Post-Kyoto Uncertainty Threatens Emissions Market

World Bank: Post-Kyoto Uncertainty Threatens Emerging Carbon Emissions Market

As the Kyoto Protocol enters into force, with the goal of limiting carbon dioxide (CO2) emissions in rich countries, the World Bank today urged industrialized nations to address the uncertainties of the post-Kyoto period, after 2012.

According to Ken Newcombe, Manager of the Carbon Finance Business Unit at
the World Bank, “The most important issue right now is ensuring supply from the developing countries of emission reductions, because the demand has suddenly increased enormously as companies in Europe received their targets for emissions reductions and European Governments like Spain, Italy and Denmark have entered teh market on a large scale. If as expected Canada and Japan also ramp-up there demand for developing country emissions reductions there will be a supply crunch that will need special efforts in market development to overcome.

Both the Kyoto Protocol and the European Union’s Emissions Trading Scheme make use of flexible mechanisms by which rich countries can buy emission reductions through climate-friendly projects in developing countries and count those reductions as part of the Protocol’s established target of reducing emissions by 5 percent by 2012 in industrialized countries, compared with 1990 levels.

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.

However the design of a climate-friendly project such as a wind power project or geo-thermal project that would take the place of a coal fired power plant or oil fired power plant takes time to design, to get the environmental clearances, to get the agreements for the electricity and to finance it, and then it takes time to build it and make it operational. Typically, it is a five-year process. In reality, for a project starting today, there will be only a few years left in the current scheme of things to get emission reductions counted for compliance purposes.

Therefore, if projects were developed now, they wouldn’t start operating until 2008 to 2010, leaving very little time to get actual emission reductions achieved against the baseline of the original carbon intensive power plant.

Rajesh Kumar Sethi, Director, Climate Change, Ministry of Forests, Government of India said, "Climate change is one of the most serious concerns of our time and the implementation of the Kyoto Protocol will enable concrete action by all countries. India is very proactive with the Clean Development Mechanism and already has approval for more than 50 eligible projects for renewables including wind, biomass based cogeneration, small hydro and energy efficiency, and municipal waste projects."

Latin America is another region that has developed a series of climate friendly programs using the CDM mechanism.

According to Marcela Main, Executive Director of Chile’s Environment Commission, "Chile is vulnerable to climate change and is committed to mitigation and the fulfillment of all global obligations. We believe that the Clean Development Mechanism is an important incentive to open our energy market to renewable energy and to increase energy efficiency. It brings together not only the private and public sector in a joint effort but it also motivates the public sector to better coordinate to improve its response to the market,”

Newcombe added that time is running out “The opportunity has been made available for the developing countries to take advantage of this tremendous influx of capital and technology, but the door is closing at the same time, because it all has to be done by end of 2012.”

The World Bank manages about $US 800 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.

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