presentation by rey guarin
DESCRIPTION
Rey Amaury Guarin, Senior Assistant Vice Preident & Head ofClimate Change Unit - Development Bank Of The Philippines - Philippines.TRANSCRIPT
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
www.dbp4environment.ph/cdm