7 Lessons Learned From a Decade of Carbon Finance
December 8, 2009 by Katie Fehrenbacher
Filed under Carbon
Almost a decade after launching the world’s first carbon fund, the World Bank said it has learned a series of lessons about the regulation, oversight and scaling process of the carbon funds and greenhouse reduction projects that it has overseen. The World Bank, which spoke about these lessons at the Copenhagen climate talks on Tuesday afternoon, launched its first $160 million carbon fund, the Prototype Carbon Fund (PCF), in 2000 and now has a combination of 10 funds with a total capitalization of more than $2.5 billion. The funds invest in carbon-reduction projects, like wind energy and biomass, in developing countries, and the World Bank currently has 213 active projects across 57 countries.
The World Bank started off its talk by reiterating that the clean development mechanism (CDM) — the market structure that helps industrialized nations gain and trade credits from green projects created in developing nations — is a “proven tool to support greenhouse gas mitigation.” Warren Evans, Sector Director, World Bank Environment Department said the CDM is “exceeding expectations” in terms of the number of projects and capacity, and has been acting as a catalyst for private capital investments.
But as part of a report that the World Bank hopes to issue next April, the group said it has been analyzing its data and looking for lessons that have emerged over the last decade about how to make this type of program more efficient and effective. “It hasn’t always been easy,” said Martina Bosi, head of the World bank’s carbon finance division, referring to the decade of growth, but “we’ve come a long way.” Here’s seven lessons that the World Bank says it’s learned about how to attract more private capital, maximize emission reductions, slash costs and address other issues in carbon finance:
1). Unpredictability in the CDM: The World Bank says unpredictability in the CDM has constrained the amount of private capital that investors add to projects. That uncertainty can be about when the projects will expire or a lack of organized oversight of the projects. The CDM examines, approves, funds and verifies projects, and the rules are “too complicated,” and the regulation is “changed too frequently,” said Bosi. As we’ve written before, most investors like as much certainty as possible before committing financing (VCs can be an exception), and greentech businesses are attending COP15 this week to look for more certainty in international emissions reductions.
2). CDM Lifecycle Too Long: The time it takes a project to be approved and eventually audited can be about 18 months, said the World Bank. That is just “too long,” said Bosi, when it comes to trying to integrate and attract private capital to projects. This time needs to be cut down.
