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Central American Carbon Program:

Implications for rural Implications for rural communities, renewable energy communities, renewable energy

and the environmentand the environment

August, 2000August, 2000

Most of the data and studies in this presentation were collected with financial support from the UNDP and CABEI between 1999-2000

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A REGION HISTORICALLY IMPACTED BY DISASTERS

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FACT: Extreme Climate Events are increasing

Impact of Selected Natural Disasters in Latin America and the Caribbean

Date Country Type of Event Fatalities Estimated damages(US$ million, 1998)

1974 Honduras Hurricane Fifi 7,000 1,331

1982/3 Bolivia, Ecuador, Peru El Niño 0 5,661

1997/98 Bolivia, Colombia, Ecuador, Peru El Niño 600 7,694

1998 Central America Hurricane Mitch 9,214 6,008

1998 Dominican Republic Hurricane Georges 235 2,193

1999 Venezuela Landslides and debrisfocus

25,000 N/A

Sources: ECLAC, América Latina y El Caribe: El Impacto de los Desastres Naturales en el Desarrollo,1972-1999, LC/MEX/L.402; OFDA, Venezuela- Floods, Fact Sheet #10, 1/12/ 2000.

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Emissions are increasing due to wrong price signals

0%

10%

20%

30%

40%

50%

60%

70%

1992 1993 1994 1995 1996 1997 1998 1999

Evolución de Generación Eléctrica con Fuentes Térmicas en Guatemala, Honduras y Nicaragua

Fuente: Elaborado con datos de OLADE

NICARAGUA

GUATEMALA

HONDURAS

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One of the Kyoto Protocol Scenarios for Latin America and the Caribbean

Ex-ante< 1%

Biological 75%-85%

Non-biological25%-15%

Mitigation>$3.5 b/year

Adaptation* >(8.5) b/year

Climate Change

Economic Impact

Ex-post > 99%

*Ref. Adapted from CEPAL 2000

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Why a Central American Carbon Program?

• To prioritize mitigation projects coherent with the Alliance for Sustainable Development signed in 1994.

• Coherent with the mission of CABEI, UNDP and CCAD to fight poverty, and promote integration.

• Part of Agenda XXI to increase competitivity.

• Requested by the Ministers of the Environment in November 1999 (Tegucigalpa Declaration).

• Complementary with the World Bank PCF and private sector initiatives (i.e BP, Shell) with a regional focus.

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Will Reduce Domestic Compliance Costs in Industrialized Countries and Promote Global Trade

Without InternationalCommerce

With InternationalCommerce

Models orResearcher

UnitedStates

Europe Japan Onlyamong

Annex 1Countries

GlobalCommerce

SGM 163 76 27MEREGE 274 114 80G-cubed 63 167 252 37 13POLES 82 130-140 249 112 33GTEM 375 773 751 123WorldScan 38 78 87 20GREEN 149 196 77 67 25AIM 166 214 253 65 43Average 164 260 277 80 28

Fuente: Tabla 1 de Richard Baron, "The Kyoto Mechanisms: How Much Flexibility do they Provide? en Richard Baron, Martina Bosi y Alesandro Lanza, Emissions Trading and the Clean Development Mechanism: Resource Transfers, Project Costs and Investment Incentives, informe para la International Energy Agency para la Quinta Conferencia de las Partes, Bonn, octubre-noviembre de 1999.

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Will Maximize the Central American CERs Potential* which is Substantial at a Market Price

of $28/ton

Potencial de Reducción de Carbono en Centroamérica(En Toneladas Métricas de Carbono)

ActividadPaísCombustibles Deforestación Plantaciones Aforestación Total por País

Costa Rica 1,223,000 3,360,000 648,000 1,400,000 6,631,000El Salvador 1,991,000 1,584,000 324,000 84,000 3,983,000Guatemala 1,608,000 10,125,000 644,000 2,150,000 14,527,000Honduras 964,000 16,218,000 227,000 2,826,000 20,235,000Nicaragua 747,000 13,200,000 648,000 2,626,000 17,221,000Panama** NA NA NA NA 1,260,736Belize** NA NA NA NA 318,000

Total 6,533,000 44,487,000 2,491,000 9,086,000 64,175,736

* Carbon estimates comes from the Harvard-INCAE-CABEI project, for the range between 6.5 and 62 million tons per year cost estimates are less than $20 per ton (Castro Salazar, 1999; Boscolo et al., 2000)** Estimates for Panama and Belize come from a CCAD study conducted in 1998.

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The CCP will have a Fund and Regional Projects

Central American Carbon Program (CCP)

Central American Carbon Program (CCP)

The FUND (FOCECA)

Trust for financing Carbon estimates and projects. Certification Capacity Building and Training. Marketing of CERS.

The FUND (FOCECA)

Trust for financing Carbon estimates and projects. Certification Capacity Building and Training. Marketing of CERS.

Specific Projects Producing CERs

Complementary financing to generate CERs. Regional Programs such as off- grid electrification. Identify projects with carbon reduction potential in forestry, transportation and energy.

Specific Projects Producing CERs

Complementary financing to generate CERs. Regional Programs such as off- grid electrification. Identify projects with carbon reduction potential in forestry, transportation and energy.

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Description of The Central American Carbon Fund

• Target to raise $25 millions between 2000-2001.• A trust fund at CABEI.• Up to $1.5 million from CABEI’s environmental

fund.• All stakeholders will have representation at the

executive committee of the trust.• Coordination with the CABEI and partners

traditional programs.(i.e.CABEI-IADB a potential partnership for off-grid electrification for rural communities).

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Examples of Mitigation Projects: Renewable Energy

• Non Biological:

– Wind Energy: costs are competitive due to technology, cheaper land leasing and CO2 emerging markets.

– Solar: costs are reducing due to technology, scale of the off grid market and additional cash flow coming from the CO2 emerging markets.

– Natural gas: could be competitive with thermal generation using fossil fuels.

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• Biological:

– Biomass energy: suitable land and abundant options for reforestation projects and sugar cane coo-generation.

– Forest Conservation and expansion of protected areas.

– Greener Fossil Fuels: marketing a CO2 neutralized fuels by planting more trees.

Examples of Mitigation Projects: Forest Projects for Rural Communities

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Example #1: Impact of the Carbon Market on Access to Renewable Energy Sources by the Poor...

Hypothetical Household Model for Off-grid Renewable Energy in Rural Communities with a Carbon Market

0

2

4

6

8

10

12

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Percentage of the population without electricity

Mo

nth

ly p

aym

en

ts in

US

$ $4/ton

$37/ton

$69/ton $101/ton

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Example 1: Renewable energy for off-grid communities combining traditional financing and CO2

• On grid average cost is 9 cents/kWh.• Solar energy costs are around 13 cents/kWh, other sources

range between 7 and 20 cents/kWh.• Trading Certify CO2 between $5-$35/ton could finance

the difference... • Rural communities will pay a similar cost than the

communities on-grid but will be using renewable increasingly.

• A flagship project to attend 5% of the more than 2 million families without electricity in the Central America will cost $100 million.

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Example 2: Emissions Neutralized Fuels or Fuel Switching?

Sensitivity Analysis of the Relative prices of various energy sources and C prices$/carbon ton $0 $10 $20 $50 $75 $189 $290 $656

Generation Cost internalizing the carbon costs in 1990 (cents/KWH)*Renewable 10.50 10.53 10.53 10.53 10.53 10.53 10.53 10.53 US Mix 5.00 5.19 5.38 5.95 6.43 8.60 10.53 17.51 Coal PULV 5.10 5.10 5.57 6.27 6.86 9.53 11.90 20.47 Coal Depreciated 3.50 3.70 3.99 4.73 5.34 8.13 10.61 19.59 Gas 4.50 4.56 4.72 5.06 5.34 6.61 7.74 11.83 Nuclear 8.60 8.60 8.60 8.60 8.60 8.60 8.60 8.60 Solar Thermal 14.30 14.30 14.40 14.55 14.67 15.23 15.72 17.52

Green Oil: Cost internalizing the carbon costs in 1998 per gallonCarbon Costs $0 $10 $20 $50 $75 $189 $290 $656Cents per gallon** - 2.70 5.40 13.50 20.25 51.03 78.30 177.12 additional $/oil barrel-$ 1.13$ 2.27$ 5.67$ 8.51$ 21.43$ 32.89$ 74.39$ Ref. *Adapted from NAS (1993), in1990 energy prices for the USA.**Based on Audubon Venezuela estimates, cents per gallon of neutral unleaded gasoline

CO2 costs may induce fuel switchingTrees + fossil fuels

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Example 3: Wind Power is Becoming Competitive

• Costs of Plantas Eólicas (20 MW) project in Costa Rica was 7.4 cents per Kwh in 1995.

• Costs of Tejona (20 MW) project was 3.4 cents per kWh and same site in 2000.

• Four main reasons:– Costs reduction due to technology improvement– Carbon reductions sold at around $10 per ton– Successful learning process in Costa Rica– The Central American Banks has played a pioneering

role financing projects.

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Example 4: Switching from traditional agriculture to forest friendly crops and conservation

Crop or Activity La Amistad Guanacaste BarbillaCoffee 386 226 227Pineapples 372 469 487Watermelons 309 389 403Yams 251 314 327Avocados 245 307 320Plantains 244 306 319Tiquisque* 198 248 258Passion Fruit 189 235 245Tomatoes 170 211 221Forest plantations 124 50 62Bananas 102 124 131Palm hearts 98 119 126Yucca* 91 111 118Coconuts 73 87 93Dairy cattle 66 79 84African palms 63 74 80Oranges 63 76 81Sugar cane 61 73 78Beef and dairy cattle 51 59 64Beef cattle 11 9 13Mangoes 3 less than 0 1Managed forestry 3 less than 0 2

Private Natural Forest in the Buffer Zoneof Protected Areas

(in $/tons of carbon )

Ref: Castro Salazar, 1999.

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Example 5: Carbon price scenarios and its potential for

expansion of the Mesoamerican Biological Corridor

Proposed Maximum Protected $10 $20 $30 $50 $100 $200 land

Area Expansion (000) haLa Amistad 18 88 100 100 100 100 186,201Rincon de la Vieja 0 10 26 76 94 95 12,421Palo Verde 0 33 70 98 98 100 9,302Piedras Blancas 4 4 8 25 65 89 11,537Barra Honda 0 45 45 66 88 100 2,019Guanacaste 1 18 61 91 100 100 32,895Carara 0 11 90 94 95 100 5,349Barbilla 0 18 61 100 100 100 2,604All Areas 10 56 82 93 98 99 262,000

Ref: Castro Salazar, 1999.

Percentage of the Total Area

Price Scenarios

All land costs are based on historical acquisitions. All protected area figures are roundedNote: Each protected area has a different opportunity cost and carbon productivity level.

to the unit, the proposed expansion of the protected areas.

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SUMMARY• What do we need?

– Expand protected areas in Mesoamerica by more than 5 million hectares.

– Recover degraded land and convert land to more forest friendly activities (3.2 million hectares).

– Promote the use of renewables in energy generation by internalizing CO2 in energy prices.

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• What is next?– Help identify, design and implement mitigation

projects.

– Partnerships.

– Promote additional carbon funds in developing countries to complement the PCF.

SUMMARY