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Market News

 November 23, 2006
Asian bank launches carbon fund

 Manila, Philippines -- The Asian Development Bank has launched the Asia Pacific Carbon Fund, with a target of providing $150 million to encourage the development of clean energy projects. The fund will be part of the Bank's broader strategy to capitalize on the opportunities for developing countries to earn carbon credits.

The Fund will provide an additional early source of finance for clean energy projects by paying for carbon credits that are expected to be earned in the future. It will be combined with the Bank's usual financial services and capital to push renewable energy and energy efficiency projects forward.

The credits will come in the form of Certified Emissions Reductions, which can be earned through the Kyoto Protocol's Clean Development Mechanism (CDM). The CDM allows developed countries to earn credits towards their national targets by investing in emissions-reducing projects in developing countries.

The Bank said it has already received expressions of interest to the fund from member countries. Existing projects in the Bank's portfolio have the potential to generate more than 50 million tones of carbon dioxide-equivalent to 2012, it reports.

The Fund is part of the Bank's larger Carbon Market Initiative, which will also involve technical support facility to provide capacity building and process support, and a credit marketing facility to sell excess credits. The ultimate goals of all the measures are to shift investment towards areas that will both reduce greenhouse gas emissions and improve energy security and efficiency.

A number of initiatives have recently been launched to encourage stronger investment in CDM projects. The Kyoto mechanism did not see much growth last year, but is expected to take off in 2007. Investors are apprehensive about a lack of stability in the market after the first Kyoto phase expires in 2012, but penalties for lack of compliance in the first phase are motivating European and Japanese buyers in particular to invest in credit projects.

Asian countries have dominated the CDM market in 2006. China contributed 60 percent of the overall project-based market, while India drew a 15 percent share. This year, energy efficiency projects grew from virtually zero to account for 14 percent of total CDM volumes, while renewable energy accounted for 12 percent of the market. The worldwide market for carbon credits grew to an estimated US $21.5 billion during the first three quarters of 2006, doubling its value in 2005.

Read more about the Asian Development Bank's Carbon Market Initiative.