CLIMATE EFFICIENT INDUSTRIES Yerevan, Armenia Etienne Kechichian October 1, 2015
CLIMATE EFFICIENT INDUSTRIESYerevan, Armenia
Etienne Kechichian
October 1, 2015
Industrial resource use will increase in the coming decades, particularly in Asia.
Meanwhile the resources are increasingly inter-linked and resource prices are becoming more volatile.
Industries are challenged by…
Firms can address various market failures through green measures and investments.
Growing consciousness among international buyers for green products and services
A global survey by EY (of 257 executives from $1bn plus corporations) conducted reveals 50% organizations are implementing some form of green minded supplier qualification, 39% have plans which means 91% of firms will evaluate suppliers based on environmental sustainability practices.
Energy/Resource Security Firm Preference Consumer Preference
52%
45%
44%
41%
40%
37%
35%
32%
27%
26%
0% 20% 40% 60%
Reducing costs
Increasingprofitability
Governmentmandates
Corporate socialresponsibility
Reducing carbonemissions
Pressure fromcustomers
Price of fossil fuels
Public opinion
Pressure fromsuppliers
Enhance brand
Top 10 factors that are driving the demand for green
investments from businesses
Target to reduce industrial GHG emissions by 1.2 million tons/ year by 2020 Have saved firms and governments over $4 million in operating costs in the textile
sector
20% of GHG emissions from industries; 10% residential Existing technologies can save $600 billion a year for consumers and businesses CEI helps lower operating costs and mitigate environmental/ resource linked risks Set up in 2013, CEI is WBG response to climate change and environmental
challenges in industries
Standards & Incentives Priority Sectors Industrial Areas
Climate Efficient Industries
Green buildings Industrial equipment Appliances
Textiles Cement Cleantech
Eco-industrial parks Low-carbon zones Climate-resilience
Climate Efficient Industries
Global portfolio
3
4 Pipeline Projects
18 Active Projects
2 Closed
Egypt –Industrial Energy
EfficiencyJordan
Competitiveness and Investments
Bangladesh –Partnership for
Cleaner Textiles
Bangladesh Low-carbon Zones/
PSPSDVietnam Industrial
Resource Efficiency
Pakistan –Punjab Energy
Guatemala -Enhancing MSMEs Productivity Project
Mauritania - Green Seafood Cluster
Nouadhibou
KnowledgeManagement & DisseminationActivities
In Progress Green Financial Mechanisms Toolkit (Fall 2015) CEI Global Field Guide (Fall 2015) Low-carbon Zones Global Event (Fall 2015) Climate-action and Competitiveness event (Fall 2015) Flagship Report Green Competitiveness (Spring 2016)
Completed Low Carbon Zones: A Practitioner’s Handbook
Green Building Code Colombia
Dominican Republic Cleaner Production in
SMEs
Brazil - Frontier States Investment
Generation
Turkey – Green Zones
Kenya – Export Competitiveness and Innovation
Kenya - LCZs
Brazil – Industrial Symbiosis
Indonesia Green Building Regulations
Green Building
RegulationsPhilippines
Green Building Promotion Vietnam
Green Buildings
India
LAC Green Building Construction and Permits
Green Building China
Clean Cement Africa
Morocco EE standards
The overall potential of financing EE
4
Source: IEA (2014) World Energy Investment Outlook.
Moderate effort on EE>$500 B/yr by 2035
Unlocking EE with Financial Mechanisms
Political and economic instability Limited liquidity and access to finances in
the market Limited legislations, regulations, and
obligation schemes to promote and enforce energy efficiency measures
Limited funding programs or instability of the resources of existing funding programs
Limited experience and will of public agencies
Limited capacity and unwillingness of LFIs to finance EE measures
Limited standardization and capacity to conduct measurement and verification
Political and economic instability Limited liquidity and access to finances in
the market Limited legislations, regulations, and
obligation schemes to promote and enforce energy efficiency measures
Limited funding programs or instability of the resources of existing funding programs
Limited experience and will of public agencies
Limited capacity and unwillingness of LFIs to finance EE measures
Limited standardization and capacity to conduct measurement and verification
Financial Mechanisms are tools to overcome barriers and establish enabling environments that unlock the investment potential of the EE market by providing incentives to investors and trigger commercial financing.
Financial Mechanisms are tools to overcome barriers and establish enabling environments that unlock the investment potential of the EE market by providing incentives to investors and trigger commercial financing.
Challenges for FMs in developing countries Challenges for FMs in developing countries
IFC Areas of investment
Private sector solutions for climate mitigation / adaptation and inclusive development
ENERGY: Low carbon generation, energy efficiency,
storage, smart grids.
BUILDINGS: Low carbon strategy, energy efficiency,
sustainable materials.
TRANSPORTATION: Vehicles, systems, fuels and logistics
WATER: Capture, treatment, conservation, wastewater
treatment
AIR & ENVIRONMENT: Emission control, trading and offsets
MANUFACTURING: Green chemicals, RE/EE supply chain,
cleaner production.
AGRICULTURE & FORESTRY: Land mgmt, low carbon and
adaptation strategies, biomass.
RECYCLING & WASTE: Recycling and waste treatment services
Climate business will only scale and have impact with significant private sector participation – that is where IFC has an important role to play
IFC Financing of green investments
7
2014 commitments:
$2.5 billion
2005-2014 cumulative commitments:
$13 billion
Renewable Energy54.1%
Energy Efficiency
39.9%Other
mitigation5.9%
Adaptation0.1%
RE Generation44%
Thermal Efficiency6%
EE in T&D5%
EE in Transport3%
Indusrial/Agri EE3%
Forestry2%
Green Buildings5%
Components & S1%
newable Captive U2%Long-term FM
6%
Trade Finance23%
IFC invests in process improvements and other technology to reduce energy, water, and other resource use in sectors such as cement, metals, pulp and paper, chemicals, construction, and power generation.
IFC Advisory to financial intermediaries
8
Main objectives: Developing internal capacity for FIs and
supporting their pipeline development for SEF lending.
Supporting regulatory improvements for energy efficiency and renewable investments;
Building partnerships with technology suppliers, auditors, vendors, Energy Service Companies (ESCO) networks;
Value of financing facilitated $ 1.8 billion
FIs supported by Advisory 62 in 22 countries
Value Loans Disbursed by FIs $906 million
Renewable Energy Produced 245,000 MWh/p.a.
Energy Use Avoided 15,700,000 MWh/p.a.
GHG Avoided 17.5 million tons CO2e/p.a.
IFC’s SEF Global Portfolio
Near zero default rate on $1bn portfolio
Aiming to promote sustainable and low-carbon growth by supporting financial intermediary lending to clean and resource-efficient projects as well as renewable energy investments in emerging markets.
World Bank EE credit lines to local banks
World Bank energy efficiency credit lines
The success of a credit line depends to a great extent on the selection of competent and committed financial institutions.
A technical assistance component built into the credit line helps lower the technical and financial risk of projects.
2008-2018 total financing:
$3.98 billion
Establishing a stable, long-term energy and industry policy is crucial for promoting investments in energy efficiency market.
Market Maturity Stage
Market matures
Regulations, and Standards & Labeling ramp up
Subsidies and fiscal incentives phased out
Public Financing(grants) PPPs Private Financing
(Venture Capital / PE)
Research & Development
Stage
Market Deployment
Stage
Commercialization (Diffusion)
Stage
Target Setting & Strategic Vision
Awareness Campaigns & Training Programs
Government is an important catalyst for EE market development
Adapted from: Hilke and Ryan, 2012 and Wang et al., 2013, McGregor and James, 2011, WWF and Cleantech, 2012
10
Demonstration Stage
Market pullProduct/technology push
Policy instruments have to target different strategies at different market development stages.
Planning Stage
What we are doing in assisting the financial mechanisms
How To Design and Implement a FM Program for Resource Efficiency (or EE)
CEI reviews and analyzes existing FMs by drawing on the experience of the government and other stakeholders to suggest new or modified FMs to improve EE in the manufacturing sector
Steps Activities
1. Initial country analysis Set objective and scope of initial analysis Quantify resource use Resource use drivers Market analysis of related sectors Resource efficiency potential Technical capacity audits Financial capacity Mapping financial sector Existing resource efficiency policies and FMs Investment potential and barriers (e.g. market failures in private financing) Identify stakeholders
2. Ensuring stakeholder engagement
Transparency Inclusiveness (stakeholder consultation) Accountability (MVE)
3. Setting FM program targets Identify potential FMs Decide whether to (i) disable, (ii) improve, and/or (iii) add to existing FMs
4. Selecting FM package Overview types of FM framework (voluntary and mandatory; strengths and weaknesses in general of both)
Specifics of FMs How FMs should be phased in/out
5. Implementation Capacity building (for policy-makers, financial institutions, manufacturing sector) Communications
What are the main challenges?
Financial Barriers
General
Limited access to capital for SMEs Interest rates on loans are high in general which restricts access to finance for many companies High collateral requested by banks for lending Shortages of lending capacity in the banking system High upfront costs of EE investments Lack of proper business plans including detailed financial information Internal procedures and investment appraisal rules of banks Long payback periods required for EE investments vs. short term view of business activities Budgets do not prioritize EE
Institutional and Administrative Barriers
Regulatory
Unstable regulatory framework for EE Electricity subsidies which distort the price signals for EE investment Large public debt of the government with limited budget for fiscal incentives for EE Difficult decision-making process at the government level Lack of clear definition of which equipment falls under EE and the unavailability of clear or adequate regulation
Institutional Uncertain institutional framework as to the allocation of responsibilities
Structural Short-term view by government and market players People prefer stability to taking a risk Other factors related to running a business get priority over EE
Information and Awareness Barriers Lack of information on EE
Imperfect information about EE opportunities SMEs lack of awareness of EE technologies Lack of understanding/ knowledge of available financing programs
Skills & knowledge
Banks and beneficiaries do not have the required skills In general, the education system is not ready
Shnorhakalutyun