LP Gas Use and the MDG Carbon Facility

Andrew YAGER

United Nations Development Programme

LP Gas Rural Energy Challenge

• Public private partnership between the World LP Gas Association and the UNDP

• Designed to create viable and sustainable markets for LP Gas delivery and consumption

• Directly targets rural and peri-urban areas with the objective of expanding access to cleaner LP Gas, thereby contributing to achieving the Millennium Development Goals (MDGs)

Environmental Finance

• The Kyoto Protocol broke new ground with the introduction of a cap-and-trade carbon market to place a value on climate stabilization services. Carbon Finance could raise resources 10 times greater than what is available through ODA.

• This emerging environment finance provides unprecedented opportunities to developing countries but also poses new challenges.–Access: Carbon finance puts high demands on planning, legal,

and financial institutions of developing countries.

–Combining/sequencing different instruments: Given the diversity and complexity of sources of environmental funding, a key challenge for developing countries will be to identify the most suitable financial instruments to achieve specific national targets (e.g. ODA, public transfers, direct private investments, environmental commodity markets)

MDG Carbon MissionCurrent Mix of Projects by Country

• Host-Country Distribution of Confirmed Projects (countries with > 2 percent share of projects)

Distribution of confirmed projects by top host countries

India 96 (32%)

Brazil 64 (22%)Mexico 22 (8%)

China 18 (6%)

Chile 13 (4%)

Honduras 9 (3%)

South Korea 5 (2%)

Argentina 6 (2%)

Malaysia 8 (3%)

Others 52 (18%)

Distribution of CDM Projects

LDCs 3%

Other countries 97%

What is MDG Carbon

MDGCarbon

Pool

Poverty alleviation

Biodiversity

Education

Gender

HIV/AIDS Other

Renewable Energy

Energy Efficiency

Methane Mitigation

Biosequestration

Cleaner Energy

CDM projects

MDG projects

Overview of UNDP's MDG Carbon facility

Core Objectives of MDG Carbon Facility

• Increase access to carbon finance to a broader range of developing countries and project types through providing a one-stop shop service in carbon finance in pre-market situations. (Build capacity)

• Maximize the carbon development dividend through developing an MDG Carbon portfolio that strikes a balance between cost-effective projects (e.g. gas flaring reduction, landfill methane recovery) and high development impact projects (e.g. small community alternative energy, LP Gas delivery).

• Develop capacity of programme countries to combine and sequence different funding sources to achieve specific national development targets

Biomass/biogas energy 6%

MDG Carbon MissionCurrent Mix of Projects by Type

• Distribution of CERs to 2012 from Confirmed Projects by Project Type

CERs up to 2012 from confirmed by project type

Landfill gas 10%

Cemet 1%

Energy efficiency 5%

Renewables 6%

Transportation <1%

Afforestation-Reforestation <1%

Fossil Fuel Switvh <1%

Fugitive emissions 2%

HFC & N2O reduction 66%

Agriculture (AWM) 4%

Barriers to MDG Carbon Project Development

• A number of sectors that have promising opportunities for successful carbon reduction projects with high sustainable development benefits are suffering from the lack of applicable methodologies. Commercial carbon financiers are reluctant to develop such methodologies due to the perceived complexity or risks associated with them.

• Most project proponents in low income countries find it difficult to advance the funds for the preparation of the carbon project document, its validation by a DOE and registration by the CDM board

• Analysis of the typical impact of carbon finance on the IRR of different type of projects shows that in many cases the additional revenue stream created by carbon finance is not likely to be sufficient for transforming a project into an attractive investment (MDG benefits)

Access to Capital

• Carbon finance provides only an additional revenue stream

• To expand the carbon market into new countries and economic sectors, national development agencies need to address the fundamental market barriers that limit the attractiveness of underlying projects to potential investors in general

• This could call for the development of industry-specific policy instruments to complement the potential effect of carbon credits on the profitability of underlying projects

• By managing ODA,GEF and carbon finance under one roof, UNDP is able to assist host countries in sequencing/combining different funding sources to implement national environment & energy development priorities

Overview of UNDP Role in Carbon Finance

Financial Services Partner

Project Proponents

UNDP

Long Term Framework Agreement

Emissions Reduction Purchase Agreement (ERPA)

Payment of Cost Recovery Fee

Payment for Credits

Delivery of Carbon Credits

Cost Recovery Service Agreement

Project Management

Services

Relationship of LP Gas Challenge to Gas Flaring Initiative

• The GGFR programme contributes to poverty reduction by developing concepts for how local communities close to flaring sites can use natural gas and liquefied petroleum gas (LP Gas) that may otherwise be flared.

• LP Gas is often overlooked. LNG is produced and exported.

• Industry has an important role to provide cleaner fuels to the local population.

LP Gas Challenge success

• The LP Gas Challenge has successfully forged relationships with governments in pilot countries where policies and programmes are now in place to increase LP Gas use for domestic and small industrial purposes.

• Important to develop positive actions within an effective local partnership between government and industry

• In South Africa, ESKOM is replacing electric cookers with LP Gas stoves and cylinders

Energy Access for the MDGs

• The LP Gas Challenge partnership has experience creating conditions for the local market to grow in a sustainable manner

• There are immediate local benefits through job creation and local investment directly related to poverty reduction

• A portion of the CERs in MDG Carbon projects can be directly targeted to MDG projects in non-energy sectors (e.g. health, HIV, education)

• Combining carbon finance with LP Gas use to achieve the MDGs can make the associated gas usage more attractive