At present, the Kyoto Protocol provides an international framework for reducing GHG emissions and for the trading of carbon credits. However, the current commitment period expires in December 2012, creating a cloud of uncertainty over future investments.
By making upfront payments to developers at the outset of a project for carbon credits generated after 2012, the Fund will help reduce the initial heavy capital constraints involved in projects and stimulate new investment. At the same time, it will provide countries or organizations that have, or are developing, GHG emission reduction goals - even in the absence of a global framework - the chance to invest in low-carbon projects in the Asia-Pacific region and receive carbon offsets in return.
ADB has now exceeded its public sector funding target for the Fund with participants including Finland and Sweden providing approximately half of the total. Seminars are planned in Asia, Europe and North America to invite the private sector from ADB’s member countries for the remaining half. The main focus will be on companies with large emission footprints, such as power utilities, manufacturers and airlines.
“The Future Carbon Fund is a public-private partnership between ADB and the governments and companies who have decided to act now,” ADB Vice President Ms. Ursula Schaefer-Preuss told reporters at the United Nations Framework Convention on Climate Change.
“It seeks to utilize the future value of greenhouse gas reductions, and invest into projects that would provide the essential services to the developing communities, while protecting the future of our planet.”
The Fund - which mainly focuses on carbon credits from ADB-financed projects - will complement ADB's ongoing Carbon Market Initiative which already provides financial and technical support for Clean Development Mechanism projects. It differs from other post-2012 carbon schemes, as it makes finance available upfront to project developers, instead of the standard “payment on delivery” method. The first project financing could come as early as the second half of 2009.
By giving ADB’s DMCs an incentive to improve their energy efficiency and use of renewable energy sources, the new Fund also supports energy security in the region while helping to mitigate the impacts of climate change.
Climate change poses a major threat to the Asia-Pacific region with as many as 1.2 billion people facing the prospect of freshwater shortages by 2020, while crop yields in Central and South Asia could drop by half between now and 2050. Many key coastal cities could also see increasingly serious flooding.