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Carbon Finance and Development at the World Bank

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Carbon Finance Resources
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Related Topics:
- Climate Change
- Environment




  • The carbon market has demonstrated that it is an effective tool to reduce greenhouse gas emissions and to transfer financial resources and clean technology to developing countries.
  • The World Bank’s initial role was to catalyze the global market for carbon emission reductions, by creating the Prototype Carbon Fund in 1999. Currently, the Bank is Trustee of 15 carbon initiatives. The first 10 carbon funds and facilities that were established with the objective to provide its Fund Participants with emission reductions for their obligations under the first commitment period of the Kyoto Protocol are capitalized at $2.2 billion.
  • Continuing its pioneer role, the World Bank’s five most recent carbon instruments aim to scale up emission reductions, focus on readiness for market-based carbon initiatives, increase access to energy in least developed countries, and reducing emissions from deforestation and forest degradation.
  • The market for international project-based carbon transactions remains weak, as residual demand for post-2012 carbon assets is still subdued.
  • Meanwhile, new local and regional carbon initiatives are being developed, and together they have the potential to overcome the challenges faced in international climate negotiations. In 2011 new cap-and-trade systems were approved in Australia, California, and Québec, while comprehensive climate bills were passed in the Republic of Korea and Mexico in 2012.
  • In 2012, the Australian government and the European Commission announced their intention to link their respective Emission Trading Systems by no later than July 2018. This positive development can open the door for broader market integration, potentially including China, South Korea and North America, among others.



Helping our client countries build readiness and pilot future mechanisms

The World Bank is actively involved in the further development of new market and performance-based payment mechanisms to support an acceleration of mitigation efforts in its client countries. To this effect, it is managing a number of trust funds dedicated to enhancing capacity in developing countries to use markets or other performance-based instruments for new economic activities.  These funds, with a combined value of close to $350 million, have been set up as partnerships between developing and developed countries Through these funds, the World Bank is providing the global community with a valuable platform for technical work on new carbon instruments.


For more information on the evolution of Carbon Finance at the World Bank, please see “10 Years of Experience in Carbon Finance - Insights from working with carbon markets for development & global greenhouse gas mitigation”.  


Taking a large scale and long term view

The World Bank has taken a leadership role in the next generation of carbon instruments for the post-2012 period by developing new approaches to performance-based payments beyond the initial carbon funds and facilities.  In 2008, the Bank established two new carbon facilities—the Forest Carbon Partnership Facility (FCPF) aiming to reduce emissions from deforestation and forest degradation (REDD+), and the Carbon Partnership Facility (CPF), aiming to scale up the use of carbon finance to accelerate mitigation activities.  Both the CPF and the FCPF are unique partnerships among several stakeholders designed to broaden, deepen, and extend the duration of carbon finance, making it a key instrument in bending greenhouse gas emission trajectories globally.


In 2010, the Bank launched a new initiative, the Partnership for Market Readiness (PMR), to build countries’ technical and institutional capacity, such as data management and accounting, with the objective of supporting market-based approaches to reducing greenhouse gas emissions in developing countries. Such efforts include the development of domestic emissions trading schemes and crediting mechanisms. They also focus on helping countries identify and build capacity to implement such instruments. For more advanced countries, the PMR supports market instrument pilots and facilitates sharing of lessons learned.

In December 2011, two new post-2012 carbon initiatives were launched at COP 17 in Durban: The BioCarbon Fund’s third tranche (BioCF T3) and the Carbon Initiative for Development (Ci-Dev). These new carbon initiatives will channel funds to projects in sectors which are vital to the world’s poorest. With support from public and private sector resources, projects and programs will be implemented in the area of energy access, energy efficiency, clean cooking, reforestation, climate-smart agriculture, and waste management among others.




  • The 162 projects that the Carbon Finance Unit supports, which aim to reduce approximately 275.6 million metric tons of carbon dioxide equivalent, span a wide variety of sectors, including energy efficiency, renewable energy and reforestation. For example, in Nepal, energy is increasingly coming from low-carbon alternatives -- carbon finance is helping 60,000 households now fuel their cook stoves using biogas from animal waste..
  • As part of the Carbon Finance Unit’s work in landscapes, about 125,000 hectares of degraded lands have been regenerated through sustainable forest and agricultural activities and 430,000 hectares of primary forest has been conserved to protect biodiversity in 15 countries and five regions of the world.  
  • This year, the Carbon Finance Unit of the World Bank reached a new milestone with the 100th project registering with the UNFCCC under the Clean Development Mechanism (CDM). The Yingkou EDZ District Heating Project in China, registered as a CDM project on July 19, has the potential to generate more than 400,000 carbon credits per year, representing the reduction of the same amount in tons of carbon dioxide.
  • Through the FCPF Readiness Fund, 36 developing countries are receiving technical assistance and grants to develop strategies that seek to preserve forests. The FCPF Carbon Fund is developing an innovative system for performance-based payments for about five countries that have reduced their emissions by preserving their forests.



Click here for more information on the carbon funds and facilities managed by the World Bank.


Media Contacts:

Isabel Hagbrink:  (202) 458-0422,

Robert Bisset: (202) 458-5191,                                                               


Updated September 2012



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