The World Bank, which developed the CDCF in collaboration with the United Nations Climate Change Secretariat and the International Emissions Trading Association, committed $35 million from both public and private sector participants, as part of a $100-million package.
The fund will provide financial support to small-scale greenhouse gas reduction projects in the least developed countries and poor communities in developing countries. Poorer communities will get the advantage of development dollars coming their way, and participants in the fund will receive carbon emission reduction credits for reductions in carbon emissions.
The CDCF will support initiatives with significant and measurable community development benefits in fields such as renewable energy, energy efficiency, and solid waste to energy conversion.
So far, contributors include the governments of Canada, Italy, and the Netherlands, Japanese businesses such as Daiwa Securities SMBC, Idemitsu Kosan, Nippon Oil, Okinawa Electric, BASF of Germany, and ENDESA of Spain. A number of other companies and governments are expected to announce their participation over the next several weeks.
The CDCF represents a pioneer ef fort, which focuses on small-scale projects at the local level in the least developed countries and poor communities of developing countries, through the Clean Development Mechanism (CDM) of the Kyoto Protocol, the 1997 agreement to limit climate-altering greenhouse gas emissions.
This flexibility mechanism of the protocol allows OECD countries to fulfill some of their greenhouse gas emission reduction commitments through projects in the developing world.
"The threat that climate change poses to people’s efforts to move out of poverty is of particular concern to the World Bank" said Ian Johnson, World Bank vice president for sustainable development.
"Payments for environmental services through innovative funds like the community fund, open new possibilities for environmentally responsible development. We are demonstrating that dealing with global issues like climate change can have profound positive impact at the community level."
There is a lot riding on the effort. The Community Development Carbon Fund may be the best or only opportunity for some of the poorest countries to get any benefits from the Kyoto Protocol. Recent carbon market research done by the World Bank shows that although the market for carbon emissions more than doubled in the last year, only 13 percent of direct private sector carbon emission reduction investment went to developing countries, and none to the least developed countries.
"Countries like mine will be hardest hit by climate change, and yet these same countries have until now, been bypassed by the carbon market," said Emily Ojoo Massawa, Climate Change Coordinator of Enabling Activities in the National Environment Management Authority of Kenya. "This is an extraordinary opportunity to not just reduce carbon emissions but to use carbon finance as an innovative development tool. The CDCF will link private investors with community development projects, so that there are equitable benefits under the Kyoto Protocol, benefits that also go to the poorest of the poor."
By working through local intermediaries such as financial institutions, micro-credit institutions, cooperatives, and NGOs, and by applying streamlined project procedures compatible with small-scale Kyoto projects, the CDCF will seek to lower transaction costs and the risks involved in developing such projects.
Carbon finance activities have taken on a new sense of\ urgency as evidence continues to mount that the Earth is getting significantly warmer, and changes in climate are inevitable. Climate change, and accompanying disrupted weather patterns caused by the greenhouse effect through atmospheric loading of greenhouse gases (carbon dioxide, methane, etc) could wreak havoc on the planet, particularly on large parts of the developing world.