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The World Bank Carbon Finance Unit (CFU) uses money contributed by governments and companies in OECD countries to purchase project-based greenhouse gas emission reductions in developing countries and countries with economies in transition. The emission reductions are purchased through one of the CFU’s carbon funds on behalf of the contributor, and within the framework of the Kyoto Protocol’s Clean Development Mechanism (CDM) or Joint Implementation (JI).

Unlike other World Bank development products, the CFU does not lend or grant resources to projects, but rather contracts to purchase emission reductions similar to a commercial transaction, paying for them annually or periodically once they have been verified by a third party auditor. The selling of emission reductions - or carbon finance - has been shown to increase the bankability of projects, by adding an additional revenue stream in hard currency, which reduces the risks of commercial lending or grant finance. Thus, carbon finance provides a means of leveraging new private and public investment into projects that reduce greenhouse gas emissions, thereby mitigating climate change while contributing to sustainable development.

The Bank’s carbon finance operations have demonstrated numerous opportunities for collaborating across sectors, and have served as a catalyst in bringing climate issues to bear in projects relating to rural electrification, renewable energy, energy efficiency, urban infrastructure, waste management, pollution abatement, forestry, and water resource management.

The World Bank’s carbon finance initiatives are an integral part of the Bank’s mission to reduce poverty through its environment and energy strategies. The threat climate change poses to long-term development and the ability of the poor to escape from poverty is of particular concern to the World Bank. The impacts of climate change threaten to unravel many of the development gains of the last several decades. The Bank is therefore making every effort to ensure that developing countries can benefit from international efforts to address climate change.

A vital element of this is ensuring that developing countries and economies in transition are key players in the emerging carbon market for greenhouse gas emission reductions. The role of the Bank’s Carbon Finance Unit is to catalyze a global carbon market that reduces transaction costs, supports sustainable development and reaches and benefits the poorer communities of the developing world.

Prototype Carbon Fund

A partnership between seventeen companies and six governments, and managed by the World Bank, the PCF became operational in April 2000. As the first carbon fund, its mission is to pioneer the market for project-based greenhouse gas emission reductions while promoting sustainable development and offering a learning-by-doing opportunity to its stakeholders. The Fund has a total capital of $180 million.

BioCarbon Fund

The World Bank has mobilized a new fund to demonstrate projects that sequester or conserve carbon in forest and agro-ecosystems. The Fund, a public/private initiative administered by the World Bank, aims to deliver cost-effective emission reductions, while promoting biodiversity conservation and poverty alleviation. The Fund started operations in May 2004 and has a total capital of $53.8 million.

Community Development Carbon Fund

The CDCF provides carbon finance to projects in the poorer areas of the developing world. The Fund, a public/private initiative designed in cooperation with the International Emissions Trading Association and the United Nations Framework Convention on Climate Change, became operational in March 2003. The first tranche of the CDCF is capitalized at $128.6 million with nine governments and 15 corporations/organizations participating in it and is closed to further subscriptions. The CDCF supports projects that combine community development attributes with emission reductions to create “development plus carbon” credits, and will significantly improve the lives of the poor and their local environment.

Italian Carbon Fund

In fall 2003, the World Bank entered into an agreement with the Ministry for the Environment and Territory of Italy to create a fund to purchase greenhouse gas emission reductions from projects in developing countries and countries with economies in transition that may be recognized under such mechanisms as the Kyoto Protocol’s CDM and JI. The Fund is open to the participation of Italian private and public sector entities and has a total capital of $155.6 million.

The Netherlands CDM Facility

The World Bank announced an agreement with The Netherlands in May 2002, establishing a facility to purchase greenhouse gas emission reduction credits. The Facility supports projects in developing countries that generate potential credits under the Clean Development Mechanism (CDM) established by the Kyoto Protocol to the UN Framework Convention on Climate Change. The Fund has a total capital of $264.7 million.

The Netherlands European Carbon Facility

The Netherlands, acting through its Ministry of Economic Affairs, the World Bank and the International Finance Corporation (IFC) in August 2004, signed an agreement appointing the World Bank and the IFC as Trustees of the Netherlands European Carbon Facility, in order to purchase greenhouse gas emission reductions for the benefit of the Netherlands. The Facility purchases emission reductions from JI projects only, i.e. from projects located in countries with economies in transition and has a total capital of $56 million.

Danish Carbon Fund

The Danish Carbon Fund (DCF) was established in January 2005 with two public sector participants (the Ministry of Foreign Affairs of Denmark and the Ministry of the Environment of Denmark) and a private sector participant (DONG Energy). In the summer of 2005, three other private sector participants (Aalborg Portland, Nordjysk Elhandel, and Maersk Olie og Gas) joined the DCF. The present value of the Fund is $68.5 million.

Spanish Carbon Fund

The Spanish Carbon Fund was created in 2004 in an agreement between the Ministries of Environment and Economy of Spain and the World Bank. This fund was established to purchase greenhouse gas emission reductions from projects developed under the Kyoto Protocol to mitigate climate change while promoting the use of cleaner technologies and sustainable development in developing countries and countries with economies in transition. The Fund has a total capital of $278.6 million.

Umbrella Carbon Facility

The UCF is an aggregating facility to pool funds from existing IBRD-managed carbon funds and other participants for the purchase of emission reductions from large projects. The Facility would have multiple tranches, with the First Tranche dedicated to purchasing Certified Emission Reductions (CERs) from the China HFC-23 projects. The Fund has a total capital of $719 million.

Carbon Fund for Europe

The Carbon Fund for Europe (CFE) is designed to help European countries meet their commitments to the Kyoto Protocol and the European Union’s Emissions Trading Scheme (EU ETS). The CFE is a trust fund established by the World Bank, in cooperation with the European Investment Bank (EIB). The Fund will purchase greenhouse gas emission reductions through the Kyoto Protocol’s Clean Development Mechanism and Joint Implementation from climate-friendly investment projects from either bank’s portfolio as well as self-standing projects. While the World Bank brings its expertise and experience of the carbon market to the CFE, the EIB brings its intimate knowledge of the European economy and a rich project pipeline in developing countries. Through the CFE, the two institutions will complement private sector development in the emerging carbon market and seek ways to support essential private carbon market development.

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