Bloomberg News

World Bank Learns From Oil, Tries to Jumpstart CO2 Market

June 02, 2011

(Updates with RWE comment in fifth paragraph.)

June 2 (Bloomberg) -- The World Bank, helped by its AAA credit rating, is considering guaranteeing sales of greenhouse- gas credits, taking cues from the crude-oil market to jumpstart the United Nations-overseen carbon markets.

The Washington-based bank might stand behind some sellers of emission credits in the developing world to attract immediate funding to fight climate change, said Philippe Benoit, a Latin America manager for the bank.

Even though energy-efficiency projects have high returns, they are “not getting financed” because they involve up-front investments and profits that can be several years in the future, Benoit said yesterday in an interview at Carbon Expo in Barcelona. Like oil companies choosing the most-profitable wells, the World Bank is seeking to help direct funds into the most viable climate-protection projects, he said.

Factories and utilities in the European Union carbon market that know they will need carbon credits a few years in the future would potentially agree to pay up-front in part because of the guarantee, he said.

“Up-front payment is possible in exceptional cases,” said Ludwig Kons, vice president of climate protection for RWE AG. “It depends on the rating of the counterparty,” he said yesterday in an interview in Barcelona. “The World Bank’s rating might be good enough.”

Shrinking Market

The value of new-project transactions under the UN’s Clean Development Mechanism tumbled 44 percent to $1.5 billion last year from $2.7 billion in 2009 as global climate talks stalled and the European Union set restrictions for some UN emission- reduction credits, according to World Bank estimates. The program, which generates offsets for projects that cut greenhouse gases in developing nations, needs bigger demand that would come from stricter climate targets, UN Climate Chief Christiana Figueres said yesterday.

The World Bank, seeking ways to boost the use of carbon finance for climate protection, would cut its risks by choosing project developers with ability to deliver, Benoit said.

Installers of energy-efficient lighting in Mexico, for instance, might be able to recover 70 percent of their costs within three years with the revenue from carbon credits alone, said Chandra Shekhar Sinha, a carbon-finance co-ordinator at the bank. And that’s before electricity-cost savings, Shekhar Sinha said in an interview.

“This makes much more sense for energy efficiency, where the sum total of the carbon revenue is a high proportion of the total investment costs,” he said. In renewable-energy projects, carbon revenues might be 10 percent of the investment, Shekhar Sinha said.

Dramatic Fallout

The UN emissions market shrank last year, even as nations began preparing for dramatic fallout from climate change, according to the World Bank’s special envoy on global warming.

“There’s much to be gloomy about,” the World Bank’s Andrew Steer told delegates at the Carbon Expo in Barcelona, citing a spate of thefts of emissions allowances in the European Union emissions market. “We’re not going to stay in the business if it stays at $1.5 billion.”

The world may need to prepare for temperature increases of 4 degrees Celsius (7.2 Fahrenheit), and the U.S. Navy is preparing for a 1.3-meter (5-foot) rise in sea levels, he said.

--Editors: Mike Anderson, Rob Verdonck.

To contact the reporters on this story: Mathew Carr in Barcelona at m.carr@bloomberg.net; Ewa Krukowska in Barcelona at ekrukowska@bloomberg.net

To contact the editor responsible for this story: Stephen Voss at sev@bloomberg.net


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