News Release No: 2000/176/S
Contact Person: Kristyn Ebro 202-458-2736 Samira Leakey 202-458-9870
World Bank Launches First-of-its-Kind Market-Based Carbon Fund
WASHINGTON, January 18, 2000-Today the World Bank launched the Prototype
Carbon Fund (PCF) - the world's first market-based mechanism to
address climate change and promote the transfer of finance and climate-friendly
technology to developing countries.
"The PCF offers a tremendous
opportunity to boost financial and technology flows to developing
countries at a time when government-to-government transfers have
fallen to historically low levels," said James D. Wolfensohn,
President of the World Bank.
"We are determined to
explore how market-based mechanisms such as the PCF - involving
the considerable financial muscle of the private sector - can
contribute to addressing the twin challenges of climate change and
sustainable development."
"We
are concerned about the vulnerability of poor people in poor countries
to the threat of climate change. For an institution whose task is
to alleviate poverty, we would be negligent if we failed to explore
innovative ways of making the climate change convention work,"
he said.
Governments have recognized the seriousness
of the threat of climate change and during the 1990s negotiated
the Framework Convention on Climate Change and the Kyoto Protocol.
The protocol, which guides implementation of the Convention, includes
specific emissions reductions targets for industrialized countries.
It also contains provisions allowing them some flexibility so they
can meet these commitments to reduce emissions in the most cost-effective
manner.
Advantages of the PCF
- Poor countries will
gain access to climate-friendly technologies as
well as earning revenue from selling emissions reductions.
- Contributors will
receive low-cost emissions reductions to help them
meet their commitments arising from the Kyoto Protocol.
- The environment
will benefit because the PCF provides poor countries
with funds to switch to cleaner and more efficient
technologies.
- Everyone will learn
about an important new market and business activity.
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The PCF, established in the World Bank
with contributions from governments and private companies, is an
ambitious first attempt to experiment with the creation of a market
in emissions reductions under these "flexibility" provisions.
It will invest in cleaner technologies in developing countries and
transition economies, thus reducing their greenhouse gas emissions.
These emissions reductions will be independently verified and certified,
and then transferred to the Fund's contributors in the form of emissions
reduction certificates rather than cash.
So far, four governments and nine companies
have approved participation in the PCF, bringing the total of committed
contributions to US$85 million. The Fund is capped at US$150 million,
and plans to start operations in April 2000.
Governments that have approved participation
in the PCF are Finland, The
Netherlands, Norway, and Sweden.
Private sector participants include the electric power companies
of Tokyo, Chubu, Chugoku,
Kyushu, Shikoku, and Tohoku,
the trading houses Mitsubishi and Mitsui, as well as the electric utility company Electrabel of Belgium.
Also, participation in the PCF is currently
under active discussion by the top management at Statoil and NorskHydro of Norway, Gaz de
France of France, Environment Banc and Exchange LLC (EBX)
of the USA, and SK Power of Denmark.
As the manager of the PCF, the World
Bank will act as broker in helping to negotiate a price for the
emissions reductions that is reasonable for both buyers and sellers.
Developing countries will benefit by acquiring cleaner technology
and making a profit from trade in a potentially plentiful "product"
- greenhouse gas emissions reductions. Industrialized country contributors
will gain by paying a lower price for emissions reductions than
available in the context of their own companies or countries.
"There are many opportunities
to reduce emissions of greenhouse gases in developing countries
at a cost of between $5 and $15 dollars a ton of carbon. This compares
with a marginal abatement cost of upwards of $50 a ton of carbon
in advanced economies. It is the difference in cost to industrialized
and developing countries of reducing greenhouse gas emissions that
provides the opportunity for mutually beneficial trading relationships," says Ken
Newcombe, Manager of the PCF for the World Bank. "We will
endeavor to negotiate prices for emissions reductions at about $20
a ton of carbon ($5 a ton of CO2), thus covering the regulatory
and market risks to contributors while providing adequate incentives
to project sponsors and their governments in developing countries."
The emission reductions from PCF projects
may eventually be used against industrialized countries' commitments
to reduce their greenhouse gas emissions. Under the Kyoto Protocol,
they must bring them down to at least 5.2 percent below their 1990
levels by the end of 2012. Whether the emission reductions earned
by the PCF will count towards these commitments depends on rules
being developed by the Parties to the UN Framework Convention on
Climate Change that should be defined when the Parties meet in The
Hague in November 2000.
During the next three years, the World
Bank will invest all the Fund's capital in 20 or so projects. Most
are expected to be linked to projects identified by the World Bank
Group as part of its regular work, but they can also originate from
the private sector, other multilateral development banks, and bilateral
donors. The primary focus will be on renewable energy technologies
- such as wind, small-hydro, and bio-mass energy technology - that
would not be profitable without revenue from emissions reductions
sold to the PCF. In some cases the PCF will finance such projects
through local carbon funds modeled on the PCF but using financing
from local commercial and development banks, as well as private
companies. Some 20 countries have already declared interest in hosting
PCF projects.
For more information,
please see the Prototype Carbon Fund website: www.prototypecarbonfund.org
and Frequently Asked Questions
and Answers on the Prototype Carbon Fund
 To Discuss |
