Divisions grow over carbon market future

04/05/2010 | Chris Wright

The ADB is to press on with its carbon fund initiatives despite growing uncertainty about the future of carbon markets

The ADB is to press on with its carbon fund initiatives despite growing uncertainty about the future of carbon markets.

WooChong Um, the ADB director who has spearheaded the bank’s carbon trading initiatives, said: “Basically in the last 12 months some of the events were less than ideal. But I’m still optimistic that there will be some kind of global agreement.”

The ADB has launched two carbon funds. The Asia Pacific Carbon Fund, which was launched in 2007 and raised $151.8 million from European nations, invests in clean energy projects and buys the carbon credits that come from them. It has allocated most of its money in projects such as hydropower, landfill and biomass to energy in countries including Vietnam, India and China.

A second, innovative Future Carbon Fund was launched in 2008 to invest in projects that will generate carbon credits after the expiry of the Kyoto agreement in 2012, and has raised $100 million, including $20 million from Korea. This was designed to ensure that clean energy projects were not delayed by the uncertainty about carbon markets’ future structure, which has intensified since the Copenhagen climate conference last year.

The development of carbon markets based on the clean development mechanism – in which polluters in wealthy countries offset their emissions by buying credits generated by clean energy projects in the developing world – has suffered a series of setbacks in the last six months.

The Copenhagen agreement failed to deliver clarity on the structure for carbon credits after the Kyoto accord expires, and several countries who had pledged to develop carbon trading initiatives have delayed or abandoned them.

Most recently Australia announced its cap-and-trade system will not now be launched until there is a clear post-2012 structure, and even then it will clearly face a challenge to be passed into law.

Both the ADB’s funds are distinctive because they commit money up front, whereas others do not contribute until the project is built and generating credits.

The effectiveness of carbon markets divides opinion. “The carbon market is an effective tool primarily for meeting the commitments of developed countries to mitigate [their pollution] at lower cost,” Prodipto Ghosh, a member of the Indian Prime Minister’s Council on Climate Change, and former Indian environment minister, said. “But it is not a tool for financing developing countries’ own actions for mitigation.”

Philippe Delhaise, CEO of Carbon Management Consulting, disagreed. “It [carbon markets] helps, because it makes the difference between a project that would not be undertaken and a project that is. There’s a huge transfer of technology and funds going to 2000 projects all over the world. The volumes are small, but we have a war here, we have to do something and every bit helps.”

Delhaise said that despite uncertainty, it was inconceivable that the carbon market would not have a future post 2012. “Nobody really knows, but the one thing that is certain is you can not, on December 31 2012, tell your Guatemala pig farmer reducing methane emissions: ‘Sorry, you expected 21 years of carbon credits, but now nobody will buy them from you.’ That is nonsense. It’s not going to happen.”

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