LP Gas Use and the MDG Carbon Facility

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LP Gas Use and the MDG Carbon Facility

• Andrew YAGER
• United Nations Development Programme

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LP Gas Rural Energy Challenge

• Public private partnership between the World LP
  Gas Association and the UNDP
  
• Designed to create viable and sustainable markets
  for LP Gas delivery and consumption
  
• Directly targets rural and peri-urban areas with
  the objective of expanding access to cleaner LP
  Gas, thereby contributing to achieving the
  Millennium Development Goals (MDGs)

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Environmental Finance

• The Kyoto Protocol broke new ground with the
  introduction of a cap-and-trade carbon market to
  place a value on climate stabilization services.
  Carbon Finance could raise resources 10 times
  greater than what is available through ODA.
• This emerging environment finance provides
  unprecedented opportunities to developing
  countries but also poses new challenges.
  
• Access Carbon finance puts high demands on
  planning, legal, and financial institutions of
  developing countries.
  
• Combining/sequencing different instruments Given
  the diversity and complexity of sources of
  environmental funding, a key challenge for
  developing countries will be to identify the most
  suitable financial instruments to achieve
  specific national targets (e.g. ODA, public
  transfers, direct private investments,
  environmental commodity markets)

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MDG Carbon MissionCurrent Mix of Projects by
Country

• Host-Country Distribution of Confirmed Projects
  (countries with 2 percent share of projects)

Distribution of confirmed projects by top host
countries
Others 52 (18)
India 96 (32)
Malaysia 8 (3)
Argentina 6 (2)
South Korea 5 (2)
Honduras 9 (3)
Chile 13 (4)
China 18 (6)
Brazil 64 (22)
Mexico 22 (8)
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Distribution of CDM Projects
LDCs 3
Other countries 97
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What is MDG Carbon
CDM projects
MDG projects
Poverty alleviation Biodiversity
Education Gender
HIV/AIDS Other

Renewable Energy
Energy Efficiency
MDGCarbonPool
Methane Mitigation
Biosequestration
Cleaner Energy
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Overview of UNDP's MDG Carbon facility
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Core Objectives of MDG Carbon Facility

• Increase access to carbon finance to a broader
  range of developing countries and project types
  through providing a one-stop shop service in
  carbon finance in pre-market situations. (Build
  capacity)
• Maximize the carbon development dividend through
  developing an MDG Carbon portfolio that strikes a
  balance between cost-effective projects (e.g. gas
  flaring reduction, landfill methane recovery) and
  high development impact projects (e.g. small
  community alternative energy, LP Gas delivery).
• Develop capacity of programme countries to
  combine and sequence different funding sources to
  achieve specific national development targets

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MDG Carbon MissionCurrent Mix of Projects by
Type

• Distribution of CERs to 2012 from Confirmed
  Projects by Project Type

CERs up to 2012 from confirmed by project type
Agriculture (AWM) 4
Afforestation-Reforestation
Biomass/biogas energy 6
Transportation
Landfill gas 10
Renewables 6
Energy efficiency 5
Fugitive emissions 2
Fossil Fuel Switvh
Cemet 1
HFC N2O reduction 66
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Barriers to MDG Carbon Project Development

• A number of sectors that have promising
  opportunities for successful carbon reduction
  projects with high sustainable development
  benefits are suffering from the lack of
  applicable methodologies. Commercial carbon
  financiers are reluctant to develop such
  methodologies due to the perceived complexity or
  risks associated with them.
• Most project proponents in low income countries
  find it difficult to advance the funds for the
  preparation of the carbon project document, its
  validation by a DOE and registration by the CDM
  board
• Analysis of the typical impact of carbon finance
  on the IRR of different type of projects shows
  that in many cases the additional revenue stream
  created by carbon finance is not likely to be
  sufficient for transforming a project into an
  attractive investment (MDG benefits)

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Access to Capital

• Carbon finance provides only an additional
  revenue stream
  
• To expand the carbon market into new countries
  and economic sectors, national development
  agencies need to address the fundamental market
  barriers that limit the attractiveness of
  underlying projects to potential investors in
  general
• This could call for the development of
  industry-specific policy instruments to
  complement the potential effect of carbon credits
  on the profitability of underlying projects
• By managing ODA,GEF and carbon finance under one
  roof, UNDP is able to assist host countries in
  sequencing/combining different funding sources to
  implement national environment energy
  development priorities

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Overview of UNDP Role in Carbon Finance
Long Term Framework Agreement
Financial Services Partner
UNDP
Delivery of Carbon Credits
Payment for Credits
Payment of Cost Recovery Fee
Project Management Services
Emissions Reduction
Purchase Agreement (ERPA)
Cost Recovery Service Agreement
Project Proponents
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Relationship of LP Gas Challenge to Gas Flaring
Initiative

• The GGFR programme contributes to poverty
  reduction by developing concepts for how local
  communities close to flaring sites can use
  natural gas and liquefied petroleum gas (LP Gas)
  that may otherwise be flared.
• LP Gas is often overlooked. LNG is produced and
  exported.
  
• Industry has an important role to provide cleaner
  fuels to the local population.

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LP Gas Challenge success

• The LP Gas Challenge has successfully forged
  relationships with governments in pilot countries
  where policies and programmes are now in place to
  increase LP Gas use for domestic and small
  industrial purposes.
• Important to develop positive actions within an
  effective local partnership between government
  and industry
  
• In South Africa, ESKOM is replacing electric
  cookers with LP Gas stoves and cylinders

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Energy Access for the MDGs

• The LP Gas Challenge partnership has experience
  creating conditions for the local market to grow
  in a sustainable manner
  
• There are immediate local benefits through job
  creation and local investment directly related to
  poverty reduction
  
• A portion of the CERs in MDG Carbon projects can
  be directly targeted to MDG projects in
  non-energy sectors (e.g. health, HIV, education)
  
• Combining carbon finance with LP Gas use to
  achieve the MDGs can make the associated gas
  usage more attractive