compatible with reduction of vulnerabilities to immediate climates.

Mitigation and adaptation major challenges to Africa.

B -Adaptation to Climate ChangeB -Adaptation to Climate Change

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1. The Challenge

Some Projected Impacts in Africa Decrease in water availability & quality. Risks of droughts and floods. Human health: Increased vector and water-borne

diseases. Food security : reduced agricultural productivity

Infrastructure :economic and social infrastructure

B -Adaptation to Climate ChangeB -Adaptation to Climate Change

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2. Strategies for adaptation

Development of Information & tools :reduce uncertainties of threat and impacts; planning risk insurance and disaster management.

Disaster Preparedness : improve preparedness through proactive actions.

Implementation of existing cost-effective technologies and infrastructure.

Research and Development.

B -Adaptation to Climate ChangeB -Adaptation to Climate Change

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3. Investment Needs and Sources

10- 40 billion US$ per year required: all

developing countries need finance and technical assistance. Public finance to be main driver :need to climate

proof development programs.

Private finance threatened : improve private sector capacity to deal with climate variability.

Innovation : collaboration between private re-insurance industry and IFIs in reducing risk to infrastructure investments and agriculture.

Instruments similar to the clean energy financing

B -Adaptation to Climate ChangeB -Adaptation to Climate Change

The ADB and the Investment Framework

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ADB strategy on IF

Proposed action plan - Clean energy Increasing access to energy (both rural

and urban) Emphasis on hydropower, biomass, solar

energy Integrate cleaner energy / renewable

energy in Bank’s projects Energy policy / RE&EE strategy

Analyse role of energy in Bank’s operation Stakeholder consultations

The ADB and the Investment Framework

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ADB strategy on IF

Proposed action plan - adaptation Mainstreaming in all ADB operations

Country programming Integrate in Bank project cycle Update procedures / guidelines

Training & capacity building (RMCs & ADB) TA to countries on climate proofing Research and Development

The ADB and the Investment Framework

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Conclusion and way forward

ADB to work in close collaboration with other MDBs in developing the Investment Framework

Framework endorsed by Development Committee

ADB to develop its own Action Plan with specific issues related to our core mandate and African needs

Present clean energy and adaptation action plan to the Board by 4th quarter 2006

The ADB and the Investment Framework