Carbon Finance Unit at the World Bank

The World Bank Carbon Finance Unit’s (CFU) initiatives are part of the larger global effort to combat climate change, and go hand in hand with the World Bank and its Environment Department ‘s mission to reduce poverty and improve living standards in the developing world. The CFU uses money contributed by governments and companies in OECD (Organization for Economic Co-operation and Development) countries to purchase project-based greenhouse gas emission reductions in developing countries and countries with economies in transition. The emission reductions are purchased through one of the CFU’s carbon funds on behalf of the contributor, and within the framework of the Kyoto Protocol’s Clean Development Mechanism (CDM) or Joint Implementation (JI).

Unlike other World Bank development products, the CFU does not lend or grant resources to projects, but rather contracts to purchase emission reductions similar to a commercial transaction, paying for them annually or periodically once they have been verified by a third party auditor. The selling of emission reductions – or carbon finance – has been shown to increase the bankability of projects, by adding an additional revenue stream in hard currency, which reduces the risks of commercial lending or grant finance. Thus, carbon finance provides a means of leveraging new private and public investment into projects that reduce greenhouse gas emissions, thereby mitigating climate change while contributing to sustainable development.

The Bank’s carbon finance operations have demonstrated numerous opportunities for collaborating across sectors, and have served as a catalyst in bringing climate issues to bear in projects relating to rural electrification, renewable energy, energy efficiency, urban infrastructure, waste management, pollution abatement, forestry, and water resource management.

The World Bank’s carbon finance initiatives are an integral part of the Bank’s mission to reduce poverty through its environment and energy strategies. 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 impacts of climate change threaten to unravel many of the development gains of the last several decades. The Bank is therefore making every effort to ensure that developing countries can benefit from international efforts to address climate change.

A vital element of this is ensuring that developing countries and economies in transition are key players in the emerging carbon market for greenhouse gas emission reductions. The role of the Bank’s Carbon Finance Unit is to catalyze a global carbon market that reduces transaction costs, supports sustainable development and reaches and benefits the poorer communities of the developing world.