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World Bank launches new carbon guarantee product
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By Lesley Wroughton WASHINGTON (Reuters) - The World Bank on Monday launched a new carbon credit trading guarantee that will allow private-sector firms
in developing countries to tap the growing 40 billion euro global carbon market, a senior official said. The International Finance Corp, the World Bank's private-sector lender, said it signed its first carbon delivery guarantee agreements with
fertilizer producers Omnia of South Africa and Rain CII Carbon in India. In South Africa, IFC's agreement covers up to 900,000 credits from Omnia. For Rain, one of the world's largest producers of calcined
coke, the deal covers 850,000 carbon credits. Under the guarantee, IFC will help facilitate the delivery of carbon credits from companies in developing countries to buyers in developed
markets, such as Europe and Japan, said Lance Crist, head of IFC's oil, gas and chemicals division. He said other companies in China, India, Mexico, Brazil, Egypt and Tanzania had expressed interest in the product. Under the Clean Development Mechanism (CDM) of the Kyoto Protocol, currently being re-negotiated before it expires in 2012,
companies in developing countries can qualify to sell carbon credits, known as Certified Emission Reductions, in global commodity markets
when they reduce their output of environmentally harmful substances. However, so-called compliance buyers, the large utility companies in Europe or Japan, which are obliged to reduce their emissions under
Kyoto, have been averse to paying full price for credits from developing nations because of the risk associated with doing business in these
countries. Crist told Reuters the IFC product guaranteed companies' ability to deliver the carbon credit. "This is not yet a very efficient and completely transparent market, so sellers of the credits don't know exactly what the prices are that
they're getting and they don't know if those funds are going to be around tomorrow," he said. "So, IFC is offering a product that basically gives full transparency to carbon credit sellers by showing them what the prices are and
guaranteeing their delivery to the buyers and in return we take a small spread to compensate us for that credit enhancement," Crist added. POTENTIAL BUYERS He said the carbon credits would be sold to potential European and Japanese buyers. Those contracts had not yet been signed in the
case of Omnia and Rain, Crist added. "We don't yet know who those buyers are but we know that it will be attractive to the market and there is a price on a daily basis that
fluctuates according to supply and demand," he said. "But we still need to work with the companies to determine what price they are willing to sell and who the buyers should be. Until we
execute the second-half of the trade, we won't know what the value of the transaction is." Crist said the guarantee gives companies in the developing world an incentive to participate in the growing global credit market and
improve their profitability. "Each of these companies are having to invest several million dollars to implement their emissions reduction projects. But in return, they
have the prospect of generating significant inflows from the carbon credits," he added. Global trade in carbon markets was up 80 percent last year at 40 billion euros, dominated by a European Union trading scheme.
However, a 12 billion euro market under the Kyoto Protocol faces an uncertain future after the EU firmly linked this to international talks to
agree on a Kyoto successor. Still, Crist said once countries in the developing world join Kyoto, the global carbon market could become a trillion-dollar market. "Participation so far from the developing world through the CDM has been limited," he said. "We believe there is immense potential for
companies in the developing world to participate, which will have the benefit of both addressing climate change, which is fundamentally our
concern, but also creating demonstration models to encourage other companies in the developing world to participate." | |
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