Kicks Off the Global Carbon Market
SANTIAGO, June 17, 2003
The Government of Chile, along with the World Bank
and the group of six governments and the 17 companies that make up the
Prototype Carbon Fund (PCF), today announced a landmark event in the fight
against climate change. The Chacabuquito run-of-river hydropower project,
high in the Chilean Andes is delivering more than electricity. The project
is putting Chile into the history books today with the first ever, verified
greenhouse gas emission (GHG) reductions in the developing world, intended
for the Clean Development Mechanism (CDM) of the Kyoto Protocol, the 1997
international agreement to limit climate altering greenhouse gases.
The CDM will allow industrialized countries and
companies with greenhouse gas reduction commitments, to purchase some of
their required reductions, in developing countries. Chacabuquito opens
a new era of possibilities for Chile and other developing countries, in
which reductions in greenhouse gases are exchanged for development dollars.
The project demonstrates the potential and value of the Clean Development
Mechanism as a powerful development tool for Latin America.
By selling emission reductions to developed countries,
Chile is entering fully the international market of environmental cleansing.
That will enable the national private sector to access resources to improve
their technologies and introduce clean technologies,said Gianni López
Ramirez, Executive Director, of Chiles CONAMA, the National Commission
for Environment. Throughout the world, and especially in Europe, there
is growing demand for these type of emission reductions. This opens great
possibilities for Chile, a country with low risk rating for investments,
compared with other similar nations. Chacabuquito is the first success
Chile and Latin America have already demonstrated
their attractiveness to the newly emerging carbon market. 30 percent of
the Prototype Carbon Funds 2003 portfolio is located in Latin America.
The driving force is the Kyoto Protocol, which commits industrialized countries
to reduce their carbon emissions by 5 percent below 1990 levels in the
period from 2008 to 2012. Companies can supplement their commitments at
home by purchasing lower cost emissions in developing world countries.
As a result, projects in developing countries will get a new source of
financing for sustainable development in the energy, industrial and waste
management sectors, land rehabilitation, and clean technologies. Industrialized
countries can meet part of their Kyoto obligation, while the threat of
climate change is reduced at lower overall cost.
Chacabuquito is a leading example of the opportunities
available through carbon finance. The project is part of the portfolio
of the PCF. Six governments and 17 companies teamed up with the World Bank
in 2000, and contributed $180 million to create the PCF. It has so far
purchased or plans to buy about $110 million of greenhouse gas emission
reductions from 26 projects in developing countries.
It is amazing to see how this result has been obtained
by continuing and converging efforts of people all around the world, from
Japanese companies to European governments and World Bank Staff, and so
many people here in Chile and Latin America, said Jean Claude Steffens,
Chairman of the ParticipantsCommittee of the PCF. In 1999, we started this
process with a somewhat naive enthusiasm to set the corner stone of a new
kind of market to protect the environment. Now we are more experienced,
but the enthusiasm has not decreased. These projects are not only financed
to curb GHG emissions, they are also meant to promote development in local
communities and to bring sustainability to the national economy, as shown
in Chacabuquito by the use of renewable energy sources to produce electricity.
The prototype fund is showing that emission reductions
can be cost-effectively created, verified and certified via investment
projects, despite the business risks. In Chacabuquitos case, the 26-megawatt,
run-of-the-river plant near Los Andes is scheduled to deliver one million
tons of carbon dioxide emission reduction credits to the PCF participants,
and the power company, Hidroelectrica Guardia Vieja S.A. is forecast to
receive US$3.5 million in return. The current independent verification
by the German company TUV has documented that 112 thousand tons of carbon
emission reductions can be sold to the PCF from Chacabuquitos first year
of operation. In parallel to the PCF, the Japanese corporation Mitsubishi
has committed to purchase 100 thousand tons of carbon dioxide emission
reductions (approx. 10,000t-CO2 every year for 10 years) from Chacabuquito.
The carbon finance business has taken on a new
sense of urgency in the face of mounting evidence that the Earths climate
is changing, which could have dire consequences for major parts of humanity.
The main culprits are fossil
fuels that are pumping heat trapping carbon dioxide into the Earths atmosphere
creating an invisible blanket around the planet. Climate change, and accompanying
disrupted weather patterns could wreak havoc on the planet, particularly
parts of the developing world. The threat climate change poses to long-term
development and the ability of the poor to escape from poverty is of particular
concern to the World Bank.
The World Bank is catalyzing a market in which
private capital can flow from OECD countries to developing countries for
clean technologies and for development that is sustainable,said Axel van
Trotsenburg, World Bank country director for Chile. The work of the PCF
and the real life example of Chacabuquito shows how the Bank can help make
markets work for global public goods through private capital. This not
just a win-win situation, it is a triple win, for the private sector, for
the environment, and for the people of Chile. This project is proof it
Five years after it started, the global carbon
finance market--providing credits for reductions in greenhouse gas emissions--is
approaching the half-billion dollar level in cumulative trade value. It
is expected that the JI/CDM carbon market will exceed one billion dollars
a year by 2008. Yet right now most developing countries are missing out
on the benefits of carbon finance dollars. The Banks responsibility is
to make sure that an equitable share of this money, much of it private
sector, ends up in the hands of the poorest, in the poorest areas of developing
World Bank News Release No:2003/420/S
Anita Gordon (202) 473-1799
Yanina Budkin 5411 4316 9724
Nazanine Atabaki (202) 458-1450
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