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Umbrella Carbon Facility Completes Allocation of First Tranche

August 30, 2006

Washington, August 30, 2006 — The World Bank today announced completion of the allocation of participation in the first tranche of the US$1.02 billion Umbrella Carbon Facility (UCF), which has been established to purchase certified emission reductions from two industrial gas projects in China. The largest carbon finance deal ever is a windfall for sustainable development in Chinaand a major opportunity for the private sector.

The Umbrella Carbon Facility, managed by the World Bank will handle large greenhouse gas reduction purchases under the flexible mechanisms of the Kyoto Protocol. The Facility has pulled together multiple sources of funding to purchase large volumes of greenhouse gas emission reductions from pre-identified projects, on behalf of governments and private firms. About 75% of the money in the Facility represents private capital.

The participants in the first tranche of the UCF include public and private entities in a number of World Bank managed carbon funds— Danish Carbon Fund, Italian Carbon Fund, Netherlands CDM Facility, Prototype Carbon Fund, Spanish Carbon Fund—as well as additional private sector companies: Canadenis Acquisition Limited (Natsource); Climate Change Capital; Deutsche Bank; Energi E2; Endesa; Mitsui & Co., Ltd.; Public Power Corp. S.A.; RWE Power AG; Statkraft Carbon Invest AS; Tamarisk Acquisition Corporation (Natsource); TEPCO; Trading Emissions PLC.

“Natsource congratulates the World Bank for developing the Umbrella Carbon Facility and is pleased to be participating through Canadenis and Tamarisk”, said Jack Cogen, President of Natsource LLC, an asset management company. “The deal is a win for the private sector that must meet its emissions targets cost effectively and for the environment,” said Cogen. 

The €799 million (US$1.02 billion) first tranche is purchasing greenhouse gas emission reductions from two Chinese companies. The make-up of the UCF was announced by the World Bank today after the two projects involved were approved as Kyoto compliant projects by the Executive Board of the Kyoto Protocol’s Clean Development Mechanism. They will cap the emissions of HFC-23 (trifluoromethane), one of the most potent greenhouse gases responsible for climate change through global warming. HFC-23 has a global warming potential that is 11,700 times that of carbon dioxide.

According to Joelle Chassard, Manager of the Carbon Finance Unit at the World Bank. “By opening up the Facility to both the Bank managed carbon funds as well as additional participants from the private sector, we have helped bring liquidity to the growing carbon market.” Added Chassard, “And the Umbrella Carbon Facility is producing a double dividend with the government of China receiving 65% of the proceeds for sustainable development through their newly established Clean Development Fund.”

China’s Clean Development Fund is expected to finance climate mitigation projects in priority sectors such as energy efficiency, renewable energy, coal mine methane recovery and use.

“The beauty of the UCF - Tranche One is that it pursues not only the mitigation of climate change, but also deals with the Sustainable Development by earmarking a specific amount of revenue to be utilized by the Government of China through its Clean Development Fund,” said Takeshi Hokari of the Environmental Business Department of Mitsui & Co., Ltd., one of the private sector participants in the Umbrella Carbon Facility. “We look forward to the dissemination of such methods to enhance activities to realize sustainable development in CDM projects around the world.”

The World Bank already administers nine carbon funds and facilities, including the Community Development Carbon Fund (CDCF) and the BioCarbon Fund (BioCF) which help poor countries and communities to benefit from carbon trade. Including the China HFC-23 window of the Umbrella Carbon Facility, the total carbon funds and facilities being managed by the World Bank will exceed US$1.9 billion.


The Kyoto Protocol and the Clean Development Mechanism (CDM). The Kyoto Protocol provides an unprecedented opportunity for the Organization for Economic Co-Operation and Development (OECD) countries to reduce greenhouse gas emissions and at the same time help developing countries and economies in transition invest in climate friendly technologies and infrastructure. The Protocol’s Clean Development Mechanism and Joint Implementation (JI) provide an element of flexibility for the industrialized countries to meet their obligations under the Protocol to reduce greenhouse gas emissions by on average 5.2 percent below their 1990 levels by 2010. In so doing, the Protocol provides an unprecedented incentive for those seeking lower cost emission reductions, to leverage the flow of private capital and privately held clean technology from North to South.


Carbon Finance

Carbon finance is the general term applied to financing seeking to purchase greenhouse gas emission reductions (“carbon” for short) to offset emissions in the OECD. Commitments of carbon finance for the purchase of carbon have grown rapidly since the first carbon purchases began less than a decade ago. The global market for greenhouse gas emission reductions is estimated at a cumulative 200 million tons of carbon dioxide equivalent since its inception in 1996 Volumes are expected to continue to grow as countries that have ratified the Kyoto Protocol work to meet their commitments, and as national and regional markets for emission reductions are put into place, notably in Canada and the European Union (where trading started formally in January 2005).


HFC23 Projects in China

The two private chemical companies, Jiangsu Meilan Chemical Co. Ltd., and Changshu 3F Zhonghao New Chemicals Material Co. Ltd, in Jiangsu Province in The People’s Republic of China are expected to reduce emissions of about 19 million tons of carbon dioxide equivalent annually. Generation of emission reductions will start in October 2006 for Meilan and December 2006 for 3F. The HFC23 is generated as a waste gas in the manufacturing process of HCFC-22 which is a gas used as a refrigerant and as a feedstock, a raw material for other products. HFCs are among the six greenhouse gases covered under the Kyoto Protocol. Both companies are well established chemical manufacturers in China, and have ISO9000 certification. Issued by the International Organization for Standardization, ISO 9000 has become an international reference for quality standards in the industry.

Through highly efficient incineration, the HFC23 can be converted to CO2, a greenhouse gas with a much lower GWP (GWP_CO2=1 in the second IPCC assessment Report). The technology to be adopted by the project can decompose 99.9999 percent of HFC23—therefore almost all HFC23 in the plant can be destroyed by implementing this project.

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