1 The Clean Energy Investment Framework: An Integrated Approach to Energy Access and Climate Change Kristalina Georgieva Director, Strategy and Operations Sustainable Development Network World Bank Joint NTF-PSI and TFSSD seminar on Energy access and climate change: The role of the private sector and the World Bank Group Oslo, May 8 th, 2007 2 Outline An integrated approach to energy access and climate change An integrated approach to energy access and climate change The Clean Energy Investment Framework The Clean Energy Investment Framework Energy Access Mitigation of climate change effects: the low- carbon economy agenda Adaptation to climate change Suggested areas for Norways engagement Suggested areas for Norways engagement 3 An Integrated Approach to Energy Access and Climate Change 4 Integrating Environmental and Social Concerns Making environmentally responsible investments while addressing social dimensions of energy access and climate change Making environmentally responsible investments while addressing social dimensions of energy access and climate change Access: 1.6 billion people lack access to electricity, with acute needs in Sub-Saharan Africa Growth: rapid increase in energy demand still met mostly through conventional technologies Affordability: matters both for energy access and shift to clean energy (e.g. pro-poor reforms of national power sectors, reducing costs of renewables) Balancing climate mitigation with adaptation: need to help communities strengthen their preparedness and adaptation capacity 5 Integrating Public and Private Sector Actions Governments commitments crucial for a meaningful policy response to climate change Governments commitments crucial for a meaningful policy response to climate change Nothing big could be achieved without private sector contribution Nothing big could be achieved without private sector contribution Huge financing gaps Need for technological innovation Enabling environment needed to remove numerous barriers faced by private investors Enabling environment needed to remove numerous barriers faced by private investors 6 Combining IFC and Bank Strengths IFC: Relationship with and access to private companies Relationship with and access to private companies Market and technology development Market and technology development Strong influence on investment finance (The Equator Principle) Strong influence on investment finance (The Equator Principle) Technical assistance to businesses in the developing world Technical assistance to businesses in the developing world World Bank: Relationship with and access to senior policy makers Relationship with and access to senior policy makers Multisectoral approach to development Multisectoral approach to development Leader in sustainability among MDBs (first carbon neutral intl institution) Leader in sustainability among MDBs (first carbon neutral intl institution) Strong track record in combining knowledge and financial services, and in piloting new instruments (JI, carbon finance) Strong track record in combining knowledge and financial services, and in piloting new instruments (JI, carbon finance) 7 World Bank Clean Energy For Development Investment Framework 3 Pillars: 3 Pillars: Increase Energy Access in Sub- Saharan Africa Increase Energy Access in Sub- Saharan Africa Transition to a Low Carbon Economy Adaptation to Climate Change Adaptation to Climate Change 8 Energy Access 9 Scaling-up needs new business model Business-as-usual is not delivering results fast enough Countries should step-up their game by: Making clean energy a clear priority in their policy commitments Ramping up the capacity on planning and implementation Acting regionally to optimize resources and investments Development partners can be more effective by: Harmonizing approaches Being flexible on conditionality Delivering assistance within a country low carbon growth strategy (rather than in fragmented, project-by-project manner) 10 A comprehensive Action Plan for Energy Access in Africa 1) 1) Increase energy coverage for enterprises, households & agriculture 2) 2) Enhance generation capacity for cleaner energy, including via regional projects 3) 3) Provision of energy services for key public facilities such as schools and clinics 4) 4) Equip unconnected households with affordable, modern lighting 5) 5) Push for cleaner, sustainable cooking & heating technologies Energy for Growth Powering the MDGs Basic Needs Needs to be MetPotential Implementation Tracks 11 What is the World Bank Doing? 12 Increasing Lending for Energy and Targeting Electricity Options in Projects Core urban - direct on-grid service Peri-urban areas proximate grid access intensification Enhancing social services with grid/off-grid options Modern lighting and off-grid access solutions for remote and poor homes 13 Scaling up Lending Commitments in sub-Saharan Africa Note: 2007 projections are with constrained IDA resources 14 Lighting Africa Joint World Bank/IFC Initiative Goal: Rapid scale-up of access to clean, reliable and affordable lighting & basic energy services for 250 million people across Africa by 2030 See Russel Sturm (IFC) Presentation in the afternoon session 15 Accelerating the Transition to Low- Carbon Economy 16 Current CO2 Emissions and Contributions 17 Reducing Emissions Rehabilitation of old, inefficient power plants using advanced technologies, e.g., supercritical, co-generation to supply heat to district heating system Rehabilitation of old, inefficient power plants using advanced technologies, e.g., supercritical, co-generation to supply heat to district heating system Energy efficiency technologies and programs to promote energy efficiency, both on supply and demand sides. Energy efficiency technologies and programs to promote energy efficiency, both on supply and demand sides. Coal-fired power plants with IGCC and carbon capture and storage (CCS) Coal-fired power plants with IGCC and carbon capture and storage (CCS) Renewable energy programs - solar, wind, geothermal, bio-energy or hydro Renewable energy programs - solar, wind, geothermal, bio-energy or hydro Urban and cities development, e.g., municipal waste and wastewater management Urban and cities development, e.g., municipal waste and wastewater management Land-use programs that lead to biological sequestration Land-use programs that lead to biological sequestration 18 Options: 1.Voluntary actions 2.International grants, e.g., Global Environment Facility (GEF) 3.Carbon trading But, GEFs role is limited. Should be increased by factor of 10 or more to play a significant role in transitioning to a low-carbon economy. But, GEFs role is limited. Should be increased by factor of 10 or more to play a significant role in transitioning to a low-carbon economy. Carbon trade potential is huge: between US$20 and $120 billion per year to developing countries. But long- term global regulatory framework needed. Carbon trade potential is huge: between US$20 and $120 billion per year to developing countries. But long- term global regulatory framework needed. Financing : Possible Sources Financing Mitigation in Developing Countries: Possible Sources 19 Mind the Gap: Less Than Half of Financial Resources Needed Currently Available $ 160 billion/year is needed to meet the electricity needs of the developing world $ 160 billion/year is needed to meet the electricity needs of the developing world Another estimated $30 billion/year is required to shift electricity production to low carbon path Another estimated $30 billion/year is required to shift electricity production to low carbon path $ 80 billion is presently available $ 80 billion is presently available $32 billion internally generated (e.g., company funds) $18 billion private investments $19 billion government funds $11 billion international donors and IFIs SOURCE: INTERNATIONAL AGENCY AND PRICEWATERSCOOPERS 20 Constraints Faced by the Private Sector Higher investment costs: projects are not financially viable; relatively little equity and debt capital for cleaner technologies Higher investment costs: projects are not financially viable; relatively little equity and debt capital for cleaner technologies Long lead times and untested technologies: private markets get nervous, limits available investment Long lead times and untested technologies: private markets get nervous, limits available investment Regulatory uncertainty: limits mobilization of long-term Regulatory uncertainty: limits mobilization of long-term capital capital Carbon finance insufficient: unmitigated risks Carbon finance insufficient: unmitigated risks 21 Constraints D to Public Policy Constraints Due to Public Policy Policies and regulatory systems in contradiction with mitigation objective Policies and regulatory systems in contradiction with mitigation objective Weak policy framework for technology transfer Weak policy framework for technology transfer Investment climate not supportive Investment climate not supportive 22 What is the World Bank Group Doing? What is the World Bank Group Doing? 23 Financing Low Carbon Projects World Bank Group: The World Bank Group: Has a low-carbon portfolio that represents 37% of the overall energy portfolio today Has a low-carbon portfolio that represents 37% of the overall energy portfolio today Has committed to increase its energy efficiency and renewable energy portfolio by at least 20% per year until the end of the decade Has committed to increase its energy efficiency and renewable energy portfolio by at least 20% per year until the end of the decade Is developing methodologies to measure the carbon intensity of its portfolio, starting with energy and transport (in cooperation with Norway) Is developing methodologies to measure the carbon intensity of its portfolio, starting with energy and transport (in cooperation with Norway) Is a world leader in carbon finance, with over $2 billion under management, and two important innovations under preparation (a Low Carbon Growth Fund and an Avoided Deforestation Carbon Fund) Is a world leader in carbon finance, with over $2 billion under management, and two important innovations under preparation (a Low Carbon Growth Fund and an Avoided Deforestation Carbon Fund) Promotes PPPs in gas flaring (Norway is a partner) and has mobilized over $1,7 billion private capital investments Promotes PPPs in gas flaring (Norway is a partner) and has mobilized over $1,7 billion private capital investments Collaborates with GEF on energy efficiency and renewable energy Collaborates with GEF on energy efficiency and renewable energy 24 World Bank Group Commitments for Renewable Energy and Energy Efficiency, FY 2006 IN US$ MILLIONS NOTE: IBRD INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT, IDA INTERNATIONAL DEVELOPMENT ASSOCAITION, IFC INTERNATIONAL FINANCE CORPORATION, MIGA MULTILATERAL INVESTMENT GUARANTEE AGENCY SOURCE OF FUNDS RENEWABLE ENERGY HYDRO >10 MW ENERGY EFFICIENCY TOTAL World Bank (IBRD/IDA) World Bank (GEF and Carbon Finance Unit) IFC (own funds) IFC (GF, Carbon Finance and other trust funds) MIGA TOTAL 25 Scaling up Our Knowledge Support Development and implementation of sector strategies for energy efficiency, renewable energy and transportation Development and implementation of sector strategies for energy efficiency, renewable energy and transportation The formulation of low-carbon growth strategies for the G+5 countries (Brazil, China, India, Mexico and South Africa, other countries to follow: e.g., Indonesia) The formulation of low-carbon growth strategies for the G+5 countries (Brazil, China, India, Mexico and South Africa, other countries to follow: e.g., Indonesia) New financial instruments New financial instruments Green Investment Scemes 26 Adaptation to Climate Change 27 Impacts of Drought and Rainfall Variability on Economic Growth KenyaEthiopia 28 Impacts of Climate Change on Live Expectancy * Compared to baseline. Source Patz et al. Nature 2005 Cardiovascular diseases, malaria, diarrhoea, inland and coastal flooding, and malnutrition WHO estimated mortality attributable to climate change in the year 2000* 29 Major social implications Rural poor: Scarcity of natural resources lead to dislocation and potential conflict over scarce resources Urban poor: urban slums with poor property rights and little opportunity to insure very vulnerable Urban poor: urban slums with poor property rights and little opportunity to insure very vulnerable Pressure on social as well as biological diversity indigenous peoples and ethnic minorities Increased difficulty for poor people to manage risk with traditional risk instruments (increased frequency of shocks-droughts, floods) On the other hand much indigenous knowledge on managing climate variability building on this resilience important ways forward 30 Barriers to Climate Resilient Development Immediate needs predominate in national priorities Immediate needs predominate in national priorities Misunderstanding of the urgency Misunderstanding of the urgency We have decades before climate change matters Uncertainty of potential impacts Uncertainty of potential impacts Little penetration of existing information Information & tools Information & tools How do we use the information if we have it? Professional & legal standards Negotiation position Who bears the cost? Negotiation position Who bears the cost? Some are not ready to engage until significant funding guaranteed? Engagement of (national) private sector Engagement of (national) private sector We have a focus on communities, but where is the supporting framework for SMEs, individual operators/farmers etc? 31 Adaptation Action Plan Core Activities in the CEIF Understand nature and degree of risks Core set of commonly needed current and projected climate data Screening tool to identify threats & opportunities arising from climate variability/change Build capacity to manage risks Country assessments Sector analyses (agric/water/rural infrastructure; coastal cities; livelihoods) Insurance and other modes of risk transfer Invest in adaptive measures to minimize and mitigate risks Pilot climate-proofing of development projects in Africa and elsewhere Technical analysis for vulnerability reduction in Latin America & Caribbean 32 Possible areas for Norways engagement in the clean energy agenda 33 1.Norway at the forefront in promoting environmentally sustainable policies and solutions - The Brundtland Commission - Action Plan for Environment in Development Cooperation - Prime Ministers goals for new climate policy 2.The Norwegian private sector is committed to environmentally friendly and sustainable operations - Petroleum Sector World leader in technological and environmental fields - CO2 Capture Pioneer in environmentally friendly capture and storage - Renewable Energy World class expertise in hydropower, wind power and solar energy 3.Public sectors role as a facilitator for energy efficient market solutions - Public-private cooperation in facilitating environmentally friendly and sustainable business operations friendly and sustainable business operations 34 Capitalizing on Norways leadership on environmentally and socially sustainable development approaches for the clean energy agenda Knowledge and expertise Knowledge and expertise Continuing support for analytical work and pilot projects (major contribution to innovation in energy access and climate change this fiscal year with the NTF-PSI) Continuing support for analytical work and pilot projects (major contribution to innovation in energy access and climate change this fiscal year with the NTF-PSI) Co-financing Co-financing