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Co-financing Greenhouse Gas Mitigation Projects through Carbon Revenue

Opening Remarks by Paul J. Heytens Country Director, Bangladesh Resident Mission Asian Development Bank 19 October 2009 Sheraton Hotel, Dhaka Honorable Secretary for Environment and Forests Dr. Mihir Kanti Mazumder, distinguished guests, ladies and gentlemen: Good morning. It is a privilege, for me to welcome you here on behalf of the Asian Development Bank. This event will help us to work together to mitigate climate change and capture new business opportunities presented by the carbon market. Your presence here today highlights the wide interest in, and importance of, today's topic. Impacts of Climate Change What is now clear is that the emission of greenhouse gasses from human activities is causing global warming at a rate that has become alarming and threatening to all of us. Even more so, rising global temperatures create a compounding effect on forests, water and other natural resources, which is likely to exacerbate the damage to human lives. The poorest countries and the poorest people are the first and worst victims of climate change and the disasters induced by it. The Asia-Pacific region and Bangladesh in particular is expected to suffer significantly from the detrimental impacts. For example, about 1.2 billion people could face freshwater shortages by 2020 in Asia; crop yields in Central and South Asia could drop by 50% by 2050; Asia's numerous mega cities including Dhaka are vulnerable to flooding and damage from unpredictable weather patterns; and within this century, citizens of small islands and other low-lying nations and regions may be forced to become "climate refugees." In Bangladesh, disasters, including severe floods and cyclones, disproportionately affect the poor. Damaged municipal and community infrastructure, including waste and sewerage facilities, raise health risks and many who are dependent on natural resources are left without livelihood options. Bangladesh is predicted to be one of the countries most affected by climate change with more than 70 million people and 20% of the coastal area at risk from direct impacts. Already, riverbank erosion annually deprives an estimated 100,000 inhabitants of their livelihood. Most of those affected are extremely poor. Unfortunately, developing countries like Bangladesh bear the consequences of climate change though they have contributed least to the build up of greenhouse gases. Moreover, although average GHG emissions per capita in South Asia are much lower than those of non-Annex I countries, unmitigated climate change, in the long term, is likely to exceed the capacity of natural, managed and human systems to adapt. Therefore, even for South Asian countries like Bangladesh, high-carbon economic development is not a sustainable option anymore. So, in the interest of self-preservation, Bangladesh must join global efforts and explore opportunities to continue economic development on a low-carbon path. Finding financing for low carbon technologies is often the main challenge and we must look at innovative ways and make use of market based mechanisms such as the Clean Development Mechanism (CDM) under the Kyoto Protocol to move forward. Carbon Market Opportunities ADB has been working to support the carbon market development in the Asia-Pacific region because it has shown a significant potential to leverage domestic and international investments. The carbon market is now estimated at over €90 billion, with CDM representing approximately one quarter, or about €25 billion, and demands are expected to increase in the near future.

However, the CDM market in Asia has been mostly concentrated in just a few countries such as the Peoples Republic of China and India. To date, Bangladesh has only 2 registered CDM projects among the over 1,800 worldwide. The fact that such few projects have been developed in Bangladesh means that ample opportunity exists to scale up efforts. We feel that Bangladesh has significant potential for various CDM projects in the area of renewable energy, energy efficiency, urban development, and transport. However, we need to be aware of the issues and challenges of developing CDM projects here. High transaction costs, the long project cycle, and uncertainty over post 2012 issues are some of the barriers that we need address. Under CDM, payment for carbon credits is usually made after the project is implemented, therefore helping the cash flow but not the project financing, which is often the main barrier for many clean energy projects. ADB's Response Here in Bangladesh, ADB is assisting the Government and its line agencies to mainstream climate change adaptation and mitigation. ADB has developed a country specific Climate Change Implementation Plan to assist the country to transform to a more climate resilient and low carbon development path, starting with its own project activities. Turning to some specific activities, following the unveiling of the Bangladesh Climate Change Strategy and Action Plan (BCCSAP), ADB approved a $2 million technical assistance grant to build capacity in relevant government agencies to implement the BCCSAP with a special focus on project preparation, implementation, and policy formulation. Bangladesh is also participating in an ADB-financed regional study on the economics of climate change in South Asia. In addition, ADB, together with the World Bank is also moving ahead with the Pilot Program for Climate Resilience in Bangladesh, which could provide up to $60 million in financing to pilot test and demonstrate ways to integrate climate risk and resilience into core development planning. The main focus of today's event, however, is another ADB program to support climate change mitigation through the Carbon Market Initiative (or CMI). The initiative provides upfront financing and technical support to project developers with GHG mitigation benefits that can be eligible for the carbon market. I would especially like to highlight the Future Carbon Fund that can provide upfront financing for projects that generate carbon credits beyond 2012, when the first commitment of the Kyoto Protocol expires. ADB therefore is strongly committed to assisting Bangladesh to improve its economic growth aspirations following low carbon path. We are looking forward to further collaboration, especially for projects with GHG reduction potential, to maximize the benefits of the carbon market. Concluding Remarks We are fortunate to have with us here today the country's key movers of climate change action top policy makers, project sponsors and developers, and CDM practitioners. We encourage you to actively interact and exchange ideas and know-how on making CDM projects happen. Let us aim to convert our discussions into tangible projects. We also have ADB staff and CDM experts who will brief you on the ADB project processing cycle and services offered under the CMI, and will later be happy to meet with you for project specific consultations. Climate change and energy security are crucial issues for Bangladesh and the Asia-Pacific region as a whole. But this challenge is also an opportunity to progress down the path of sustainable and climate-responsive development. Now is the time to implement sound policies, and to make programs and projects happen. Let us work together to identify projects and activities at the country, community, corporate and personal levels that promote low carbon, sustainable growth in Bangladesh. We look forward to your fruitful discussions during the day and hope this catalyzes concrete project activities. Thank you very much.

Asian Low Carbon Green Growth in the Global Context
Opening Address by Haruhiko Kuroda President Asian Development Bank At the East Asia Climate Forum 29 May 2009 Seoul, Korea Excellencies, distinguished guests, ladies and gentlemen: On behalf of the Asian Development Bank, I wish to extend my deepest sympathy at the passing away of former President, Roh Moo-hyun. I would like to thank Prime Minister Han Seung-Soo and Professor Kim Hyung-kook, Co-chair of Presidential Committee on Green Growth for inviting me to this East Asia Climate Forum. I am delighted to have this opportunity to discuss the challenges we now face in addressing climate change and generating and financing low-carbon growth in Asia and the Pacific. I am also pleased to share with you some of ADB's actions and experiences in promoting low-carbon green growth in the region. I would like to extend my deepest appreciation to the Government of the Republic of Korea for hosting the Forum, and to the Korean people for their warm and gracious hospitality. I am also pleased to see here so many officials from ADB's member countries together with representatives from our development partners, nongovernment organizations, the private sector, and other stakeholders. I thank all of you for joining us today for this important event. Responding to the Global Climate Change Crisis It is now widely accepted that increased concentrations of human-caused greenhouse gases (GHGs) in our atmosphere are linked to rising global temperatures. Such rising temperatures will have adverse consequences on people's health, safety and livelihoods around the world, with the poor disproportionately affected. The latest scientific evidence suggests that this process may be occurring even faster than previously predicted. Clearly the entire global economy must reduce its reliance on the combustion of fossil fuels, or else the negative impacts of climate change will seriously drag down global economic growth. In Asia and the Pacific, climate change threatens to undermine the considerable social and economic progress achieved in recent years. Responding to climate change has therefore become a central element of the ADB's work. Intense negotiations are underway towards a new agreement on how the world will collectively address the climate change challenge. Global greenhouse gas emissions must be cut substantially. And it is critical to reach a common understanding on transitioning to low-carbon growth - in both the developed and developing worlds - and preparing for the inevitable adverse impacts of climate change. Mitigation and adaptation measures must also be backed by technology transfer and international financing. Unless decisive actions are taken, it is likely that the effects of climate change will take millennia to reverse, and will threaten the core of our planet's life support system, upon which we all depend. But there are promising signs that we will see meaningful progress in Copenhagen later this year. The European Union has committed to significant emission cuts by 2020; the United States has rejoined the negotiations and is considering its own measures to greatly reduce emissions over time. Progress also has been made in the United Nations Framework Convention on Climate Change (UNFCCC) negotiations - and also through the G20 and other forums - on identifying the adjustments needed in the energy and transport sectors of developing countries, as well as ways to reduce deforestation. World economic leaders have rightly focused their attention on addressing the global economic downturn. At the same time, a number of countries have sought ways to stimulate demand while simultaneously laying the groundwork for more climate-friendly development - so-called "green stimulus" measures. I believe such programs can help countries generate long-term

economic growth and sustainable jobs as they transition towards clean, innovative, resource efficient, low-carbon technologies and infrastructure. ADB and the other multilateral development banks have been encouraged to contribute to such efforts. The Republic of Korea has garnered global attention by choosing such a path through its 'Low Carbon Green Growth' national development strategy. This new development paradigm is meant to decouple economic growth from further increases in greenhouse gas emissions. It also seeks to create jobs and new sources of economic advancement based on the development and deployment of clean technologies. We commend the Korean Government for its important role in this area. Our region - and the rest of the world - is watching with great interest your country's efforts to address these dual crises. It is encouraging to see that many Asian and Pacific countries have recently developed action plans to respond to climate change - both for mitigating greenhouse gas emissions, and for coping with the impacts of climate change on their economies. Such efforts are in keeping with Asia's vital role in helping to stimulate global and regional economic activity and move development patterns in more climate-friendly directions. I highlighted the primacy of addressing the climate change issue to our Board of Governors at ADB's Annual Meeting in Bali early this month. As Asia assumes a larger role on the world stage, it must also assume its responsibility for addressing other pressing global problems-like climate change. Unless proactive steps are taken, developing Asia's share of global carbon emissions could rise to more than 40% - quickly making Asia the main driver of global climate change. Thus, at a time when investment is desperately needed to stimulate economies, we need to target those investments to where they can help establish the basis for economic growth that is more environmentally sustainable. We already know what needs to be done. We need to produce and use energy much more efficiently. Doing so is also a smart policy, because it can immediately lower costs and enhance economic competitiveness. We need to introduce new modes of transport - such as urban public transport systems - that will rely less on fossil fuels while encouraging urban development patterns that reduce our need for mobility. We also need to pro-actively encourage mass, rapid, and efficient public transport system in our urban centers so as to discourage multiplicity of private transport, thus, saving energy and effectively arresting proliferation of the use of fossil fuel. Given the lifespan of new infrastructure, our actions today are crucial, because they will lock in the region's greenhouse gas emission patterns for decades to come. We also need to look carefully at rural development patterns and land use change - especially deforestation - to see how sustainability can be increased. This includes compensation for carbon sequestration and other ecological services provided by forests, rangelands, wetlands, marine resources, and improved farming techniques. With respect to climate change adaptation, we must quickly improve our understanding of the new risks to development and find the most cost-effective measures to cope. This is a new area of analysis for all of us, drawing upon a rapidly evolving scientific understanding of the pace and scope of climate impacts. For example, ADB has joined with the World Bank and Japan International Corporation Agency (JICA) to sponsor a study on the likely impacts of climate change on several large Asian coastal cities - Manila, Ho Chi Minh City, Bangkok and Jakarta. We are also working with the Global Environment Facility, the Governments of the US and Australia and international nongovernmental organizations to support climate change adaptation analysis and responses in the six Southeast Asian and Pacific countries participating in the Coral Triangle Initiative. Last month, we completed a study examining the likely impacts of climate change on the largest economies of Southeast Asia. The findings are very troubling. Using analysis similar to that employed in the groundbreaking Stern report, we found that by the end of this century, the countries of Southeast Asia will be losing 6.7% of their GDPs to coastal flooding from rising sea levels, more intense storms, decreased agricultural production, heat waves, higher health risks and many other adverse impacts. While it may sound as if these changes are a long way off, that 6.7% fall in GDP will not suddenly appear in the year 2100! In fact, we are already seeing the consequences of changes in temperature and weather patterns that can be attributed to climate change, and which carry very real costs. For example, due to the melting of glaciers in the Himalayas and mountains of Central Asia, river flows are no longer extending as far into early summer as before. This is

altering patterns of water availability in some of the most densely populated and irrigation dependent parts of the world. Climate Change Response a Priority at ADB Given the urgency of the issue, ADB has made addressing climate change a top priority. We recognize not only that it represents a threat to development in our region, but also that the countries in our region can respond and thereby reshape their economies to make them more competitive and sustainable. Last year, we provided nearly $1.7 billion for projects with clean energy components, far exceeding our $1 billion target. Among others, our initiatives include wind power projects in the People's Republic of China and India, more efficient power transmission in Azerbaijan, green power development in Bhutan, and energy-efficient lighting for low-income households in the Philippines. With transport as a major area of concern, we are helping to develop energy-efficient mass transit systems in several Asian cities. And we support several initiatives that integrate forest protection and sustainable land use while capturing benefits from carbon sequestration. A new $40 million ADB Climate Change Fund created from our own resources has already programmed most of these funds. We have also created a $40 million Asia Pacific Disaster Response Fund - partly in acknowledgement of the increased risk of damages from weatherrelated natural disasters our developing member countries will face as a result of climate change. To promote the more rapid transfer and diffusion of new, low-carbon technologies, we are actively pursuing establishment of a low-carbon marketplace to bring together technology holders and users in our member countries to facilitate such transactions. Concluding Remarks In all of these efforts, ADB welcomes partnerships with both developed and developing nations, as well as with leading institutions around the world. We are confident that shifting to a lowcarbon economy does not mean sacrificing competitiveness and economic growth; but rather, is an investment in long term energy security and sustainable economic development. We are confident that through committed and coordinated action, the Asia and the Pacific region can adopt a more sustainable development pathway and overcome the additional burden to poverty reduction efforts caused by the climate crisis. The "Seoul Initiative for Low Carbon Green Growth of East Asia" envisions a new low-carbon green growth paradigm not only for Korea but other countries in Asia to attain economic growth while reducing greenhouse gas emissions. ADB supports the success of this initiative. Achieving our common goals on climate change and low carbon growth will require enhanced cooperation, tremendous determination, and political will. It will require working together, and ADB is ready to do its part. There is much yet to do in the region to address these complex issues. During ADB's annual meeting in Bali, I announced the establishment of an advisory group of eminent persons who are internationally recognized climate change experts to help us consider innovative low-carbon development programs relevant to the region in the medium and long term. But we must continue to stress that such a massive global challenge can only be addressed through a concerted, cooperative global effort. We must take every possible action to support successful conclusion to negotiations at Copenhagen in December of this year. While the challenges are huge, I believe the climate change is also an opportunity - an opportunity for our region and the world to fundamentally restructure our thinking about and investments in economic development to bring about a more sustainable future. Thank you all very much again.

National Workshop on PRC-ADB Cooperation in Financing Clean Energy Projects
Opening Remarks by Robert Wihtol Country Director, PRC Resident Mission Asian Development Bank 9 April 2009 Beijing, People's Republic of China Colleagues, Ladies and Gentlemen, On behalf of Asian Development Bank, I would like to extend a very warm welcome to all the participants in this national level workshop on PRC-ADB Cooperation in Financing Clean Energy Projects. This workshop represents an innovative approach to discussing energy sector processing and implementation issues among relevant provinces, MOF, NDRC and ADB. I would like to extend our appreciation to MOF and NDRC, who came up with the idea for this workshop, and who provided their guidance and support in its design and organization. The presence of participants from seven provinces clearly demonstrates the relevance of and interest in the workshop. The energy sector has been a priority area for ADB since it started its lending operations in PRC in 1987. So far, ADB has provided lending support of more than $3.8 billion for 32 energy projects in PRC. Based on a recent country assistance program evaluation, energy is one of the best performing portfolios. ADB's energy sector operations have evolved from capacity addition in traditional power generation and transmission projects to advanced technology pioneering clean energy projects with substantial demonstration effects. There is full convergence of ADB priorities and the Government's 11th five-year-plan sector priorities. In the past 5 years, all of the ADB's energy sector operations have aimed at achieving emission reductions and improving energy efficiency. Sector projects include innovative coalmine methane and coal bed methane (CMM/CBM) projects in Shanxi and Liaoning, flexible financing through a multitranche financing facility (MFF) for hydropower plants in Gansu, an innovative MFF for an energy efficiency project in Guangdong, and multi-component urban environment improvement projects in Inner Mongolia Autonomous Region and Liaoning. In March 2009, ADB also approved its first non-sovereign public sector project for a large wind farm in Hebei province. Looking ahead, sector priorities will continue to be governed by the energy efficiency, resource conservation, a scientific approach to development, and emerging climate change mitigation measures. ADB has formulated its own targeted sector initiatives with funds of about $500 million, e.g. Clean Energy Financing Partnership Facility (CEFPF), and the Carbon Market Initiative (CMI). The latter includes the Asia Pacific Carbon Fund (APCF) and Future Carbon Fund (FCF) which are directly relevant to the sector priorities. In addition, the ADB's innovative Climate Change Fund ($40 million) is operational and is being extensively utilized for targeted sector interventions in PRC. The $6.2 billion Climate Investment Facility (CIF), involving several leading donor countries, borrowing countries, and multilateral development banks, has been operational since early 2009. These funds all provide opportunities to scale up operations in clean energy. The ADB's energy sector operations will continue to involve challenging yet innovative projects of direct relevance to the Government's sector priorities, and which can easily be scaled up and replicated. Three energy projects with total expected lending of $400 million are already included in the ADB's 2009 - 2010 country operations business plan. This workshop is timely and has brought relevant stakeholders together to discuss and improve the quality of these projects' design and accelerate their processing. This workshop also complements the ongoing sector study being carried out with NDRC, and is expected to overcome barriers in energy efficiency projects. This in turn will help to strengthen the sector pipeline. In closing, I would like to reiterate ADB's commitment to strengthen the energy sector pipeline and facilitate timely processing of existing projects. I am greatly encouraged by your participation in the workshop today. I am confident that with your active participation, and with

guidance from NDRC and MOF, we can find suitable approaches to plan more clean energy projects and implement them more efficiently. I wish you all success in the deliberations today. Thank you.

"Low Carbon Growth"
Speech by Ursula Schaefer-Preuss Vice President, Knowledge Management and Sustainable Development Asian Development Bank At the High Level Event - Ministers of Finance on Climate Change 9 December 2008 Warsaw, Poland Introduction Your Excellencies, distinguished guests, ladies and gentlemen: On behalf of the Asian Development Bank (ADB), I would like to thank Minister Vincent-Rostowski and the Polish Government for giving me the opportunity to address this extraordinary audience on the challenges of climate change and ways to find and finance the needed solutions for low-carbon growth in the Asia-Pacific region. Yesterday we heard about the urgent need to address the various challenges of climate change while regaining momentum towards global economic growth and poverty reduction. With the existing commitments under the Kyoto Protocol expiring in 2012, the world is entering a key transition period that will determine how nations will address climate change in the coming decades. Without strong action, the risk of triggering large, irreversible changes to the climate system will escalate even further. For ADB, climate change is a major development challenge for the Asia-Pacific region, with the poor being disproportionately affected. Thus, ADB is strongly committed to support the global dialogues in this regard, and will further support our Developing Member Countries (DMCs) to ensure that our common goals can be effectively achieved. To do this, we will continue to forge new networks and partnerships, contribute towards reducing our global carbon footprints, promote innovative ideas and best practices, as well as provide financial support for our DMCs. Common Goals and ADB's Actions To avoid the worst impacts, the world must work together to keep atmospheric concentration of the greenhouse gas (GHG) within 450-550 parts per million. The IPCC, in its fourth assessment report, made concrete recommendations on what needs to happen, and the reference to the IPCC recommendations was included in the Bali Roadmap. In Poznan, we need to see real progress of the discussions to reach a comprehensive agreement next year in Copenhagen. ADB hopes that, as all of us recognize our common destiny, we will quickly build consensus towards a common set of actions. One possible way forward is based on the "contraction and convergence" principle, which many countries and leaders have endorsed. This approach relates to the "equitable" principle and per capita emission levels discussed yesterday. Essentially, this means that per capita emissions of developed countries must contract over time, and the developing countries' emissions need to converge with the lower emissions - so that the aggregate emissions are within the natural absorptive capacity of our planet. ADB is fully committed to assist our DMCs, so that their energy, transport, urban, and land use investments are well balanced and resilient to adverse climate change impacts. Last year in Bali, ADB President Kuroda highlighted the importance of mainstreaming climate change action into development financing, and the need for more financial partnerships. I would like to take the next few minutes to report to you on the progress we've made since. Concessional Finance First is on mobilizing concessional resources. One very prominent example is the recently established regime of the Climate Investment Funds (CIF). Administered by the World Bank and implemented together with ADB and other regional development banks, CIF will support the expanded use of clean technologies, help build climate resilient societies, and reduce GHG emissions from deforestation and other land use changes. As we work towards the launch of the

CIF, we appreciate the support of the countries that have pledged funding so far, and hope that the CIF partnership will grow. ADB also advanced the Clean Energy Financing Partnership Facility that uses grants and concessional loans to help start projects that are smaller than those targeted under CIF, which can be replicated across many DMCs. Overall, the Facility aims to provide concessional loans for the incremental cost of efficient technologies and to guarantee services to cover the potential "first loss" from clean energy investments. Furthermore, in 2008, leveraged investments in energy efficiency and renewable energy surpassed the established annual target of $1 billion, with public- and private-sector projects in the People's Republic of China, India, Pakistan, and the Philippines. Finally, our Board also approved this year $40 million Climate Change Fund sourced from ADB's net income to be used, on a grant basis, to support sustainable land use, public transport, and various adaptation measures such as climate proofing our projects. Private Capital ADB is also working to overcome present barriers that restrict private capital flows into the sectors that support climate change mitigation and adaptation. Currently, there is a limited supply of capital that can be accessed by small and medium-sized clean energy companies in developing Asia. So this work is essential. For instance, we are working closely with UNEP to help enterprises access seed capital for renewable energy and energy efficiency development projects. The early-stage investment is necessary to ensure that promising energy start-ups are adequately resourced for further developments. In addition, to further catalyze private sector investments in clean energy projects, we are also playing a catalytic role by identifying and supporting fund managers willing to establish clean energy-focused private equity funds. The aim is to invest in private companies and projects that are active in any aspect of climate change mitigation. ADB recently selected five funds that will invest in long-term capital. The aggregate size of the funds is $1.2 billion. Market Mechanisms Finally, ADB has been working to support the carbon market development in the Asia-Pacific region. The Clean Development Mechanism (CDM) has shown a significant potential to leverage domestic and international investments. The carbon market is now estimated at over €60 billion, with CDM representing approximately one quarter, or about €15 billion, and demands are expected to increase in the near future. In this regard, I am very pleased to inform you that we are commencing the operation of the Future Carbon Fund, starting in January 2009. The Future Carbon Fund will work with governments and companies who have already signed up to mandatory or voluntary targets, independent of what the global framework might look like in the future. The fund will provide upfront financing against GHG reductions until 2020 and also provide technical support to enable new project ideas that may be hampered by capital and capacity constraints. The upfront payment scheme can have a material impact on the financing plans of mitigation projects. For example, a medium scale hydropower project can receive as much as 7-15% of its total financing needs by pre-selling their expected carbon credits. Similarly, a geothermal heating project can use carbon credits to cover as much as one quarter of the funding requirements. Another area in which ADB is providing innovative ideas is energy security. ADB is currently studying the merits of establishing a market mechanism to promote alternative urban development and transport policies, technologies, and fuels. This will complement the carbon market and help make projects with mutual benefits for both climate change and energy security more competitive. Conclusion In all of these efforts, ADB welcomes partnerships with both developed and developing nations, as well as with leading institutions around the world. We are confident that through committed and coordinated action, the Asia-Pacific region can transition to a sustainable development pathway and overcome the additional burden to poverty reduction efforts caused by the climate crisis. We are hopeful that transitioning to a low-carbon economy does not mean sacrificing competitiveness and economic growth. Rather, we believe that the extraordinary power of the

marketplace can help spur innovation, capitalize on opportunities, and mobilize the investment needed to tackle the challenges of climate change. Achieving our common goals of addressing climate change, and achieving a low carbon growth, will require tremendous patience, determination, and political will. It will require that we are working together, and ADB is ready to do its part. Thank you very much again.

Carrying the Torch: Carbon Financing in a Period of Uncertainty
Keynote Speech by Xianbin Yao Director General, Regional & Sustainable Development Department Asian Development Bank At the China Carbon Forum Beijing, People's Republic of China 16 October 2008 Distinguished guests, ladies and gentlemen, good morning. I would first like to thank the hosts, the Chinese Energy Association, as well as all the sponsors for inviting me to speak at this important event. Yesterday, we heard insightful presentations by senior government officials, policy advisors, and carbon market practitioners. I highlight two key observations from those presentations, which, I believe, provide good context for my presentation this morning. First, we heard that China has a clear strategic vision to move toward a low-carbon economy and achieve sustainable development. And carbon finance is one of the key instruments to support reaching that vision. Indeed, we see that CDM projects are gaining great momentum in China. In the spirit of the Olympic Games that Beijing just hosted so overwhelmingly successfully, the "torch" of addressing climate change and advancing sustainable development is already on the way. The second observation I'd like to make is that many of the presentations yesterday alluded to the uncertainties surrounding the carbon market beyond 2012. This "post-2012" issue and especially the implications for ensuring continuity of the market need to be fully addressed. The torch and its flame must be carried forward without disruption. This is a key message I will emphasize this morning. I will talk about some of the challenges the carbon market is facing and introduce what my organization - the Asian Development Bank or "ADB" - is doing to ensure that no momentum is lost during this critical period. Brief intro of ADB Let me first explain just briefly about the Asian Development Bank and what our main role is in addressing climate change. The ADB is a multilateral development finance institution established in 1966 under an international treaty. Our mandate is to reduce poverty in the Asia-Pacific region, and we advance that mission through providing financial and technical assistance to our developing member countries. The ADB currently has 67 members and approve between USD6-10 billion of lending, investments, and guarantees every year. ADB's new long term strategy focuses on (i) inclusive economic growth, (ii) environmentally sustainable growth, and (iii) regional integration. On climate change, we are focusing on catalyzing the development of NEW mitigation and adaptation projects through capacity building and financing. In particular, we are focusing on utilizing markets and developing innovative financing schemes to boost the viability of lowcarbon investments. We understand that as a development organization, we must address climate change. Climate change can negatively affect many of the efforts undertaken by countries and development agencies to reduce poverty. On the mitigation side, we focus on pushing four "thrusts" - (1) clean energy, (2) sustainable transport, (3) urban sanitation, and (4) better land use. We also have key "thrusts" for adaptation. How do we promote these "thrusts"? As a development BANK, we focus on mobilizing more financial resources - concessional resources, private sector capital, and additional finance from market mechanisms such as the carbon market - the main topic of this conference. Carbon Market Growth and Uncertainty

Now let me turn to the carbon market. Globally the market has been growing rapidly in the past few years. The Kyoto Protocol became legally enforcing in 2005, and since, the market has grown by approximately 5 times in volume and 6 times in financial value. The carbon market is now estimated at over 60 billion Euros, with CDM representing approximately one quarter, about 15 billion Euros. However, there's one concern. In 2008, for the first time, it is estimated that there will be a drop in the volume and financial value of NEW (primary) CDM credits - from 6 billion Euros in 2007 to 4.5 billion Euros in 2008. As you can imagine, at ADB we interact with a lot of governments, project developers and sponsors across Asian countries. After hearing from many of them, in my mind there are two root causes: First, as we are all aware, the first commitment period of the Kyoto Protocol will end in 2012 and there is no agreed international framework yet beyond that time frame. This is presenting a problem with carbon offset projects since there is currently no certain long-term price signal to make low-carbon alternative investments more attractive. In the meantime, countries throughout the world are installing massive amounts of new power capacity with conventional systems, thereby locking the world into many years of voluminous greenhouse emissions. In other words, the decisions about greenhouse gas emissions in the next 20-30 years are being made right now, due to the long tenure of energy and transport infrastructure systems. Another issue is the inability of the carbon market to provide additional project finance. Most contracts are done through "pay on delivery" - where no funds flow into the project until the project is complete and becomes operational. So while this may help with adding cash flow to projects, it doesn't help projects that have upfront capital or budget constraints in the first place. Unfortunately, this "cash constraint" is very often the case with projects in new sectors for example wind, solar, biogas and renewable energy projects. Let me elaborate on the first issue. New CDM projects require long gestation times and high capital costs, but current uncertainties about whether the CDM will continue after 2012 makes it difficult for worthwhile projects to monetize the emission reductions they could make post-2012. Thus, the CDM needs an early and credible signal that the mechanism will continue beyond 2012 or else, the viability of many CDM projects will suffer. In Asia, such signals are vital because activities are just now gaining momentum. Actions must be taken now to help ensure that the value of Certified Emission Reductions remain intact to attract more project development. We do see many developments around the world that are quite encouraging. First, a number of mandatory and voluntary schemes have recently emerged independently of a global regime. Second, those various regional, national, and sub national schemes are working on harmonizing the definition of "credits" so that trading can be done across different schemes. Finally, some type of global agreement appears likely, and this will further boost the market, and there are some interesting developments happening in the United States. These are the various regional, national, and sub-national market schemes that are already established, or close to being finalized - Europe, Australia, New Zealand, Korea, Japan, as well as many regions within the United States. I won't explain the details, but you can see that there are so many schemes that have already committed to reductions beyond 2012 with some of them having clear provisions for importing CDM credits. The United States could play an important role in driving demand for carbon credits, both in the short and long term. Perhaps the biggest change on the horizon is that the United States could soon join the regulated carbon market. The presidential nominees of each of the major parties are both strong promoters of cap-and-trade legislation, as you can see on this slide. As key industries become regulated, the US could quickly surpass Europe in carbon trades, which will have a drastic effect on the global carbon market. The second issue I would like to elaborate on is the lack of buyers who are willing to share project development risk. We see very few CDM projects with equity from carbon credit purchasers, and buyers rather "wait and see" until the projects are complete and carbon credits are delivered. This has put most or all of the project risk and financial burden on the project developers, and thus the market has predominantly focused on relatively easy projects with quick return. Those "low hanging fruit" are now gone - unless we see buyers who are willing to

share some of the project development burden, we are unlikely to see significant growth in CDM projects in additional sectors or among smaller, newer project entities. This trend is contrary to the original vision for CDM. When the CDM was introduced 10 years ago, there was much expectation from developing countries that buyers would first provide the necessary upfront financial and technical support for new sustainable development projects that would reduce greenhouse gas emissions. The reality has been much different. Again, most buyers wait for credits to be delivered from projects with their own capacity and resources to move forward instead of providing upfront payments. Such schemes put the risk burden almost entirely on the project sponsors. As a result, projects are heavily skewed towards sectors and large project sponsors that already have capital and/or have access to foreign direct investment. ADB's CMI and Future Carbon Fund Now let me turn to what my organization is trying to do in the carbon market to help address these issues. It is a modality that can be replicated by other financing institutions. Instead of the standard "pay on delivery" modality that helps only the cash flow of projects, ADB provides financing and technical assistance at the very early stages when it is needed most. This turns "cash flow" into a "financing" scheme. Specifically on the issue of post-2012 uncertainty, we are establishing the Future Carbon Fund, which will purchase carbon credits expected to be generated up to year 2020, and provide upfront financing and technical support to enable new project ideas that may be hampered by capital and capacity constraints. We are currently discussing with the potential participants in the Future Carbon Fund, and expect to make the fund operational by the first quarter next year. The upfront payment scheme, such as the Future Carbon Fund can have a material impact on the financing plans of GHG mitigation projects. For example, a medium scale hydropower project can receive as much as 7-15% of its total financing needs by pre-selling their expected carbon credits. Similarly, a geothermal heating project in the PRC can use carbon credits to cover as much as 13-27% of the funding requirements. A modality such as the Future Carbon Fund can actually be replicated by many multilateral and bilateral development banks as well as commercial banks (once they recover from the current credit crisis of course). Since financial institutions evaluate the various risks of projects when deciding on whether to provide loans, equity, or guarantees, it makes sense to integrate the valuation and processing for CDM. For example every project in ADB's portfolio goes through initial project preparation, appraisal of the financing package, negotiation and Board approval, project implementation, and impact evaluation. These steps match with the necessary CDM procedures, and by synchronizing the two... …additional transaction time and costs can be significantly reduced. Other assistance in climate change Along with maximizing the CDM, ADB has also forged partnerships with other development institutions to pool technical and financial resources to address climate change. The Climate Investment Funds, currently supported by the governments of Japan, U.K. and the U.S., aims to scale up assistance to developing countries for climate action in the interim until a post-2012 climate change regime is effective. The World Bank will act as the trustee, and the fund will be implemented through the World Bank and regional development banks, including ADB, African Development Bank, European Bank for Reconstruction and Development, and Inter-American Development Bank. ADB also has direct access to the full project resources of the Global Environment Facility. GEF funds are helping developing countries undertake "win-win" projects to mitigate the effects of climate change, while also benefiting local economies and helping improve local environmental conditions. There schemes are supported by concessional resources such as ODA, and intend to fill the gaps in areas where market mechanisms cannot address.

Finally, we are supporting additional market incentives other than greenhouse gas reductions. For example, ADB has been assisting the PRC government to evaluate the merits of its own sulphur dioxide emissions trading program. The experience in the U.S. has shown that emission trading can be an effective instrument to reduce emissions at lower cost than traditional regulatory policies. Another market mechanism focuses on advancing energy efficiency. This scheme is already operational in Italy and the U.K. and the credits are called "white certificates". India is one of the countries currently considering such market mechanisms to promote energy efficiency. These market schemes, combined with concessional funds, can contribute to attracting private capital into clean energy and other low-carbon investments. Conclusion I would like all of us to step back and take a look at the big picture. Today's carbon market is primarily a result of the commitments made under the Kyoto Protocol. It has proven to be an effective and important first step in "internalizing" the cost of emitting greenhouse gases into the atmosphere, and encourage investments in alternative technologies and policies. Under the Kyoto Protocol, 38 countries agreed to reductions of a very modest five point two percent (5.2%) below 1990 levels between the years 2008 and 2012. Subsequently, the United States decided not to commit to mandatory obligations. Despite this weak framework, carbon trading has still grown from 9 billion Euros in 2005 to 60 billion Euros today. The carbon market is, of course, a tool that was developed to help solve a global problem -climate change. Let's think of what the world's top group of scientists -, the Intergovernmental Panel on Climate Change (IPCC) - say about this problem. The latest reports of the IPCC, written by 800 scientists from over 130 countries, tell us that in order to reduce emissions and stabilize the atmospheric concentration of greenhouse gases to avoid dangerous interference with the climate system, the world needs to reduce anywhere between 30-85% of emissions in the next 50 years. So, if the policy makers and the world are serious about pricing GHG emissions and using carbon trading as a tool to solve the problem, then one thing is clear - the carbon market must become MUCH larger. Therefore, I would like to end my contribution to the Forum on a positive note. I think that you have made an excellent decision to spend your time here these two days. Despite some uncertainties today, this market will grow much larger - and you all will likely be right at the heart of it. Thank you and I look forward to working with many of you on concrete projects and programs in the near future. Let me remind to you that we all here are the "torch bearers". Let's make sure that we successfully carry the torch through to the next phase of the global climate change framework - and more importantly, hand over this torch to the next generation so we can successfully address climate change while enabling sustainable growth. Myself, and ADB will do our part.

Mobilizing Finance to Address Climate Change
Statement by Ursula Schäfer-Preuss Vice President Knowledge Management and Sustainable Development Asian Development Bank At the 4th Ministerial Meeting of the Gleneagles Dialogue on Climate Change, Clean Energy and Sustainable Development 15 March 2008 Chiba, Japan Introduction Your Excellencies, distinguished guests, ladies and gentlemen: I would like to thank the Chairman of Japan for the opportunity to present ADB's views on ways to mobilize financing to address climate change. Asia and Climate Change: A Major Development Challenge There is a growing and clear consensus that climate change is a fact of life, and that its adverse impacts are increasing. Rising global temperatures create a compounding effect on forests, water and other natural resources, which is likely to exacerbate the damages to human lives. The case for action on climate change is particularly strong in Asia and the Pacific, as the region is expected to suffer many of its most detrimental impacts. About 1.2 billion people could face freshwater shortages by 2020; crop yields in Central and South Asia could drop by 50% by 2050; Asia's coastal megacities including Bangkok, Jakarta, Karachi, Manila, Mumbai, and Shanghai are vulnerable to flooding and damage from unpredictable weather patterns; and within this century, the citizens of Tuvalu, the Maldives and coastal Bangladesh may be forced to become "climate refugees." The poorest people in the region will suffer first and most. We must act now to maintain our progress toward the Millennium Development Goals for income poverty, health, and the environment itself. In addition to being hit hard by the adverse consequences, Asia is fast becoming a major source of greenhouse gas emissions - a consequence of rapid and carbon-intensive economic growth. Thus, the region has a special role to play in the area of mitigation. Today, developing Asia accounts for 29% of global energy-related carbon dioxide emissions, three times bigger than its share 30 years ago. With an estimated $6 trillion needed for energy investments by 2030, it is projected that Asia's share of energy-related carbon emissions could rise to 42%. Total emissions from Asia are much higher, when one adds those from deforestation and land degradation. Unless specific policies and actions are taken, the region will quickly become the main driver of climate change. ADB's Actions: Three Issues on Improving the Financing Mechanisms Climate change poses a critical development challenge, but it also provides an opportunity to promote a transition toward a sustainable growth pathway. Specifically for today's session, I would like to highlight three key actions to complement and enhance the existing financing and investment mechanisms: First, we need to improve existing schemes, such as the Clean Development Mechanism (CDM). When the CDM was introduced 10 years ago, there was much expectation from the developing countries that it would provide the necessary upfront financial and technical support for new sustainable development projects that would reduce greenhouse gas emissions. Today, due to the lack of buyers willing to share project development and operational risk, it is mostly functioning to provide additional cash flow to projects that are already able to move forward with its own financing. Through ADB's Carbon Market Initiative, our developing member countries receive technical assistance and financing during the project development stage; afterwards, they deliver carbon

credits once the projects are operational. In addition to the existing $150 million Asia Pacific Carbon Fund, we are proposing a Future Carbon Fund, which will pay upfront for post-2012 carbon credits to be generated by ADB-assisted projects. We are also striving to make several critical sectors benefit from carbon trading schemes - for example public transportation projects (e.g., bus rapid transit) and small energy efficiency projects (e.g., compact fluorescent lights). Second, we need more partnerships that can pool technical and financial resources to address both mitigation and adaptation. I would like to congratulate Japan, US, and UK authorities for leading the establishment of the Climate Investment Facility. It is an important step towards improving financing on climate change. ADB will be an active supporter and implementing agency. In addition ADB's Clean Energy Financing Partnership Facility provides loans and guarantee products that can help companies take more risk when considering clean energy investments in emerging economies. Particularly on the adaptation side, there is a need to build up a pool of funds to help reduce the financial burdens to countries that may be called to accommodate large populations displaced by climate change. No single country should have to bear the burden of climate-driven refugees on its own. The UN family, ASEAN, APEC, and other agencies and groups are called to move forward on the policy dialogue and to prepare the legal framework to support and protect climate refugees. ADB is prepared to play a role in the financial framework according to our mandate as a regional development bank. All of us in the international community are called upon to jointly develop policy guidelines and legal concepts on how to deal with this anticipated burden for societies in different parts of the world, in particular in Asia and the Pacific. Finally, we must consider additional market incentives other than greenhouse gas reductions. For example, some of the incentives in the U.S. that will lead to improving local air quality are now considered in the PRC - to reduce urban pollution, as well as CO2 emissions. We should also look at the benefits of public transport and high-efficiency vehicles that contribute to regional and global energy security, and consider ways to turn those into market incentives. ADB is scaling up its Sustainable Transport Initiative to support such activities, and will also ensure that private sector investment - supported by the proper incentives - will be one of the main pillars for addressing the financing challenges. Conclusions Ladies and gentlemen, honored guests, I want to thank you again for inviting me to this important event. In the context of global collaboration, ADB will continue efforts to achieve our common goals for the Asia-Pacific region, in particular through strong partnerships, to jointly spur local actions for global solutions - within the timeframe necessary to avoid the dangerous levels of climate change that will spell calamity for all people, and particularly the poor. Thank you.

Signing Ceremony for ADB Grant Project to Clean Up Vientiane's Waste Management
VIENTIANE, LAO PDR (31 March 2004) - Vientiane Capital City Government and ADB today held a signing ceremony for a US$1 million Solid Waste Management Project that will help clean up the Lao People's Democratic Republic's (Lao PDR's) capital city. Funded by the Japan Fund for Poverty Reduction, financed by the Government of Japan, the grant assistance will improve the environmental and living conditions of the poor in Vientiane through community-based solid waste management and income generating activities. At the signing ceremony, the city government was represented by Sinlavong Khoudphaytoun, Vice-Mayor, Vientiane Capital City, while representing ADB was James Nugent, Country Director of its Resident Mission in the Lao PDR. The Ambassador of Japan, Itsuo Hashimoto, representatives from the Lao PDR Government, ADB, civil society organizations, and various development partners also attended. The project aims to complement existing efforts by the Lao PDR Government and external donors to manage the mounting problems of solid waste disposal in Vientiane. Less than half of the city's 220 tons of daily waste can now be disposed of at the municipal dumpsite. Further, areas that do not have access to waste collection services face environmental hygiene concerns. The project will set up community-based solid waste management systems to collect, transport, and dispose of waste in poor communities, construct waste recycling centers, segregate and recycle solid waste, establish a waste pickers' multi purpose center, and improve the municipal landfill site. Aside from enabling the Vientiane City government to collect an additional 20 tons of waste per day, the project will benefit about 2,900 households, provide training to 500 persons, and improve occupational safety for waste pickers. "It is hoped that by the end of the project, Vientiane's waste collection and disposal systems will have vastly improved, and those working at the municipal dumpsite will face better conditions," says Mr. Nugent. "The project will also provide greater community awareness of the benefits of good environmental hygiene. Likewise, it is expected that local policymakers will have a greater appreciation of the need for demand-driven social services and provide more support for community-based initiatives." The assistance will be carried out over three years, beginning in April 2004 and ending in March 2007.