Asia Pacific Finance and Development Center 2010 Biennial Forum on
Fiscal and Financial Policies for Low-carbon Economic Development
November 26, 2010
Shanghai, China
Peter A. Cook, Sr. Investment Officer
Climate Business Group, IFC Beijing

• IFC is the largest global development finance institution focused on the private sector – the global leader in private sector development finance
• We create opportunity for people – to escape poverty and improve their lives
• Driven by our vision and purpose , we make a unique contribution to development
• We invest, advise, mobilize capital, and manage assets – providing solutions for an inclusive and sustainable world
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• Owned by 182 member countries
• IFC is the main driver of private sector development in the
World Bank Group
• Collaborates with other members of the group, including the
World Bank (IBRD and IDA, MIGA and the International
Centre for Settlement of Investment Disputes)
• Global: Headquartered in Washington, D.C.
• Local: More than 100 offices worldwide in 86 countries, including Beijing and Chengdu in China
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IFC Investment Services IFC Advisory Services
Loans
Equity
Other forms of financing
•
•
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Advice
Problem-solving
Training
IFC Asset
Management
Company
• Wholly-owned subsidiary of IFC
• Private equity fund manager
• Invests third-party capital alongside IFC
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• Investments: 528 new projects in 103 countries
• Advisory services: $268 million in annual expenditures
• $18 billion in financing: $12.7 billion for IFC’s own account, $5.3 billion mobilized
• IDA countries account for half of IFC projects overall:
 $2.4 billion invested in Sub-Saharan Africa, 33 percent increase over past year
• IFC earned net income of $1.7 billion for the year, and also made a $200 million grant to IDA
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IFC’s activities help raise living standards for people throughout the developing world
Last year our clients provided:
• 2.2 million jobs
• $112 billion in micro, small, and medium enterprise loans
• 8 million patients with health care treatment
• 35 million people with clean water
• 29 million people with power connections
• 1.4 million students with education services
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Last year our clients provided:
• 285,000 jobs
• $12 billion in micro, small, and medium enterprise loans
• 1 million patients with health care treatment
• 15 million customers with clean water
• 16 million customers with power connections
• 14 million customers with gas distribution
• Services to 510,000 farmers
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Middle East and
North Africa 12%
Commitments for IFC’s Account: $12.7 Billion
Global 1%
Subnational
Finance 1%
Agribusiness 4%
Sub-Saharan Africa
19%
Oil, Gas, Mining and Chemicals 8%
Private Equity and Investment
Funds 3%
Latin
America and the
Caribbean
24%
Europe and Central Asia 23%
East Asia and
Pacific 13%
Infrastructure 12%
Health and
Education 3%
Global Manufacturing and Services 11%
South Asia 8% Global Information and
Communication Technologies
4%
Global Financial
Markets 54%
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
Grow climate-related business to 20-25% of annual commitments by 2013
Thought
Leadership
• Methodologies for setting and monitoring climate goals and standards across all sectors
• GHG intensity accounting, impact assessment and efficiency guidelines
• Capacity building for private and public clients related to climate business/policy
• Engagement with DFIs, institutional investors, academia and civil society
Business
Opportunities
• Support IFC investments with global knowledge and technical expertise
• Develop scalable climate business models
• Invest in new and transferable technologies
• Develop relations with global and local climate technology companies
• Stay abreast with climate-related business solutions and markets
Financial
Innovation
• Leverage and adapt existing financial products (e.g., carbon)
• Develop new innovative financial products
• Develop efficient mechanisms to leverage public funds with private investment: tap into new climate finance
• Scale up through intermediation with financial institutions and funds
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• IFC’s plans to grow its commitment in climate-related investments for its own account from about
$1 billion/year in FY10 to $3 billion/year by FY13
• By FY13, investments in climate-friendly projects will be scaled across IFC:
 Infrastructure & Natural Resources finances on/off-grid renewables; efficiency in power/T&D, transport & ICT; water
 Manufacturing, Agribusiness & Services finance industrial EE & CP; renewables supply chain; green buildings; agri and forestry
 Financial Markets works through FIs to finance small/medium green investments and climaterelated projects
 Clean Technology – investments in innovative, transferable, scalable climate technologies
 Climate Financial Products & Funds across all sectors
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• Current levels of annual climate financing for developing countries ($9 billion) fall short of annual estimated needs
 $140-175 billion for Mitigation
 $30-100 billion for Adaptation
• For this to be achieved and attained, private sector participation and financing is crucial
• Solutions need to integrate new business models based on:
 Innovation
 Scalability
 Policy-based incentives and reforms
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Source: World Development Report 2010

Abatement cost
€ per tCO
2 e
Gas plant CCS retrofit
Coal CCS retrofit
Iron and steel CCS new build
60 Low penetration wind Coal CCS new build
Cars plug-in hybrid
50
40
30
20
Residential electronics
Residential appliances
Retrofit residential HVAC
Tillage and residue mgmt
Insulation retrofit (residential)
Degraded forest reforestation
Nuclear
Pastureland afforestation
Degraded land restoration
2 nd generation biofuels
Power plant biomass co-firing
Reduced intensive agriculture conversion
High penetration wind
Solar PV
Solar CSP
Building efficiency new build
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Cars full hybrid
Waste recycling
0
-10
5 10 15 20
Organic soil restoration
25 30 35
-20
Geothermal
Grassland management
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Abatement potential
GtCO
2 e per year
-30
Reduced pastureland conversion
Reduced slash and burn agriculture conversion
-40 Small hydro
-50
-60
-70
-80
-90
-100
1 st generation biofuels
Rice management
Efficiency improvements other industry
Electricity from landfill gas
Clinker substitution by fly ash
Cropland nutrient management
Motor systems efficiency
Insulation retrofit (commercial)
Lighting – switch incandescent to LED (residential)
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Note: The curve presents an estimate of the maximum potential of all technical GHG abatement measures below €60 per tCO
Source:Global GHG Abatement Cost Curve v2.0
2 e if each lever was pursued aggressively. It is not a forecast of what role different abatement measures and technologies will play.

• Policy instruments are required to promote change in market behavior for the public good. This is particularly common for sustainability
 Environmental protection
 Energy efficiency
 Renewable energy development
 Cleaner production
• Can range from command and control to market based mechanisms
• Policy instruments essentially serve to overcome market barriers for the transformation
• Where the underlying sector has economic value, market based instruments provide the most efficient way of achieving a market transformation
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• Supply side Efficiency
 Transmission lines
 Power factor correction
 Public transportation
• taxis
• Supply side renewables
 Promotion of grid connected renewable energy
• End user use of renewables
 Solar hot water and PV
 Industrial captive power
• Demand side
 Industrial consumers
 Municipalities (street lighting, pumping)
 Commercial and residential : Buildings and Appliances
 Vehicular standards and fuels switch
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• Awareness
 Industry
 General public
 Use of public transport
• Capacity
 Utility
 ESCO/equipment
 Industry
• Commercial
 Incentives
 Business case
• Financial
 Technical capacity of banks
 Transaction size
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Increasing cost efficiency & Decreasing control
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• Policies reflecting climate change and sustainability challenges
 Energy policy including role of renewable energy, energy efficiency framework & targets
 Environmental policies
• Institutional & legal framework
 Energy efficiency/renewable energy promotion agencies
 Energy efficiency standards/labeling
 Energy auditing and market capacity
 Renewable energy supporting schemes (feed-in tariffs, off-take structures)
 PPP frameworks (ESCo/EPC support)
 Utility programs/incentives
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 Removing energy price subsidies, targeted structures for low-income households
 Direct subsidies
• Mobilization of the market
(investment subsidies, cash-back incentives)
• Managing the risk (first loss guarantees)
 Fiscal incentives
• Tax credits, tax reductions, accelerated depreciations
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• Should be sustainable : the market behavior should have changed permanently after the incentives are phased out
• Should be cost-effective
• Should simultaneously support and reinforce all the sections of society that need to change
End user
Manufacturer/ distributor
Financier
• People do not want to change and therefore try to maximize the incentives
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• End user • Manufacturer
• Service provider
Demand
Product/
Service to meet demand
• Market can sustain after incentives have been phased out
Sustainability
Financing of production and demand fulfillment
• Investors
• Financier
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Intervention Comments
Providing capital subsidies
Cheaper to implement and effective in the short term to change behavior but demand drops when subsidy is phased out.
Use based subsidies
Tax breaks
Financing incentives
Awareness creation of benefits
More expensive to implement but less distortive and therefore more sustainable
Needs to fit within existing tax paying regime
To enable end users to choose the desired alternative: Most efficient and least distortive
Most important aspect required for all other interventions
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Intervention Comments
Providing capital subsidies
Tax breaks
Financing of manufacturer and end use
Awareness creation of benefits
Useful to get critical mass of manufacturing capacity in place and to capture environmental externalities.
Better to subsidize factors of production and sale rather than production cost.
This is effective to help set up manufacturing and service provision capacity but is preferable at point of sale/service provision rather than installation of capacity
Both equity and debt financing are vital for manufacture. Financing of end use helps expand and create demand to make sure the enterprise is successful
Not as critical as with end-users or financiers. Need support in accessing finance effectively
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Intervention Comments
Policy support to enable the range of finance required 1
Subsidizing cost of capital
• Early stage venture for new manufacturing
• Private equity
• Debt
• Consumer and end-use
Useful to get the process started but can become a dependence and market may fail once the subsidy is phased out
Subsidizing risk
Subsidizing transaction costs
Very critical and efficient as the FI gets more comfortable with the business, this can be phased out
Necessary and efficient as the FI builds capacity and familiarity with the market, the market grows, transaction costs drop as a % of business enabling this to be phased out
Awareness creation of benefits
Critically important as financiers typically tend to be conservative.
1 more details on following slides
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 Maximize leverage of the fund to create maximum impact
 Maximize sustainability/Minimize distortions
 Work through the financial sector to ensure long-term ownership
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Intervention
Fund support demonstration projects
Fund subsidizes interests rates through FI
Comments
This works well in principle as it gets pilots off the ground quickly. However these do not engage the financial markets who don’t replicate once the pilots are over
While the financial markets are involved, they often lose interest when the subsidy is removed
Fund shares risk – pari passu
Fund shares risk–
Subordination
Subsidizing transaction costs
Awareness creation of benefits
This is effective but has moderate leverage and does not really address the risk perceptions of an FI
This has highest leverage and sustainability but is more complex to structure
Necessary and efficient as the FI builds capacity and familiarity with the market, the market grows, transaction costs drop as a % of business enabling this to be phased out
Critically important as financiers typically tend to be conservative.
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Direct financing
Project
Sustainability
Low
Medium
High
Risk sharingpari passu
State
Fund
Increasing leverage
Subsidizing capital
Risk sharing subordination
Project
Project
Financial Institution
Project
Project
Project
Project
Project
Project
Project
Project
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Direct financing
Risk sharingpari passu
State
Fund
Increasing leverage
Subsidizing capital
Risk sharing subordination
Financial Institution
Project Project
Project
The value of the state fund and the component of project requiring market financing
Only the risk sharing structures make an impact on financing and risk
Project
Project
Project
Project
Project
Project
Project
Project
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• The risk sharing structures are the only structures that address risks that banks may be concerned about
• Capital subsidies reduce project costs but the risk to the bank is the same (except on the smaller loan amount)
• The subordinated risk sharing provides maximum leverage, impact and sustainability and is the preferred model
 Here the state fund can provide a first loss for banks loans extended to the desired sector
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Peter A. Cook
Sr. Investment Officer,
IFC Climate Business Group
Beijing, China
Phone:+ 86 10 5860 3000
Email: pcook@ifc.org
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