FEATURE STORY

Carbon Market Stakeholders Urge Fast Action on Climate Mitigation

June 3, 2011

STORY HIGHLIGHTS
  • At this week’s Carbon Expo, thousands of carbon market stakeholders call for expansion of financial instruments to fight climate change.
  • Bank releases 2011 State and Trends of the Carbon Market report.
  • Emerging economies move forward with climate change response; eight grants announced to help implement carbon market instrument.

As climate change continues to threaten global efforts to reduce poverty, carbon markets have emerged as an important channel for climate mitigation. But a full range of financial instruments and initiatives must be deployed to address the mounting climate change challenge, said participants at this week’s Carbon Expo, held in Barcelona, Spain.

Thousands of experts in climate finance and green technologies, policymakers, and developing country practitioners gathered at the Expo to urge faster scale-up of tools to address climate issues, including expansion of carbon markets, which transfer green technologies and capacity to developing countries when they implement low-carbon projects that generate carbon credits.

Christiana Figueres, head of the United Nations Framework Convention on Climate Change (UNFCCC), called on governments to provide stronger signals to the markets for the period after 2012, when the first Kyoto commitment period ends.

Open Quotes

Despite the slow-down we are witnessing in the CDM, we see a strong interest in new market mechanisms and in examining the potential of domestic carbon initiatives. Close Quotes

Joëlle Chassard
Manager of the Carbon Finance Unit of the World Bank.

Joëlle Chassard, manager of the World Bank’s Carbon Finance Unit, said, “We emerge from this week of intense discussions encouraged and excited to know that carbon markets will continue to be a part of the mosaic of climate finance, with new ideas and initiatives that should allow all countries to put market mechanisms to work to accelerate climate mitigation on a global level.”

Andrew Steer, World Bank Special Envoy for Climate Change, reminded Expo participants of the close link between climate change and development.

“Climate change threatens all that we are trying to achieve. We are not on track to solving the problem, and development progress is deeply threatened," he said. "But there will come a time, not long from now, when citizens will demand stronger action on climate change. It is crucially important that we are ready for this time."

Blending of financial instruments

Discussions at this year’s Expo expanded well beyond the traditional focus on carbon markets to include plans for new climate instruments, including financing, domestic cap-and-trade schemes, and nationally appropriate action plans.

Participants addressed the need to change current models for emission mitigation, which have, to date, been carried out on a project-by-project basis. If carbon finance is to reach its full potential, they said, mitigation not only has to scale up dramatically but innovative financial instruments have to be introduced into the mix.

"We can achieve higher levels of mitigation through the blending of financial instruments,” Figueres said. “This blending is an expertise that exists in the finance industry, but has yet to be applied to the carbon space, where I would expect it to be brought in with additional creativity and insight into risk management."

Additional topics included ways to reform the Clean Development Mechanism (CDM) and how to bring forestry and land-use initiatives, such as soil carbon and restoration of degraded lands, further into carbon markets. If the CDM is to work effectively, baselines need to be standardized and other obstacles to implementing projects have to be removed, participants said.

The Bank’s annual review of the global carbon market, The State and Trends of the Carbon Market, launched earlier this week, showed that 2010 was a watershed year as the market ended five years of robust growth with a slight decline to $142 billion. The CDM, which focuses on developing countries, was particularly hard hit. The report’s authors noted that there are several reasons behind the decline, including a continuing lack of clarity about the market after 2012 and the loss of political momentum on setting up new cap-and-trade schemes in several developed economies.

But the world is not waiting

Despite a lack of clarity on a global climate accord, emerging countries are moving ahead with a number of domestic climate initiatives. The Partnership for Market Readiness (PMR), the latest initiative of the Bank’s Carbon Finance Unit, was created specifically to support developing country innovations. This week, the partnership announced initial grants to eight emerging economies to help them plan and eventually implement carbon market instruments to reduce greenhouse gases.

“Over the past two days here in Barcelona, around 30 countries have been meeting to talk about new initiatives in emerging economies with regard to market-based instruments,” Steer said this week. “We've heard remarkable plans from China, Chile, Costa Rica, Colombia, Indonesia, Mexico, Thailand, Turkey and others. These countries are taking a lead in building the capacity and foundation for a global carbon market with the support of the PMR.”

Neeraj Prasad, Manager of the World Bank Institute’s Climate Change Practice, added, “We had hoped that Carbon Expo will help facilitate deals, networking and important connections, especially between developed and developing countries, both to support technology and to establish the most efficient road-map to lowering emissions and reducing poverty.”

“What we are seeing is that, in spite of the uncertainty about long-term price signals, market participants are hungry for a better understanding of what the future holds, and many are looking to the Bank to provide some direction and signals for the way forward.”

Contributed by Isabel Hagbrink, Senior Communications Officer, Carbon Finance Unit, The World Bank