The target fund size is $150 million and ADB has already received several expressions of interest to the fund from its member countries.
CMI, to be fully launched early next year, will involve two other components besides the fund. A technical support facility (TSF) will provide capacity building, due diligence, documentation, and implementation support, while a credit marketing facility (CMF) will assist sponsors in marketing the additional carbon credits generated, beyond those that have been sold upfront to the APCF.
The TSF will function to ensure a continuous stream of new clean energy projects in ADB's developing member countries that may be considered for ADB project financing, and the CMF will help to maximize the cash flows of such clean energy projects.
Under the Kyoto Protocol, developed countries can meet their obligations to reduce carbon emissions by buying CERs, or “carbon credits,” from developing countries. Up until now, payments for the CERs have been made predominantly “on delivery” helping only those projects that have sufficient capital to move forward on its own.
The upfront payments from the APCF will cover up to one half of the CERs expected up to the end of the Kyoto Protocol’s first commitment period. The remaining CERs can later be sold freely by the project sponsors in the market, including through the CMF.
“Providing upfront finance will result in an increase in viable environment friendly ADB projects in its developing member countries,” says Bindu Lohani, Director General of ADB's Regional and Sustainable Department.
“The ultimate goal is to promote a shift in investment patterns that will, in the long term, have a positive impact on both energy security and climate change. The initiative will also foster long-term partnerships between project developers in developing countries, carbon investors in developed countries, and ADB.”
Naturally occurring greenhouse gases, such as carbon dioxide (CO2) and methane, trap heat in the atmosphere and allow the earth's surface to remain within a life sustaining range. However, human activity, in particular consumption of fossil fuels, has increased the amount of these gases and magnified the greenhouse effect. This is accelerated by other activities, such as deforestation and land use change, which reduce the amount of carbon absorbed by plants, forests, and soils.
The overall value of the global carbon market was estimated at more than $10 billion in 2005, with the value of carbon market transactions reaching $7.5 billion in the first quarter of 2006 alone. But the global carbon market is expected to grow significantly buoyed by recent scientific findings and reports such as the recent Stern Review in the UK, bringing much greater financial opportunities for clean energy investments in the coming years. Europe is already considering a continuation of the EU Emissions Trading Scheme well beyond 2012.
“Although there are still uncertainties, the demand for carbon credits appears set to increase significantly,” adds Mr. Lohani, who is also Special Advisor to the ADB President on Clean Energy and Environment. “While the supply of carbon credits in Asia has improved, with China and India the leading suppliers, supply is still outpaced by demand and there is a shortage of projects that can generate CERs before the end of 2012.”
