Finding money to develop clean energy projects

The carbon market initiative (CMI) is one of the Asian Development Bank's (ADB) new initiatives under its clean energy and environment programme. The main aim of CMI is to help developing member countries benefit from market-based instruments under the Kyoto Protocol to promote sustainable development. Most of the existing carbon procurement funds provide payment only upon project completion and when the carbon credits are delivered. As a result, many clean energy projects face a critical upfront financing gap that prevents them from being undertaken in the first place. The ADB is trying to address these barriers. FinanceAsia talks to Toru Kubo, senior clean energy and climate change specialist in the sustainable infrastructure division of the ADB, about the challenges. 

How aware are companies in Asia about carbon trading? 
Many companies in so called middle-income countries, such as China and India, are aware of carbon trading. However the general awareness across other countries is quite limited, in terms of both coverage and depth. Oftentimes, companies consider carbon revenues as 'free money' which leads to complications during the offset contracting phase.   

How successful has the ADB been in aiding companies in developing clean development mechanism-eligible projects that can produce certified emission reductions that are tradable? 
We've been quite successful in advising companies that we provide financing and regarding the potential additional opportunities from the carbon market. We've assisted the sales of carbon credits from some of the projects, and in many cases provided targeted capacity building for document preparation and outreach. For more generic capacity building we've been partnering with other development agencies and knowledge institutions. There is still a lot to be done if we want to achieve the volume of emission reductions necessary to reach the "safe" stabilisation levels recommended by scientists. 

Are most companies that turn to the ADB seeking to develop programmes exclusively for the European carbon trading market, or are they also developing programmes that can be traded on the voluntary market? 
Not necessarily the European market, but it is true that the first priority is to develop programmes/projects that will generate "compliance grade" offsets under the international clean development mechanism (CDM) rules. This provides the highest financial value. Some even go a step further and try to apply the CDM Gold Standard. There are efforts to develop projects for the voluntary market, particularly in the forestry sector, but these have been limited due to lack of demand for such credits.

The ADB is developing a new fund to complement the existing CMI and extend it beyond 2012. Tell us more about that. 
We have just established the Future Carbon Fund, which can contract carbon credits to be generated up to 2020. What's unique about this fund is that most of the payments can be made available upfront, to be used for financing of the project itself. This service is offered in conjunction with ADB's standard financing and technical assistance services. It is designed to address two issues simultaneously: (1) post-2012 uncertainty for developers/sponsors; and (2) upfront capital constraints to move forward with projects. The fund now has $60 million committed and we expect it to close at around $150 million by the end of this year. 

Do you think that the world will reach a climate agreement in Copenhagen in December? 
Yes and no. It is likely that the leaders will reach some agreement on the collective "cap" for the next phase, which could be an eight-year phase (2013-2020) or a series of five-year phases (2013-2017, 2018-2022 etcetera). However the agreement on the exact implementation aspects, including the flexible mechanisms, may take another one to two years. Previously, the cap was agreed in 1997 in Kyoto, while the specifics on the flexibility mechanisms took another four years to agree (Marrakesh in 2001).

Kubo notes that the above answers are his personal views and do not represent ADB's views or position.