ADB plan to buy carbon credits after Kyoto cut-off

By Raphael Minder in Bangkok - FT
Published: July 8 2008 03:00

The Asian Development Bank is setting up a new climate change fund to invest in carbon credits that will be generated after 2012, the -cut-off date for the Kyoto protocol.
Most carbon trading funds do not invest in credits that will be issued after the protocol has expired, given the uncertainty about its successor. Negotiations are on-going but will not be completed until the end of next year.
The Asian lender is hoping the fund will have about $200m, enough to finance about 40 carbon reduction projects. It hopes the move will also encourage other public and private investors to invest in carbon credits that may come on stream after 2012.
"$200m is not a silver bullet to solve the climate change problem but we hope this model can be replicated by others, either development or commercial banks," said Toru Kubo, a clean energy and climate change expert at the ADB who has been involved in launching the fund.
Countries such as Norway as well asthe European Union and US states such as California have made commitments to reducing greenhouse gas emissions beyond 2012. However, this week's Group of Eight meeting in Japan is expected to underline divergences on what international targets could be agreed beyond that date.
On arriving in Japan, George W. Bush, the US president, reaffirmed that Washington could agree to goals only if they were shared by China and India, Asia's new economic powerhouses.
Oil's rise towards $150 a barrel is already forcing Asian and other oil importers to promote renewable energy investments more aggressively, in order to cut their ballooning fuel import and subsidy costs. Some of the largest industrial companies in South Korea, the world's fifth-largest oil importer, yesterday agreed to invest Won2,790bn ($2.7bn, €1.7bn, £1.4bn) through 2012 to develop energy-saving facilities. The promise is being backed by the government, which has pledged to boost tax benefits for such investments.
Mr Kubo predicted the new Asian fund would look to finance 10-30 per cent of the total cost of about 40 projects.
The World Bank and the European Investment Bank - in partnership with four European banks - have already announced the creation of post-2012 funds but the ADB said that, unlike their pay-on-delivery ap-proach, it had opted for upfront financing to help projects get off the ground.
While projects will be selected across the AsiaPacific region, including in larger countries such as China, Mr Kubo also suggested that it would mostly benefit smaller developing nations.
"Pay-on-delivery is now the prevailing modality of projects, so that is why large countries have benefited most from the carbon credit market, because they have enough credits to raise money from commercial banks," he said. "Countries like Laos or Vietnam may not have the money to begin the project in the first place, so an upfront payment can really help."
The ADB will be trustee of the fund but is in talks with other entities, public and private, to enlarge its scope.
Its existing clean-energy funding facility, based on carbon credits until 2012, has raised about $150m.
Copyright The Financial Times Limited 2008