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Supporting Poor Communities Under the Kyoto Protocol

Press Release No:2004/18/S
Anita Gordon202-473-1799
Sergio Jellinek  202-458-2841
Nazanine Atabaki (202) 458-1450


Washington, July 15, 2003--Poor communities in developing countries will benefit from the groundbreaking Community Development Carbon Fund (CDCF) which became operational today.  The World Bank which developed the CDCF in collaboration with the United Nations Climate Change Secretariat and the International Emissions Trading Association, announced commitments of US $35 million from both public and private sector participants, as part of a US $100 million package. 

The CDCF will provide financial support  to small-scale greenhouse gas reduction projects in the least developed countries and poor communities in developing countries. Poorer communities will get the advantage of  development dollars coming their way, and participants in the fund will receive carbon emission reduction credits for reductions in carbon emissions.

The CDCF will support  initiatives with significant and measurable community development benefits in fields such as renewable energy, energy efficiency, and solid waste to energy conversion.   So far, contributors include the governments of Canada, Italy, and the Netherlands,  Japanese companies such as Daiwa Securities SMBC, Idemitsu Kosan, Nippon Oil, Okinawa Electric,  BASF of Germany, and  ENDESA of Spain.  A number of other companies and governments are expected to announce their participation over the next several weeks.   

“Italy looks forward to working together with the World Bank and other participants in this innovative partnership,” said Mr. Corrado Clini, the  Director General of the Ministry for the Environment and Territory of Italy.It will allow Italy to reduce the costs of achieving its Kyoto commitments, while at the same time promoting the protection of the global environment.”

The CDCF represent a pioneer effort which focuses on  small-scale projects at the local level in the least developed countries and poor communities of developing countries, through the Clean Development Mechanism (CDM) of the Kyoto Protocol, the 1997 agreement to limit climate altering greenhouse gas emissions.   This flexibility mechanism of the Protocol allows OECD countries to fulfill some of their greenhouse gas emission reduction commitments through projects in the developing world. 

The threat that climate change poses to people’s efforts to move out of poverty  is of particular concern to the World Bank”  said Ian Johnson, World Bank Vice-President for Sustainable Development.  “Payments for environmental services through innovative funds like the Community Fund, open new possibilities for environmentally responsible development. We are demonstrating that dealing with global issues like climate change can have profound positive impact at the community level.”

There is a lot riding on the effort.  The Community Development Carbon Fund may be the best or only opportunity for some of the poorest countries to get any benefits from the Kyoto Protocol. Recent carbon market research done by the World Bank shows that although the market for carbon emissions more than doubled in the last year, only 13 percent of direct private sector carbon emission reduction investment went to developing  countries, and none to the least developed countries.

“Countries like mine will be hardest hit by climate change, and yet these same countries have until now, been bypassed by the carbon market,” said Emily Ojoo Massawa, Climate Change Coordinator of Enabling Activities in the National Environment Management Authority of Kenya. “This is an extraordinary opportunity to not just reduce carbon emissions but to use carbon finance as an innovative development tool.   The CDCF will link private investors with community development projects, so that there are equitable benefits under the Kyoto Protocol, benefits that also go to the poorest of the poor.”

One potential CDCF project in Mongolia would modernize 40 base load boilers in 40 district coal burning heating plants in the capital city region of Ulaanbaatar. With an average annual temperature of around 0 degrees celsius, Mongolia’s capital, is dependent on its heating system for survival.  But inefficient power plants, with their heavy air pollution that can be trapped for weeks over the mountain enclosed urban area, take their toll on both the economy and human health.  Using just low tech improvements to modernize the plants, this CDCF project would  dramatically reduce the massive waste of energy and water in the heating system, with 30 percent savings in coal consumption, and 28,000 tons of carbon dioxide emission reductions a year.  The local economy would benefit because all the materials for the upgrade would be produced in Mongolia.

Another proposed project in Kenya would reduce carbon dioxide emissions and raise tea growers’ income, by switching from fuel oil for tea drying, to biomass fuels.  Some 80 million liters of fuel oil would be replaced by wood fuel annually, adding to the growers’ profits by reducing their energy bills by 66 percent a year, and avoiding 240,000 tons of carbon dioxide equivalent annually from being pumped into the atmosphere.

By working through local intermediaries such as financial institutions, micro-credit institutions, cooperatives, and NGOs, and by applying streamlined project procedures compatible with small-scale Kyoto projects, the CDCF will seek to lower transaction costs and the risks involved in developing such projects. 

For the participating companies and governments, the CDCF is an opportunity to put a human face on carbon finance, by combining carbon emission reductions with development.    Eggert Voscherau, Vice Chairman of the Board of Executive Directors and BASF's Industrial Relations Director, explained the company's commitment to the Fund,  "By participating in the CDCF, we want to emphasize our stance on sustainable development and the mechanisms of the Kyoto Protocol.  At the same time, we can help improve quality of life in some poorer parts of the world.”

From the participants’ viewpoint, the new fund has unique advantages.  Under a situation where “the rules of the game” are yet to be defined, all CDCF projects will be developed in line with the small-scale CDM procedure, which has already been clearly defined.  These will be some of the most valuable carbon emission reductions in the carbon market.   Emission reductions acquired from the CDCF are expected to be the hard currency of the carbon market because this market is responding very positively to certified emission reductions with associated additional development benefits.  They will be transferable across various regulatory regimes, including those established under the Kyoto Protocol, the European Union, Canada, and Japan.  Because of this they will be most in demand. 

Carbon finance activities have taken on a new sense of urgency as evidence continues to mount that the Earth is getting significantly warmer, and changes in climate are inevitable. Climate change, and accompanying disrupted weather patterns—caused by the greenhouse effect through atmospheric loading of greenhouse gases (carbon dioxide, methane, etc) could wreak havoc on the planet, particularly on large parts of the developing world.

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The Kyoto Protocol and the Clean Development Mechanism (CDM)

The Kyoto Protocol provides an unprecedented opportunity for the Organization for Economic Co-Operation and Development (OECD) countries to reduce greenhouse gas emissions and at the same time help developing countries and economies in transition invest in climate friendly technologies and infrastructure.   The Protocol’s Clean Development Mechanism (CDM) and Joint Implementation (JI) provide an element of flexibility for the industrialized countries to meet their obligations under the Protocol to reduce greenhouse gas emissions by on average 5.2 percent below their 1990 levels by 2010.   In so doing, the Protocol provides an unprecedented incentive for those seeking lower cost emission reductions, to leverage the flow of private capital and privately held clean technology from North to South.


The Carbon Finance Business 

Carbon finance is the general term applied to financing seeking to purchase greenhouse gas emission reductions (“carbon” for short) to offset emissions in the OECD.   Commitments of carbon finance for the purchase of carbon have grown rapidly since the first carbon purchases began less than seven years ago.   The global market for greenhouse gas emission reductions is estimated at a cumulative 200 million tonnes of carbon dioxide equivalent since its inception in 1996.   Nearly 70 million  tonnes was originated in 2002 alone.   Volumes are expected to continue to grow as countries that have already ratified the Kyoto Protocol work to meet their commitments, and as national and regional markets for Emission Reductions are put into place, notably in Canada and the European Union (where trading is to start formally in 2005).


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