The World Bank and other public funds should retreat from the market for financing clean energy projects under the Kyoto Protocol, and focus on building confidence in the post-Kyoto period, brokers and private investors said on Thursday. The protocol allows richer countries to earn emissions reduction credits by investing in climate-friendly projects in poorer countries. The increasingly competitive market last year drew investment of US$2.7 billion, the World Bank says.

But the market is now staring into a void from 2012, when Kyoto pollution targets expire, removing incentives for rich nations to invest. A Kyoto extension has stalled on disagreement over whether big developing countries such as India and China should shoulder binding pollution targets alongside industrialised nations.

Some private investors want the World Bank -- which runs some US$1.7 billion in carbon funds -- to exit the market, having helped establish it nearly 10 years ago, and concentrate on laying the ground for the post-Kyoto period. "They played a critical role in the early days, in capacity building but the World Bank`s role in the most established markets is coming to a close," said Andrew Ertel, President of brokers Evolution Markets.

"I would be disappointed if I heard they were raising additional funds," he told Reuters on the fringes of a carbon market trade fair. "The markets are working. We don`t necessarily need the World Bank to play the role private business can play," Ertel added. Ertel said he saw a possible continuing role for the bank in building capacity in smaller projects, which needed a push.

The world bank responded by saying it is already looking beyond 2012. "Right now 30 percent of our portfolio goes to 2015 -- that`s guaranteed funding for pollution cuts beyond 2012," said Warren Evans, head of the Bank`s environment department. "The day that the private sector can secure all the transactions needed to address climate change, that`s when we`ll retreat from the market," he told Reuters.

NEW ROLE
Senior carbon investors said they saw the World Bank`s role now as breathing life into the treaty post-2012. "We are very grateful for the public funds," said Brice Lalonde, former French Environment Minister and an adviser to carbon investors, the European Carbon Fund.

"They did a great job. But what can we do (now), just compete in a shrinking market?." "Public funds have been pioneers, they should buy post-2012 (pollution reduction) certificates. If they do that developing countries will see the (financial) benefits of signing Kyoto 2," Lalonde told the conference.

Private funds could subsequently refinance the public funds when a Kyoto extension had been signed, he added. Former Manager of the World Bank`s Carbon Finance Unit, Ken Newcombe, agreed that the Bank had a role to play post-2012. "I believe the World Bank should be a strong advocate of a (Kyoto) continuity facility," he told Reuters. "(That facility) would provisionally value emission cuts in some projects post-2012. It needs a champion," said Newcombe, who is now Vice Chairman at London-based carbon fund Climate Change Capital.
(Planet Ark, 12/05/2006)
http://www.planetark.com/dailynewsstory.cfm/newsid/36318/story.htm