Bloomberg News

Fund May Use $100 Billion a Year to Encourage Carbon Price

December 06, 2012

The Green Climate Fund, designed to channel as much as $100 billion a year in pledges to emerging nations, may try to wean recipients off fossil fuel and encourage them to put a price on carbon, according to an overseer.

The fund may guarantee bank loans in developing nations for projects ranging from wind farms to building insulation and less-polluting agricultural equipment, Naoko Ishii, chief executive officer of the Global Environment Facility in Washington, said yesterday in an interview in Doha. She heads one of two secretariats governing the fund.

Climate projects may be able to get private-sector finance augmented by guarantees from the fund, alongside discounted loans from government or development banks, Ishii said. The 24- member board of the Green Climate Fund, which is still waiting to recieve money from developed nations, may make loans or guarantees conditional on the recipient having the right environmental policies in place, she said.

“I know that conditionality is a very sensitive word, but from the donor point of view, if the money is to be impactful, there must be some policy environment put in place,” Ishii said.

United Nations envoys from about 200 nations meeting in the Qatari capital this week are seeking to extend the Kyoto Protocol and lay the groundwork for a global climate agreement for 2020. Financing from richer nations to the developing world for the next seven years will help cut emissions before the new deal comes into force, Ishii said.

Improve Funding

The GEF and the fund would make progress on details of how to improve funding during the next year, she said.

Envoys should recognize the climate crisis is deep enough to warrant developing-nation policies that help protect the public money available for emission-reduction and adaptation, Ishii said. Measures may include so-called feed-in tariffs that provide higher rates for renewable-energy producers, a carbon price and the phasing out of fossil-fuel subsidies, she said.

Using the fund to guarantee loans for climate finance “would be extremely welcome because we are always looking to leverage money that’s available,” India’s lead climate negotiator Mira Mehrishi said in interview in Doha.

India may consider agreeing to rules set down by the fund, Mehrishi said.

“The government’s policy would have to be looked at because feed-in tariffs are governed by regulators in our country,” she said. “That’s something I will not be able to answer without a discussion with them, with the energy sector.”

Key Question

A key question for UN envoys is whether to withhold climate funds for nations that don’t have a carbon price in place, Ishii said.

“Anything that helps provide some market continuity would be welcome,”said Dirk Forrister, chief executive of the International Emissions Trading Association in Geneva. “It adds a dose of confidence,” he said today in an interview in Doha. IETA is a lobby group in favor of cap-and-trade markets.

Certified Emission Reduction credits fell 3 cents today to 66 euro cents ($0.86) a metric ton on the ICE Futures Europe exchange in London at 5 p.m. They’ve dropped 87 percent in the past year as demand in Europe waned and supplies surged.

The International Chamber of Commerce said Dec. 3 companies and pension funds are hoarding cash rather than spending it because climate-protection rules are lacking.

“Tell us what the rules are going to be so we know how to integrate them into our business,” said Jean-Guy Carrier, secretary general of the Paris-based chamber, whose members represent businesses from Qatar to the U.S.

$4.8 Trillion

Renewable subsidies in 2011, including biofuels, amounted to $88 billion, the International Energy Agency in Paris said Nov. 12. Over the period to 2035, they need to amount to $4.8 trillion, over half of which has already been committed to existing projects or needed to meet 2020 targets, it said.

The Green Climate Fund use of the private sector may blur the lines between debt and equity or potentially include mandates for outside fund managers, Abyd Karmali, head of carbon for Bank of America Corp. in London, said Nov. 2 by phone.

“Nothing’s been taken off the table,” he said. “Most of the mechanisms that the Green Climate Fund’s private sector facility may look at will be completely outside what we currently call the carbon markets.”

To contact the reporter on this story: Mathew Carr in Doha at m.carr@bloomberg.net

To contact the editor responsible for this story: Lars Paulsson at lpaulsson@bloomberg.net


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