 Washington, February 15, 2005— With the Kyoto Protocol coming into force, government officials and private sector leaders from industrialized and developing countries around the world, commended this week the role of the World Bank in facilitating the development of a viable carbon market. The World Bank is meeting this week with its 45 country advisory group to discuss ways of catalyzing a supply response in developing country markets that will galvanize new investment in clean climate-friendly technology over the next two years. “The World Bank has played a critical role in the development of the carbon market which will make a major contribution to addressing global climate change,” said Jack D. Cogen, President, of Natsource, a carbon market broker, “I think we all may look back and recognize that these efforts were essential in illustrating the benefits of emission reduction projects in addressing climate change and enhancing sustainable development.” The World Bank manages about $US800 million through different carbon funds. It has made significant efforts in the development of the carbon market, first by launching the Prototype Carbon Fund (PCF) to demonstrate how to cost-effectively achieve greenhouse gas reductions while contributing to sustainable development. More recently, the Bank launched a series of carbon funds to expand learning-by-doing to poor countries, and to address market failures. The Community Development Carbon Fund (CDCF) and the BioCarbon Fund (BioCF) enable smaller and rural poor communities in poor countries to benefit from carbon finance for sustainable development purposes. Recently, the Government of Spain asked the World Bank to manage the newly created Spanish Carbon Fund (SCF). “The World Bank is seen by the Spanish Government as one of the most experienced institutions in this market,” said Teresa Ribera Rodríguez, Director, Climate Change, Ministry of Environment, Spain. “The World Bank’s experience will help us to learn and integrate knowledge into our own strategy, as well as to assure that the investment we make is linked to social and environmentally sound projects.” A total of 141 nations have ratified the Protocol. Thirty-eight industrialized countries, namely Canada, Japan, the European Union and Eastern European countries agreed to cut their greenhouse gas emissions by an average of 5.2 percent below 1990 levels.  The World Bank’s Carbon Finance Business uses the Protocol’s flexible market mechanisms which allows rich countries to meet some of their commitments through the purchase of project-based greenhouse gas (GHG) emission reductions from developing countries through: the Clean Development Mechanism (CDM), in countries with economies in transition; the Joint Implementation (JI); or through International Emissions Trading (EIT). These market mechanisms are absolutely essential to the long-term engagement of the global community and offer cost-effective solutions to combat climate change.
World Bank research shows that if half the emission reductions are achieved by OECD countries domestically, the ‘compliance gap’, to be met through trade with developing countries and transition economies through 2012, would be 2.5 billion tons – 10 times the current carbon purchase contracts. At a selling price of US$5-US$10 a ton, carbon payments to developing countries and economies in transition between now and 2012, could be worth between US$12.5 billion and US$25billion. The Bank at the Frontiers of the Market Many developing countries acknowledge the Bank’s role as a catalyst for these markets. In many cases, the Bank has been the first to purchase emission reductions in specific countries, technologies or sectors, or in poor communities. “The World Bank has played a crucial role in creating a carbon market since the very beginning,” said Marcela Main Sancha, International Relations Department Environment Commission, Chile. “The Bank bought the first credits and helped to establish credibility in the scheme. It also continues to advise and build capacity of both developed and developing countries on how the carbon business works. It provides us with legal advice, risk analysis, pricing data and other information to help us make decisions at both the market and policy level which has been very helpful.” The first transactions were conducted in several countries including: Brazil, Chile, Uganda, South Africa and Indonesia. The Carbon Finance Business is opening up new large CDM markets, demonstrating market potential in other countries such as in Egypt and Iran. The Carbon Finance Business has pioneered programs in many sectors including the cement, iron and steel and fertilizer industry, as well as rural electrification, wastewater treatment and afforestation, agro-forestry and forest conservation. Efforts are now being directed towards large-scale clean coal technology, coal-to-gas conversion and high value transmission projects.  Doing the Heavy Lifting on Carbon Finance According to governments and business leaders, one of the advantages of World Bank’s involvement in the carbon market has been its assistance to help developing countries put in place institutions and procedures that allowed other players (private and public) to enter the market. “The World Bank carbon finance activities have helped us build institutional development at the national level; improve analytical and advisory work; generate publicly available market intelligence; and create early opportunities for carbon verification service providers,” said Marcos Castro, Director, Clean Development Mechanism Promotion Office, Ministry for the Environment, Ecuador. “These activities have significantly contributed to shaping supply and demand for the emerging carbon market.” According to World Bank research, 24 percent of the expected emissions created up to the year 2012 from the carbon finance business portfolio, are available for purchase by the private sector (more than 18 million tons of carbon dioxide equivalent). That figure rises to 88 percent for post-2012 assets. This proportion will expand as new funds become operational. Reducing Market Entry Risk for Carbon Buyers For the more than 60 public and private market players that have chosen to participate in the eight World Bank managed carbon funds, the Bank’s participation has gone a long way towards reducing their market entry risk by creating a center of excellence and by pooling resources. Companies and governments say they are attracted to their various carbon funds because the Bank has a proven track record in providing shareholders with Kyoto-compliant certified emission reduction assets at a guaranteed low price. Additionally, many countries participating in the Bank’s carbon funds perceive that it helps them to better integrate business procedures in their own carbon purchasing facilities, thus substantially reducing their market entry risk. Jean-Claude Steffens, Director, Environment and Innovation, Suez, S.A, and Chairman of the Participants' Committee of the Prototype Carbon Fund (PCF), emphasized, “There are points in history where no single actor - be it a government, be it a large company - is able to give enough momentum to significant changes in large structures. At the same time, identifying partners and bringing forces together to go ahead in a highly uncertain context does not happen just like that. You need a catalyst. And this is precisely what the World Bank has been: a catalyst with added value.” Participants in the funds see additional benefits in the acquisition of high-value knowledge and intelligence on carbon finance and emerging national, regional and international markets. Background Information: Other Links: *** Media Contacts In Washington, DC: Sergio Jellinek, 202-458-2841: Sjellinek@worldbank.org Tracey Osborne, 202-473-4033: Tosborne@worldbank.org Anita Gordon, 202-473-1799: Agordon@worldbank.org In Paris: Kristyn Ebro, 33-1-40 69 30 38: Kebro@worldbank.org |
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