The funding for many of the great renewable energy projects within the Middle East and North Africa (MENA), and other developing regions, will continue to be directed via the World Bank, Reuters reports.
The funds support projects which cut climate-changing greenhouse gas emissions in developing nations under the EU’s cap & trade law, and is likely to be needed for the next five years while the UN designs the climate deal that will supercede it.
A typical example of funding of clean energy projects to cut climate change: Egypt Now Contracting a Whopping 1000 MW Wind Farm!
At the Durban climate talks in December, a surprise breakthrough (Durban May Agree on Green Climate Fund, Overriding US Opposition) led to an final agreement that included both the US and China – which caused the rest of the global stragglers to follow.
The world agreed to continue the Kyoto plan, for several years, for the nations that are party to it, but more importantly, every nation agreed to define and to begin a new and completely global climate agreement set to begin in just eight years.
The agreement was something of a surprise. Even merely continuing the Kyoto Protocol another seven years was thought to be a stretch. Most enviro-policy wonks were expecting nothing this positive – Possible End of Kyoto at Durban Threatens MENA Renewable Energy.
But the World Bank had been banking on a more rapid international agreement, making their services redundant.
“There was a time a few years ago when we were thinking that shortly after 2012 we may not be needed,” the World Bank’s Joelle Chassard told Reuters.
“(We thought) the market would’ve matured so much that there would be long-term visibility, and indeed the contribution that we made at the beginning of the market would no longer be needed. I think the circumstances have almost been the opposite of that,” she added.
The World Bank does not actually lend or grant money outright. In its development role for carbon finance, it buys the carbon credits generated by the emission reductions achieved by the projects, once they have been verified by a third party auditor. Since 1999, theWorld Bank has launched 10 Kyoto funds and facilities capitalized at just over $2 billion, as well as five post-2012 carbon initiatives and the MENA region has been a beneficiary.
The carbon financing – the much maligned cap & trade – under the European Trading Scheme (ETS) enables project developers to leverage new private and public investment, from funds generated by polluting industries. Cap & trade has been shown to be effective in reducing carbon emissions in the EU nations that are covered by the cap.
Agreeing at Durban to continue Europe’s ETS – probably until the global climate deal takes shape – increases the chances that carbon finance will be the same market mechanism for the global deal too. Chassard said. “If one thing was achieved in Durban, it is that market mechanisms are very likely to be part of the future.”
As the end of the first commitment period of Kyoto neared, and leading up to Durban last year, the political uncertainty over the future continuation of the Kyoto Protocol’s market mechanisms, especially the Clean Development Mechanism (CDM), choked new investment in projects that slowed MENA projects.
CDM figures for 2011 won’t be out till June, but the trajectory is expected to be down even below 2010’s total of just $1.5 billion, which was sharply lower than 2007, before the economic meltdown – when fees on polluters generated a robust investment fund of $7.4 billion in carbon funding that could be used to expand clean energy projects.
But with the economic downturn, the use of polluting energy has gone down, so fewer polluters need to buy credits, so there is less carbon financing around for clean energy projects. Which is a shame. As Chassard said,”The irony of the market is that it has continued to produce a pipeline of projects that we think are certainly worth supporting.”