-- Carbon Finances Resources -- Carbon Finance Website Carbon Finance and Renewable Energy Renewable Energy for Development Expert on Carbon Finance: Joëlle Chassard

At a Glance

• The World Bank aims to help developing countries cope with climate change while still achieving their overall goals of strengthening economic growth, reducing poverty, and achieving the Millennium Development Goals.
  
  
• The carbon market is based on a simple fact: No matter where on the planet greenhouse gases are reduced, it has the same positive impact on mitigating climate change.
  
  
• The carbon market is a powerful tool to reduce greenhouse gas emissions and to transfer financial resources and clean technology to the developing world.
  
  
• The Bank administers 10 funds and facilities that provide financing for projects in the developing world that are reducing greenhouse gas emissions by buying the emission reductions (or "carbon credits") that are generated by the projects.
  
  
• Although the Bank’s initial role was to catalyze the global market for carbon emission reductions, carbon finance is now viewed as one of the key instruments to be used by the Bank to provide incentives to its client countries for shifting to lower carbon development paths.
  
  
• The carbon market continues to grow dramatically. It reached about US$130 billion at the end of 2008, twice its value in 2007 and 12 times its value in 2005. 
  
  
• At approximately US$90 billion, transactions of allowances and derivatives under the European Union Emissions Trading Scheme dominated the market, used for compliance, arbitrage, and profit-taking purposes. 
  
  
• The second most active segment of the carbon market, the secondary market for Certified Emissions Reductions (CERs), experienced the biggest growth in activity last year, with transactions in excess of US$25 billion through 2008 (a five-fold increase in both value and volume over 2007). 

More information on the carbon market: State and Trends of the Carbon Market 2009

The Bank and Climate Change

The Fourth Assessment Report of the Intergovernmental Panel on Climate Change (2007) found that warming of the climate system is “unequivocal.” The impacts of projected changes in the world’s climate are expected to be far-reaching and most pronounced in poorer countries, adversely affecting virtually all aspects of social and economic life.

The World Bank’s overall mission of reducing poverty and promoting sustainable development is, therefore, inextricably linked to climate change and efforts to alleviate it. The Bank’s Strategic Framework for Development and Climate Change outlines action areas such as country-led development processes for climate action; mobilization of additional concessional financing; facilitation of market-based financing; leveraging of private-sector resources; development of policy research and capacity building; deployment of a broad mix of low-carbon technologies; and development of innovative technologies and financial instruments and facilities. 

Carbon Finance at the Bank

Since the first of the Bank’s carbon funds, the Prototype Carbon Fund, was conceived in the late 1990s, carbon finance has entered a stage of maturity after more than a decade of operations by the Bank’s carbon funds.  Today, the Bank manages more than US$2.5 billion across its carbon funds and facilities. A collaborative and inclusive approach with fund participants, donors, and host countries, is key to building Bank carbon finance partnerships. Sixteen governments and 66 private companies from various sectors have made financial contributions to these funds and facilities. The funds and facilities are:

• The Prototype Carbon Fund (PCF), a partnership of six governments and 17 companies launched in 2000, closed its portfolio to new projects in 2007, and now focuses on the implementation phase. The PCF portfolio consists of 24 projects in different sectors (energy, industrial, waste management, land rehabilitation, and renewable energy), located around the globe in developing countries and countries with economies in transition.
  
  
• The Community Development Carbon Fund (CDCF) was created to extend the benefits of carbon finance to the poorest countries and poor communities in all developing countries who would otherwise find it difficult to attract carbon finance because of country and financial risk. The CDCF supports projects that measurably benefit poor communities and their local environments and generate CERs. CDCF projects provide both direct and indirect benefits. For those projects with indirect benefits, CDCF provides an additional revenue stream of US$1 per each CER generated, to be used for community development initiatives with the aim of contributing toward sustainable development.
  
  
• The BioCarbon Fund (BioCF) is focused on land use projects (forestry and agriculture) that sequester or conserve carbon in forest and agro-ecosystems while promoting biodiversity conservation and poverty reduction. Main activities are reforestation projects, but activities also include projects to sequester soil carbon and avoid deforestation and forest degradation. 
  
  
• The Netherlands Clean Development Mechanism Facility (NCDMF) supports projects in developing countries that generate credits under the CDM. 
  
  
• The Netherlands European Carbon Facility (NECF), established in 2004, is a Joint Implementation (JI) facility operating primarily in Ukraine, Russia, and Poland.
  
  
• The Italian Carbon Fund (ICF), established in 2004, supports projects that generate cost-effective emission reductions and clean technology transfer, for example, hydropower and waste management.
  
  
• The Danish Carbon Fund (DCF), established in 2005, prefers projects in the areas of wind power, combined with heat and power (co-generation), hydropower, biomass, and landfills.
  
  
• The Spanish Carbon Fund (SCF), established in 2005, has fully committed capital. The second tranche was opened in mid-2008.  The portfolio is dominated by projects in the East Asia and Pacific and Latin America and Caribbean regions, and covers a wide range of technologies, including HFC-23 destruction, waste management, wind, hydropower, and transportation.
  
  
• The Umbrella Carbon Facility (UCF) is an aggregating facility that pools funds from Bank-managed carbon funds and other participants to purchase emission reductions from large projects. The first tranche of the UCF was fully funded in 2006. Its participants include five Bank Carbon Funds and 11 companies.
  
  
• The Carbon Fund for Europe (CFE), a partnership with the European Investment Bank, was launched in March 2007. The CFE is designed to help European countries meet their commitments to the Kyoto Protocol and the European Union's Emissions Trading Scheme (EU ETS). The CFE is most active in the Europe and Central Asia and the Middle East and North Africa regions.

 The Way Forward—Larger Scale and Longer Term

To the Bank, climate change is a development, economic, and environmental issue. Carbon finance offers good opportunities to address development and climate change mitigation together. The Bank has taken a leadership role in the next generation carbon markets of the post-2012 period. In 2008, the Bank established two new carbon facilities—the Forest Carbon Partnership Facility (FCPF) for reducing emissions from deforestation and forest degradation (REDD), and the Carbon Partnership Facility (CPF) for scaling up the use of carbon finance to accelerate mitigation activities. 

The FCPF is became functionally operational on June 25, 2008, and is designed to set the stage for a system of incentives by building capacity and piloting emission reduction payments for REDD. Thirteen donors have provided US$109.8 million to the Readiness Fund and five contributors have provided around US$50 million to the Carbon Fund. Thirty-seven developing countries have been selected into the partnership, of which three have submitted Readiness Preparation Proposals for REDD. The governance structure of the FCPF includes REDD countries; donors and Carbon Fund participants; observers from civil society, international organizations, and the private sector; and independent technical advisory panels. The Bank carries out the functions of trustee and secretariat.

The CPF is still open to contributions and is expected to become fully operational in late 2009. It aims to provide continuity well beyond 2012, scaling up emission reduction activities with programmatic approaches to transform emissions-intensive sectors and leverage new private-sector financing for developing countries and to promote the introduction of cutting-edge technologies.

Both the CPF and the FCPF are unique partnerships among several stakeholders, and are designed to broaden, deepen, and extend the duration of carbon finance, making it a key instrument in bending greenhouse gas emission trajectories globally.

For more information on the World Bank and carbon finance, please see: http://carbonfinance.org. 

Media Contacts:

Isabel Hagbrink, (202) 458-0422, ihagbrink@worldbank.org

Robert Bisset, (202) 458-5191, rbisset@worldbank.org

Updated September 2009