News Release No:
2000/176/S |
Contact Person:
Kristyn Ebro 202-458-2736
Samira Leakey 202-458-9870
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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
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