presentation by rey guarin

Development Bank of the Philippines

Triple Bottomline Opportunities in the Clean Development Mechanism (CDM: An Emerging Global Carbon Market)

Outline of Presentation

CDM in a Nutshell

How Do We Achieve Triple Bottom-line in CDM Projects

Partnering up with DBP

Clean Development Mechanism

DEVELOPINGCountries

(i.e. Philippines)

GHGs

DEVELOPEDCountries

Objectives:EmissionReduction

Compliance

Higher EcoGrowth

Objectives:Climate Friendly

Technology

Sustainable Development

Marrakech Accord

GHG - Greenhouse gases

How CO2 Credits are Formed

CO2Emissions

Time

Baseline: Emissions Produced under

Scenario:Business-as-Usual (BaU) Scenario

CDM : CO2 Emissions Produced under

Scenario: Mitigation or Sequestration project

BaU

CDM

/\

Emissions REDUCED (BaU-CDM)

\/

Potency of the GHGs

Greenhouse Gases(GHG)

ChemicalSymbol[1]

Global Warming Potential(GWP)[2]

Carbon dioxide CO2 1

Methane CH4 21

Nitrous Oxide NO2 310

Hydrofluorocarbons HFC 1400 - 1700

Perfluorocarbons PFC 6500-9200

Sulphur hexafluoride SF6 23900

Potential Value of Carbon Emission Reduction Credits

239,000118,500Sulfur hexaflouride

65,00032,500Perflouromethane

13,000-14,0006,500-7,000HCFC-22

62,000-71,00031,000-35,500CFC-12

29601480Nitrous Oxide

230115Methane

105Carbon dioxide

CER at $10/tonCER at $5/tonGHG

Possible Sources of GHGs

Sector Source Categories GHG

C02 CH4 N20 HFC PFC SF6

Energy a) Fuel combustion – Energy industries, Manufacturing Industries & construction,

Transport, others; b) Fugitive Emissions from fuel –

solid fuels, oil and natural gas

x x x x

Industrial processes

Mineral products, chemical industry, metal production, production and consumption of Halocarbon and sulfur hexafluoride, others

x x x x x x

Agriculture Enteric Fermentation, manure mgt., rice cultivation, agricultural soils, prescribed burning of savannahs, field burning of agricultural residues, other

x x x

Waste Solid waste disposal on land, wastewater handling, waste incineration, others

x x x

Only Six GHG eligible for crediting under the Kyoto Protocol

CDM Eligible Projects• Renewable energy• Fuel switching• End-use energy efficiency improvements• Supply-side energy efficiency improvements• Agriculture (reduction of CH4 & N2O emissions)• Industrial processes (CO2 from cement, HFCs, etc)• Sink projects (only afforestation & reforestation)

wind

Hydro

Solar

Renewable

Traditional

CDM Project Platform

Underlying Project(i.e. Renewable Energy/

Energy Efficiency/ waste mgt /Reforestation)

CDM Project

Carbon

Source: UNFCCC Web site

Project Proponent(s)

1

3

2

4

5

6

The CDM project activity cycle.

Development Bank of the Philippines

How Do We Achieve Triple Bottom-line in CDM Projects

Traditional

Returns

CDM a New Investment Paradigm

Underlying Project(i.e. Renewable Energy/

Energy Efficiency/ waste mgt /Reforestation)

Investment

CDM Project

Interest / DividendIncome

Carbon Revenues($/ Euros)

Sustainable Development Premium

Carbon

A win for the capital markets stakeholders

Applications of Carbon RevenuesTo Traditional Energy Projects

Safety / Liquidity / Yield• Enhancing Revenues or Yields

– incorporating value of CER in cash flows to investor

• Securing interest or principal payments – creation of a sinking fund to capture CER Revenues for I + P payments

– securitization of C02 credits

• assignment of ERPA to funder• assignment of CERs to funder

• Shortening the Loan Term – Direct application of CER revenues on principal prepayment

• Diversifying Portfolio – New revenue generating scheme– creates a new asset class under CDM

• CER revenues as additional equity contribution to loan

Leveraging the ODA via GFI for CDM Projects

GFI

CERBuyer

CDMProject

Proponent

LegendGFI – Govt Financial Institution (i.e. DBP)CDM - Clean Devt. MechanismC.A.- Cooperation Agreement ERPA – Emission Redux Purchase Agreement

CDMC.A.

Loan Agreement w/CDMCommitments

ERPA

Using the existing investment framework

GFI

CERBuyer

CDMProject

Proponent

LegendCER – Certifcate of Emission Reductions $CERs- Dollar Proceeds of CERs Salei – interest p - principal

CERs

Leveraging the ODA via GFI for CDM Projects Application to Yield

X % of $CERs

i and ppayments

Enhancing yield for the banks due to carbon Revenues

Investor

CERBuyer

CDMProject

Proponent

ERPA

Assignment of ERPA as Collateral

Using Future Carbon Revenues Streams as Collateral

$CERs Payment + guarantee

of CER buyers

Loan Agreement

Application to Safety: ERPA as Collateral Enhancement

GFI

CERBuyer

CDMProject

Proponent

CERs

% of $CERs

i and ppayments

SinkingFund

(Trust)

i + p loan pre-payment

Application to Safety: Shortening Loan Term

Repayment of i and/or p in reverse order of maturity of loan

GFI

CERBuyer

CDMProject

Proponent

CERs

Application to Safety : Securing i & p payments

% of $CERs

i and ppayments

Carbon Revenues to form sinking fund to secure i and p payment

SinkingFund

(Trust)

i + p payments

Investor

CERBuyer

CDMProject

Proponent

Application to Safety and Yield: Hedging Interest Rate Risks

$CERs

CERs

SinkingFund

(Trust)

ipremium irebate

Legend:

ipremium =iMarket Rate – iCap

irebate = ifloor - imarket

iFloor ≤ i ≤ iCap

if Market Rate > Cap If Market Rate < floor

(business as usual)

Applicable for loans with floating rates

CDM: Roots for Green Capital Markets

Financial Sector

CDM Opportunities and Risks

FinancialProducts

FinancialServices

-Carbon Investment Banking- Carbon Dealing/ Broking/ Trading- Carbon Asset and Risk Mgt

(via funds)- Carbon Trust Services

-Carbon Funds-Venture Capital-Debt / Equity-Structured Products- Derivatives

(GHG ER Forwards )

Private/Public Sector

Entities

GHG ER Strategies

Clean Development Mechanismfor Sustainable Development Impact

SME

Objectives:Climate FriendlyProjects

SustainableDevt

Objectives:Eco Activity

Job GenerationIncome Gen

Poverty AlleviationWell being

A win for community stakeholders of the CDM project

A. Potential Mitigation (CDM) Programs1.Emission Reduction type

a. New & Renewable Energyb. Rural Power Projectc. Efficient Lighting Initiativesd. Fuel Switchinge. Solid Waste Mgtf. Environment Devt Program

2. Carbon Sequestrationa.Water Resources / Watershed Mgt.

Our existing programs are reoriented towards Climate Change and CDM...

DBP Climate Change Program Platform Projects:

B. Potential Adaptation Programs1. Micro Finance2. Small & Medium Enterprise 3. Water

4. Housing5. Health

Even for the adaptation side...

Climate Change Program Platform Projects

Clean Development Mechanism for Sustainable CDM Underlying Projects

DEVELOPINGCountries

CO2

DEVELOPEDCountries

Objectives:EmissionReduction

Compliance

Higher EcoGrowth

Objectives:Climate Friendly

Technology

Sustainable Development

Marrakech Accord

A win for the climate

Development Bank of the Philippines

Partnering up with DBP

CDM Project

Intermediation & Development

Buyers/Experts

SellersVia PFIDBP

CO2

We can link you up with quality carbon Investors and Experts

Partnership with DBP on CDM

• We know the CDM Business:- we can provide local funding via wholesale or

retail to potential CDM projects – we can structure carbon finance deals and risks– we can ID and/or arrange for equity financing

for CDM projects and CDM transactions costs from investors

– we can ID and secure CER buyers – we team up with CDM experts

• We do carbon investment banking

REY A. GUARINSAVP

Climate Change Investments & Special Projects

DEVELOPMENT BANK OF THE PHILIPPINES

+63-917-6274631rey.guarin@gmail.com

www.dbp4environment.ph/cdm