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Carbon Finance in the East Asia and Pacific Region


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Introductory Message The World Bank supports developing countries in East Asia that are facing the challenge of climate change. Most counties in East Asia and the Pacific are working on ways to reduce their use of fossil fuels and to strengthen their resilience to climate induced disasters. Both the public and private sectors in East Asia have made great progress in taking advantage of the carbon market to raise financing for crucial projects. We in the World Bank are proud to have been part of the development of the carbon market in East Asia from the very beginning. The World Bank’s funds and facilities continue to pioneer the carbon market, increasing the scale, scope and duration of carbon finance. The East Asia and Pacific region’s carbon finance portfolio today has a value of approximately US$1.3 billion, accounting for 71% of the World Bank’s entire carbon finance portfolio. The focus in our carbon finance operations is now on energy efficiency in power and industry, industrial gas emission reduction, waste management and reforestation. I invite you to browse through this brochure to see examples of what has been achieved so far in both carbon finance and sustainable development, and get a better understanding of individual projects and our future plans to work with our clients on sustainable development and poverty reduction. John Roome, Director Sustainable Development Department East Asia and Pacific Region, the World Bank


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“In 2008, the World Bank’s carbon finance portfolio in East Asia and Pacific (EAP) increased to approximately 200 million tons of emission reductions. Carbon finance provides significant support to 45 environmentally-friendly projects that reduce greenhouse gas emissions throughout the East Asia and Pacific region. Carbon finance supports major investment programs and provides key technical assistance activities. We also keep expanding our carbon finance operations to new areas such as transport and urban development. Clearly, carbon finance has become part and parcel of EAP’s development dialogue with our client countries. We are now preparing to fully integrate carbon finance and other climate and non-climate related funding sources into a support structure for clients seeking our help in addressing climate change.” Jim Adams, Vice President, East Asia and Pacific Region, the World Bank

Sectoral Distribution of EAP Carbon Finance Portfolio (Number of Emission Reductions Purchase Agreements Signed and Pipeline Projects)

Energy Efficiency: 9

a: 8%

merica bean: 8%

HFC, N2O and other Industrial Gases: 2

Coal Mine Methane and Fugitive Gases: 1 Other: 1

Land Use, Land Use Change and Forestry: 3

Renewable Energy: 10

Asia: 5%

East & frica: 2% Waste Management: 18

Source: 2008 WB Carbon Finance Annual Report

Transport: 1


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Overview of Carbon Finance in the East Asia and Pacific Region The trade in greenhouse gas emission reductions—or carbon finance—has been shown to increase the bankability of projects, by adding an additional revenue stream in hard currency, which reduces the risks of commercial lending and enhances grant finance. Carbon finance provides a means of leveraging new private and public investment into projects that reduce greenhouse gas emissions, thereby mitigating climate change while contributing to sustainable development. The World Bank has been involved in carbon finance from the very beginning, piloting the first carbon fund—the Prototype Carbon Fund—and catalyzing the market for projectbased greenhouse gas emission reductions through the Clean Development Mechanism (CDM, http://cdm.unfccc.int). The World Bank’s East Asia and Pacific region has played an important role in identifying and delivering high quality CDM projects that not only mitigate climate change but also meet the sustainable development objectives of the World Bank and its client countries. In the overall CDM market, East Asia and Pacific countries—in particular China—represent 43% of all registered CDM projects1, which are projected to deliver 63% of all registered Certified Emission Reductions (CER) until the end of 2012.2 China is leading the way with a 33% share of the total number of registered projects and 53% of projected CERs. China’s fast economic growth and developing infrastructure are providing strong opportunities for project developers to utilize the CDM.

Regional Distribtion of World Bank Carbon Finance Portfolio (Emission Reductions $ Value) East Asia & Pacific: 71%

Europe & Central Asia: 8% Latin America & Caribbean: 8% South Asia: 5% Middle East & North Africa: 2% Africa: 6%

Source: 2008 World Bank Carbon Finance Annual Report

1. A unit equal to one metric ton of carbon dioxide equivalent. 2. UNEP Risoe CDM/JI Pipeline Analysis and Database, May 1st 2009. http://www.cdmpipeline.org/


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The CDM projects in the World Bank East Asia and Pacific (EAP) regional portfolio make up the largest share of all active World Bank carbon finance projects—with a total emission reduction value of over $1.3 billion accounting for 28 projects with signed emission reductions purchase agreements (ERPA). The World Bank EAP region currently supports another 17 CDM projects that are under preparation. The overall EAP portfolio is well diversified spanning many sectors, such as renewable energy (wind, hydro and biomass), reforestation, energy efficiency improvement in the industrial sector and methane recovery and utilization. Projects are located in both large and small countries: Cambodia, China, Indonesia, Malaysia, Philippines, Thailand and Vietnam.

“World Bank carbon finance, particularly in East Asia, increasingly supports major investment programs and provides key technical assistance to EAP client countries. Carbon finance as a tool for climate change mitigation and sustainable development is becoming integrated into the development work of not only EAP, but all regions of the World Bank. In collaboration with the World Bank’s Carbon Finance Unit, the EAP region is expanding its carbon finance operations to new areas such as transport and urban development and supports the development and implementation of Programs of Activities under the CDM. CDM programs are expected to provide the necessary framework for replication and lower transaction costs so that carbon finance can be scaled up to have a real impact on mitigation and also reach poor households in rural areas of the developing world to improve their livelihoods and reduce poverty.” Magda Lovei, Manager Sustainable Development Department East Asia and Pacific Region, the World Bank


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Greenhouse Gas Emission Reductions in Cities and Carbon Finance Urban areas are home to 50% of the world’s population, and this share is projected to increase to over 60% by 2030. Cities are one of the fastest growing sources of greenhouse gas emissions. But as the impact on climate change by individual sources in urban areas is relatively small—such as a single waste site, small water supply systems, lighting, public buildings and transport initiatives—these activities find it difficult to access carbon finance as traditional Clean Development Mechanism (CDM) projects. Programs to reduce emissions from small sources are particularly important for cities and municipalities. The CDM supports such programs through a dedicated regulatory process referred to as “program of activities” (PoA). A typical urban greenhouse gas mitigation program at the city level can be managed by the central urban authority. Many small activities under a program can be implemented over a period of time. Sector specific interventions can be implemented directly by municipal authorities or through publicprivate partnerships or contractors. They can also be realized indirectly through regulatory and incentive-based initiatives that facilitate the participation of the private sector and the general public. Greenhouse gas emission reduction opportunities in the waste sector include methane avoidance and collection from landfills, biogas generation and recycling schemes. In the transport sector, increasing the share of green transport, defined as public transport, walking and cycling as well as switching vehicle fuels and promoting higher efficiency vehicles can generate significant volumes of emission reductions. Opportunities to increase energy efficiency exist in the building sector, lighting, water pumping, district heating, cleaner technologies for co- and tri-generation and integrated planning for heatingcooling supply. Replacing fossil fuels and using renewable energy sources for electricity generation, such as wind, solar and geothermal, can also significantly contribute to reduce greenhouse gas emissions in cities. Many technologies with lower emissions are considerably more expensive than the more conventional technologies. Carbon finance can provide the support and financial incentive for cities to assess, monitor and reduce their greenhouse gas emissions through the deployment of more efficient, climate friendly technologies and through the introduction of emission-saving processes. Only a few methodologies for incentive-based urban emission reduction programs exist, and there are other shortcomings that make the use of CDM programs in the urban context difficult. The World Bank works on a city-wide methodology that aggregates the emissions from individual greenhouse gas sources in the waste, transport and energy use sectors in a defined urban administrative area. It is our objective to develop an integrated, programmatic approach to CDM projects in cities and create frameworks that help cities access and realize their full reduction potential. We work with cities in the East Asia region to test new approaches for city-wide greenhouse gas mitigation.


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INDONESIA: INDOCEMENT SUSTAINABLE CEMENT PRODUCTION PROJECT (UNFCCC Ref. No: 0493, 0526) Developing Asian countries account for nearly 70% of global cement production. Carbon dioxide (CO2) emissions from the cement industry in Indonesia were estimated at 30 million tons CO2 in 2002. The “Indocement” Sustainable Cement Production Project by Indonesia’s second largest cement producer, PT Indocement Tunggal Prakasa Tbk, was the first cement sector project for reducing greenhouse gas emissions under the Prototype Carbon Fund, which will obtain three million tons of emission reductions from the project. Indocement consists of two CDM projects. The first reduces the quantity of energyintensive clinker in blended cement and the second increases the use of alternative fuels, such as rice husk, coconut waste, car tires and waste oils in the cement making process. The Indocement projects produce environmentally friendly, high-quality cement and provide an alternative solution to Indonesia’s waste disposal problems while creating employment opportunities in an alternative fuel supply chain. The Indonesia Alternative Fuel CDM Project and the Indonesia Blended Cement CDM Project were registered with the CDM Executive Board in September and October 2006, and they achieved emission reductions of more than 390,000 tons of CO2 between January 2005 and July 2007. For more information see, World Bank Carbon Finance Unit, http://wbcarbonfinance.org and UNFCCC CDM, http://cdm.unfccc.int.

“We are very happy to cooperate with the PCF for this project. The Clean Development Mechanism is a very new tool for the industry and the PCF is an experienced partner in this field of work, having gained a very good reputation. We believe that the combination of our expertise in cement technology and the PCF’s knowledge about the CDM will lead us to success. In addition to reducing greenhouse gas emissions by using bio fuels and other waste materials produced in the vicinity of the sites, our project will contribute to sustainable development in a socially responsible way.” Oivind Hoidalen Technical Director, Indocement


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PHILIPPINES: NORTHWIND BANGUI BAY PROJECT(UNFCCC Ref. No.: 0453) The NorthWind Bangui Bay Project is a 33 megawatt wind turbine power plant located on the shore of Bangui Bay in Ilocos Norte Province, Philippines. It is situated at a remote part of the Luzon grid, which is plagued by expensive and unreliable power supply, due to long distance power transmission from various generation sources. The project involved the development of a wind farm consisting of 20 state-of-the-art wind turbines. It was constructed by NorthWind Power Development Corporation (NWPDC), a local private company. NorthWind is the first commercial wind power project in the entire ASEAN region, and it contributes significantly to the Philippine’s knowledge base in wind power plant operation and the generation of clean energy from a renewable source. NorthWind provides clean and reliable energy and attracts tourists, opening up business opportunities for residents and nearby communities. “The wind farm has put Bangui Bay on the map,” says Mr. Rogelio Alupay of the technical staff of Bangui’s municipal planning and development office. The windfarm exports electricity to the Luzon grid and displaces highly polluting diesel and coal-based power generation which reduces the related greenhouse gas emissions. About 356,000 tons of CO2 will be avoided during the first seven years of the project and will be transferred as Certified Emission Reductions (CERs) to the Prototype Carbon Fund. Approximately 65,000 CERs were issued by the CDM Executive Board between May 2005 and August 2007. Niels Jacobsen, NWPDC President and Chief Executive Officer, attributes NorthWind’s success to a combination of these factors: the right timing—NorthWind started the project when wind turbines were still cheap; the right financing—largely through an interest-free mixed loan from the Danish International Development Agency (Danida), and support from the World Bank through its Prototype Carbon Fund (PCF), which enables NorthWind to generate an additional, guaranteed cash flow from the sale of CERs. For more information see, World Bank Carbon Finance Unit, http://wbcarbonfinance.org and UNFCCC CDM, http://cdm.unfccc.int.


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Closing the Circle: Carbon Finance and Adaptation Cities are central to any discussion on carbon finance and climate change mitigation and adaptation. More and more cities participate in this global dialogue: they identify climate change as an important issue for urban development and are taking action and share their experience. Cities have a strong partner in the World Bank; and the Bank’s East Asia and Pacific region supports cities and municipal administrations on this journey. China and Indonesia are among the largest global emitters today, and other countries in East Asia are expected to join if business-as-usual development scenarios prevail. Exploiting carbon mitigation opportunities today can fundamentally alter these development trajectories. Mitigation is crucial to limiting further climate change. Yet, the damage from past emissions will stay with us for at least the next century. Mitigation (reducing emissions) and adaption (responding to climate impacts) must be tackled as a package. Indeed, the concept behind the Adaptation Fund, to be funded by 2% of certified emission reduction revenues from CDM projects, will foster this link. While mitigation requires global action, adaptation actions tend to be much more local. Cities, where people and material assets are concentrated, face disproportionate risks from climate change. Globally, 136 port cities (with populations exceeding one million) have $3,000 billion (5% of global GDP in 2005) exposed; by 2070, this could increase to $35,000 billion (or 9% of global GDP). Cities in East Asia are very vulnerable to climate impacts—the region has experienced a faster increase in the rate of natural disasters than any other region in the last 30 years and climate change will compound these impacts. Two million new urban residents are expected every month and built-up areas are projected to increase faster than in any other region in the next 20 years, creating many more coastal mega-cities. Indeed, four out of the top 10 exposed port cities in the world—in terms of population—are in East Asia. Rather than wait for the impacts and then react (reactive adaptation), the World Bank is helping cities in East Asia to plan for and manage vulnerabilities to climate impacts before they occur (anticipatory adaptation) through a program of technical assistance.


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This assistance is described in the publication “Climate Resilient Cities: A Primer on Reducing Vulnerabilities to Disasters” (World Bank 2009), a practitioner’s guide to assessing risks and planning actions to address them. We help cities undertake a rapid vulnerability assessment, which challenges policymakers to think seriously about the most vulnerable areas and sectors in their city, to define priorities of actions, to select the best combination of mitigation and adaptation options, and to find the resources needed to combat climate change impacts and the potential effects of unexpected disasters. Adapting to the consequences of climate change requires anticipation, investment in information, equipment, capacity and infrastructure, and organization. Carbon finance has great potential not only in enhancing mitigation efforts and helping to stabilize greenhouse gas concentrations, but it can also support capital investments, changes in incentive structures and promotion of capacity building for climate change adaptation. In a sense, carbon finance can be a catalyst for forging a link between mitigation and adaptation opportunities at the urban level. Website: www.worldbank.org/eap/climatecities Contact: climatecities@worldbank.org

Into the Future The global carbon market has this year reached another turning point as governments are sitting down to evaluate its achievements and institutions—and draw the lessons from the first commitment period under the Kyoto Protocol (2008-12) while they negotiate the next climate change agreement. Many actors in the carbon market, including the World Bank, are convinced that emissions trading in some form will again play a very important role in mobilizing the hundreds of billions of dollars in investments that will be needed to significantly lower future greenhouse gas emission trajectories in many sectors and countries throughout East Asia and the world. But today we are much better equipped to address mitigation aggressively and at scale through projects and programs that support the sustainable development of our partner countries.


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Larger scale and longer term: We are already working to prepare frameworks for mitigation programs under the World Bank’s new Carbon Partnership Facility (CPF). These programs address pressing development and environmental needs, for example, the installation of a series of geothermal power plants and the management of waste from agriculture and cities. They build and use hands-on capacity in partner countries and governments to manage mitigation programs that are large enough to change technologies, systems and behaviors and lower emission pathways far into the future. These programs are designed to encourage private sector participation, financing and knowledge sharing for larger and lasting impacts. Tackling deforestation: We have begun to work with some countries in East Asia that wish to build their capacity to protect their tropical forests and reduce their emissions from deforestation and forest degradation (REDD). This work is supported by the new Forest Carbon Partnership Facility (FCPF) and is undertaken in cooperation with other international organizations (in particular UNREDD), NGOs, forest experts, donors and developing countries. FCPF countries “get ready” through preparing a credible forest baseline and monitoring plan and improving forest institutions. With payments for verified emission reductions from REDD activities in a number of REDD countries, the FCPF offers perhaps the best opportunity to date to seriously address deforestation and the massive release of greenhouse gas from tropical forests. Financial engineering: We are experimenting with the integration of carbon finance with other financing sources, such as the recently launched US$5 billion Clean Technology Fund (CTF), the Global Environmental Facility (GEF) and World Bank development lending. The CTF provides highly concessional loans to support investments in large scale mitigation projects in energy efficiency, power generation and transport, which promise a major impact on future emission pathways. The use of different climate finance instruments in combination can create attractive synergies where, for instance, the GEF may fund policy work and provide risk coverage, the CTF along with regular lending and equity may finance physical investments, and carbon credits may create an income stream that sustains a project’s long-term financial viability. Environmental synergies: We are testing the creation of synergies in projects that simultaneously respond to several environmental or economic and social concerns. Examples include improving energy efficiency and eliminating ozone depleting substances in industrial chillers, or projects that address global and local environmental issues, such as air pollution in cities, or projects that pursue mitigation and adaptation goals, for example the restoration of coastal mangroves. Such projects reflect the interconnectedness in a sustainable world and bring funding together for projects that would otherwise not be financially viable. We are also working with governments in East Asia to identify needs, opportunities and strategies for mitigation and adaptation and to strengthen internal capacity. Examples include country studies on low carbon development and our support for south-south CDM capacity building between China and African countries. It is our vision that all our partners in East Asia will soon be able to make good use of the new climate finance instruments. The World Bank’s East Asia and Pacific region will join in this journey as a reliable partner, which can contribute worldwide experience in carbon finance and climate friendly, sustainable development.


CARBON FINANCE IN THE EAST ASIA AND PACIFIC REGION 1818 H Street, NW Washington DC 20433, USA


Carbon Finance in the East Asia and Pacific Region