Carbon Market Initiative:

Future Carbon Fund

Background: ADB’s Role in Climate
Change

Role: catalyze the development and financing of

new mitigation & adaptation projects
Means:
„ National/regional capacity building activities
„ Loans, investments and guarantees
„ Project-specific technical support
„ The Carbon Market Initiative
 Ongoing Climate Change
Projects Supported by ADB
(selection)
 Background:
Carbon Market Initiative

„ Approved by the ADB Board in November 2006

„ Three integrated components:
• Asia Pacific Carbon Fund: upfront financing against
carbon credit purchase
• Technical Support Facility: grant-based technical
support for capacity building, project preparation and
implementation
• Credit Marketing Facility: marketing support to project
developers for credits not used for upfront financing
 Background:
Carbon Market Initiative
 Turning Cash Flow into Financing

Carbon Standard
Market Initiative “Pay-on-Delivery”

Financing 1. 1. 2. 1. 2. Cash Flow

Tech Carbon Carbon
$/€ $/€
Asst Credits Credits

Project phase: Development Commercial Operation

Year: 0 1 2 3 4 5
7
 The Proposal:
Future Carbon Fund
 International Context
„ Kyoto Protocol commitments ending in 2012
„ No international framework yet on post-2012
„ There is no long-term price signal to induce developing (and
developed) economies to invest in new low-carbon technologies
and infrastructure
„ In the meantime, countries are installing massive amounts of new
power/thermal capacity with conventional systems, locking the
world into another 20-30 years (depending on the lifetime of
installations) of voluminous greenhouse gas emissions
„ Mounting public awareness and pressure on policy makers to
commit to long-term and meaningful reductions to avoid reaching
dangerous level of greenhouse gas concentrations
 Future Carbon Fund
Proposal

„ Establishment of a Future Carbon Fund (FCF) to pre-

purchase future carbon credits (post-2012) from projects
supported by ADB financing and the CMI

„ The FCF would become the fourth component of the

Carbon Market Initiative, along with:
• The Asia Pacific Carbon Fund
• The Technical Support Facility
• The Credit Marketing Facility
 Future Carbon Fund
Key Features
„ Purchase post-2012 carbon credits from projects proposed today
„ Pay upfront, similar to the APCF, to help developing countries reduce
the upfront capital constraint of installing clean energy systems
„ Proposed to project developers in conjunction with ADB financial
support and the CMI
„ Benefit from ADB’s grant-based technical support
„ Associated costs and risks are largely reduced due to “piggy back”
design and strategy
• General technical, financial and legal due diligence carried out by ADB
main operations to process/approve financing
• CDM specific due-diligence carried out by CMI
 Sample Project Financing Plan

Additional KP1 Credits

Credit Carbon Credits
Marketing Additional post-2012 Credits
Facility (over 7 to 21 yrs)
First
KP1 First
credits post-
2012
credits
ADB Project with Carbon Content
Asia Pacific Illustrative Financing Plan - Debt
Carbon Fund
Source of Finance %
ADB Loan Finance 60
APCF 15
Future
Carbon Fund Future
Others Carbon Fund 25
10
Credits up to end of 2012 (KP1) Others
Total 100
15

Credits generated beyond 2012 Total 100

 Sample Project Credit Flow
End of Kyoto Commitments
Many buyers Few buyers

Credit Credit
Asia Pacific Future
Marketing Marketing
Carbon Fund Carbon Fund
Facility Facility
Carbon Credit Volume

Loan Project
Inception Completion

Emission reduction portfolio (10-year period)

Year: 2007 08 09 10 11 12 13 14 15 16 17 18 19 20
 Future Carbon Fund
Advantages for Developers/Sponsors
„ Reduced budget commitments to close project financing plan

„ Comprehensive technical and implementation support

„ Less transaction time/cost due to proposed “piggy-back” structure:

„ ADB finance and support – risk mitigation through extensive due

diligence

„ CMI involvement – additional risk mitigation for CDM-specific

elements

„ Extra credits from successful project implementation can be

marketed with ADB support for further financial upside