Alexandre Kossoy[16]

13.1. INTRODUCTION

The Carbon Finance Business, CFB, at the World Bank provides a means of leveraging new private and public investment into projects that reduce greenhouse gas emissions, thereby mitigating climate change and promoting sustainable devel­opment. Carbon finance is the general term applied to financing seeking to purchase greenhouse gas emission reductions to offset emissions in the OECD countries.

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 through project-based transactions has been estimated at a cumulative 300 million tons of carbon dioxide equivalent since its inception in 1996 and until mid-2004. Asia now represents half of the supply of project-based emission reductions, with Latin America coming second at 27 per cent. Volumes are expected to continue growing 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.

The CFB uses money contributed by governments and companies in OECD countries to purchase project-based greenhouse gas emission reductions in devel­oping countries and countries with economies in transition. The emission reductions are purchased through one of the CFB’s carbon funds on behalf of the contributor, and within the framework of the Kyoto Protocol’s Clean Development Mechanism or Joint Implementation (see also Silveira, Chapter 12). By early 2005, the CFB could count on more than US$ 850 million in nine carbon funds.

Unlike other World Bank development products, the CFB does not lend or grant resources to projects, but rather contracts to purchase emission reductions in the form of a commercial transaction, paying for them annually once they have been

verified by a third party auditor, and the verification report delivered to the World Bank. One of the roles of the Bank’s CFB is to catalyze a global carbon market that reduces transaction costs, supports sustainable development and reaches the poorer communities of the developing world.

The Bank’s carbon finance operations have demonstrated opportunities for collaborating across sectors, and have served as a catalyst to bring climate issues to bear in projects relating to bioenergy, rural electrification, renewable energy, urban infrastructure, forestry, and water resource management. A vital element of this work has been to ensure that developing countries and economies in transition are key players in the emerging carbon market for greenhouse gas emission reductions. This chapter discusses how the World Bank Carbon Finance Business has dealt with project constraints, also providing concrete examples.