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Community Development Carbon Fund Gets Unexpected Boost; Public & Private Partners Invest $128 Million
WASHINGTON, March 1, 2005. Less than 18 months since its inception,the World Bank Community Development Carbon Fund (CDCF) today announced that 25 public/private participants closed the first round of financial commitments at $128 million—far beyond the original $100 million projected target. The beneficiaries will be the poorest countries on the planet, which until now have been by-passed by the emerging carbon emissions trading market.

WASHINGTON, March 1, 2005¾Less than 18 months since its inception,the World Bank Community Development Carbon Fund (CDCF) today announced that 25 public/private participants closed the first round of financial commitments at $128 million—far beyond the original $100 million projected target. The beneficiaries will be the poorest countries on the planet, which until now have been by-passed by the emerging carbon emissions trading market.

The new fund is putting poverty reduction front and center. The CDCF, a public/private partnership will provide financing for reducing greenhouse gas emissions (GHG) through small-scale projects in poor countries, and poor communities in developing countries. CDCF’s emphasis is on renewable energy, energy efficiency and generation of energy from decomposing wastes, with significant and measurable community development benefits. Poorer communities will get the advantage of development dollars coming their way and participants in the fund will receive carbon emission reduction credits for reduction in carbon emissions.

CDCF is an innovative tool to obtain Kyoto compliant greenhouse gas emission reductions. In the short term it will purchase at least 20 million tons of carbon dioxide (CO2) equivalent to meet the enormous reduction obligations of countries in the OECD, but it goes beyond that. In fact, the CDCF allows companies and governments to expressly show their commitment to sustainable development while meeting their climate change management obligations. Participants in the CDCF are willing to pay a premium of 15-20 percent above current market rates for carbon. These financial resources will go to improve the quality of life of local communities in the project area.

"We are very happy to be able to announce the closing of the first tranche of the CDCF at a capitalization of $128 million," said David Corrigidor, Deputy Director, Generation Endesa of Spain, chair of the CDCF’s Participant’s Committee. "It means that this unique carbon fund concept is acceptable to the market and that it is realistic to believe that even the poorest countries can benefit from carbon trade."

Even with the sustainable development premium that participants are paying in the CDCF, the demand exceeds supply of eligible projects.

The CDCF responds to the World Bank’s strategy to expand the frontiers of the carbon market beyond the boundaries of risk currently acceptable to the private sector," said Ken Newcombe, Senior Manager of the World Bank’s Carbon Finance Business. "For many parties the CDCF is a safe harbor in an uncertain regulatory environment, and benefits from simplified procedures. The higher cost of emission reductions is justified by the knowledge that these kinds of projects have wide support due to their direct contribution to host communities."

From Uganda to Nepal, with more than 11 projects already in the CDCF pipeline, communities are already seeing the benefits from this innovative financing mechanism. The 4-5 megawatt mini-hydro

run-of-river project at Mt. Elgon in Uganda will bring the benefits of electricity to the lives of the Ugandan rural poor. The CDCF will also purchase greenhouse gas emission reductions from Nepal’s Biogas Project which will bring clean renewable energy for cooking and lighting to rural households. Between 2004 and 2009 the project will install 162 thousand quality-controlled biogas plants in the terai, hill and mountain regions of Nepal. And in Honduras, the La Esperanza Hydropower Project will for the first time guarantee reliable power to the town of La Esperanza and extend power supplies which until now have been unavailable to the surrounding communities of about 40,000 people, and at the same time it will sell 310 thousand tons of carbon emission reductions to the CDCF.

"The CDCF represents a great opportunity for developing countries," said Martha Patricia Castillo, Chief of the Colombian Climate Change Mitigation office. "Taking advantage of what the carbon market offers to our countries could end up as positive opportunities for sustainable development."

This carbon fund initiative is the first to exclusively target small-scale projects and local communities in the developing world through the Clean Development Mechanism (CDM) of the Kyoto Protocol. This flexible mechanism will allow industrialized countries to fulfill some of their greenhouse gas reduction commitments in developing countries.

Lidia Brito is Minister of Higher Education, Science and Technology for Mozambique. According to Professor Brito, "For Africa, the CDCF means an opportunity for sustainable development centered in the local communities. It empowers them and creates new opportunities for wealth creation based on their resources."

"Statkraft," a leading Norwegian energy company, has signed up with the CDCF."This is a good opportunity for Statkraft to start participating in the emerging carbon dioxide emission reductions market," said Statkraft CEO Bård Mikkelsen. "The CDCF’s focus on environmentally friendly energy and support for developing local communities is in line with Statkraft’s vision."

"The Fund’s profile in combination with the experience that the World Bank has gained with CDM projects through the Prototype Carbon Fund, and made us confident that the CDCF is the best alternative available," Mikkelsen added.

According to World Bank research if half the emission reductions are achieved by OECD countries domestically, the ‘compliance gap’ to be met through trade with developing countries and transition economies through 2012 would be 2.5 billion tons—10 times the current carbon purchase contracts. At a selling price of $5- $10 a ton, carbon payments to developing countries and economies in transition between now and 2012, could be worth between $12.5 billion and $25 billion.

According to the 2004 report, State and Trends of the Carbon Market, even at market prices of $3-4 per ton of carbon dioxide equivalent, additional revenues from the sale of CDM greenhouse gas emission reductions can render advanced clean waste-to-energy conversion and waste recycling technology profitable and bankable in developing countries.

With the CDCF well on its way, potential participants are now eying another World Bank managed carbon fund, the BioCarbon Fund, for another opportunity to get into the carbon finance business in rural areas. The BioCarbon Fund will be a prototype fund to demonstrate projects that sequester and conserve greenhouse gases in forest and agricultural ecosystems. The fund will deliver cost-effective emission reductions while promoting biodiversity conservation and sustainable land use.

Press Release No:2005/362/ESSD


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Anita Gordon 202-473-1799

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The Kyoto Protocol and the Clean Development Mechanism (CDM)

The Kyoto Protocol provides an unprecedented opportunity for the Organization for Economic Co-Operation and Development (OECD) countries to reduce greenhouse gas emissions and at the same time help developing countries and economies in transition invest in climate friendly technologies and infrastructure. The Protocol’s Clean Development Mechanism (CDM) and Joint Implementation (JI) provide an element of flexibility for the industrialized countries to meet their obligations under the Protocol to reduce greenhouse gas emissions by on average 5.2 percent below their 1990 levels by 2010. In so doing, the Protocol provides an unprecedented incentive for those seeking lower cost emission reductions, to leverage the flow of private capital and privately held clean technology from North to South.


The Carbon Finance Business

Carbon finance is the general term applied to financing seeking to purchase greenhouse gas emission reductions ("carbon" for short) to offset emissions in the OECD. 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. Asia now represents half of the supply of project-based emission reductions, with Latin America second with 27 percent. Volumes are expected to continue to grow 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 (where trading is to start formally in 2005).


CDCF Participants First Tranche

Government of Italy, Okinawa Electric Power Co., Daiwa Securities SMBC Principal Investments, Idemitsu Kosan, Nippon Oil Corporation, BASF, Government of Canada, Government of Netherlands, Endesa (Spain), Government of Austria, Swiss Re, KfW, Statoil ASA, EdP, Hidroeléctrica del Cantábrico, Statkraft Carbon Invest AS, Government of Luxembourg, Rautaruukki, Danish Carbon Fund, Belgium – Brussels Region, Government of Spain, Belgium – Wallonia, Gas Natural, Göteborg Energi AB.

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