Private sector interest in Prototype Carbon Fund exceeds expectations

The World Bank has announced that its Prototype Carbon Fund (PCF), which was launched in January to transfer finance and technology to developing countries to help them reduce greenhouse gas emissions, has closed its first subscription period with more money and corporate interest than anticipated.

The fund has received approximately $135 million from 15 companies and six countries. This is well in excess of the $100-120 million target and just $15 million short of the $150 million legal cap placed on the fund by the bank’s Executive Board (see related story). The cap was not expected to be reached until a second closing in a year’s time. Meanwhile, another nine companies have indicated they want to participate, although they were unable to finalise arrangements for their participation before the first closing.

The Prototype Carbon Fund is a first attempt by the World Bank and participating governments and companies to experiment with the creation of a market in emissions reductions under the Kyoto Protocol’s ‘flexibility’ provisions. It will invest in cleaner technologies in developing countries and transition economies in an attempt to reduce their greenhouse gas emissions. Any resultant 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. The primary focus is on renewable energy technologies – such as wind, small-hydro, and biomass energy technology – that would not be profitable without financial support from the PCF.

“The high level of corporate interest in this venture marks a major shift in how companies think about their role in contributing to new thinking about global problems such as climate change. It also points to growing competition among corporate players anxious to position themselves in what will likely become a highly competitive market,” says Ian Johnson, the World Bank’s vice president for Environmentally and Socially Sustainable Development. “We are also delighted by the strong support from six governmental participants.”

In order to accommodate interest in the fund, the Bank’s management has decided to ask its Executive Board to raise the $150 million cap and bring forward the second closing to June 30. While not all nine companies are expected to join by the end of June, subscriptions in the fund are likely to go above the initial cap of $150 million.

Companies that have invested in the fund include BP Amoco; Deutsche Bank; the electric utility company Electrabel of Belgium; Gaz de France of France; the Japanese electric power companies of Chubu, Chugoku, Kyushu, Shikoku, Tohoku, and Tokyo; the Japanese trading companies of Mitsui and Mitsubishi; the German power company RWE; and the Norwegian companies Norsk Hydro ASA and Statoil. Corporate investments in the fund are set at $5 million. Countries must contribute $10 million each. Canada, Finland, The Netherlands, Japan, Sweden, and Norway have subscribed.

The Intergovernmental Panel on Climate Change (IPCC) estimates that the economic costs to developing countries of climate change could reach five to nine percent of their GDP. “Addressing global climate change can no longer be viewed as a fringe activity, nor can it be considered the agenda of the North; it is central to the development agenda,” says Johnson.

Loans for renewable energy made by the World Bank – with its own resources and those of the Global Environment Facility, of which the Bank is an implementing agency – amount to about $2.6 billion. This constitutes the largest single renewable energy portfolio of any agency in the world and accounts for 10% of the Bank’s lending to the energy sector over the past six years.

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