Monday, June 16, 2008

UN's Climate Bond Plan

The UN is considering a new type of bond that would spur investment in clean-energy projects African and other developing countries. Alex Morales provides details about the so-called climate bonds here. The main idea is for the developing countries to sell these bonds to investors.

Each security would finance projects designed to reduce greenhouse gases blamed for global warming. Mature bonds could be exchanged for credits that allow industrial plants to emit a certain amount of carbon gases.

The plan is expected to simplify the funding of wind, photovoltaic, and other renewable energy projects "since each bond would group together multiple clean- energy projects." This approach addresses a major disadvantage that African countries have suffered under the existing Clean Development Mechanism (CDM) which requires investors to choose among hundreds of specific emissions-cutting projects in developing nations: Because investors are looking to achieve the greenhouse-gas reductions as cheaply as possible, the mechanism favors some countries above others... Of more than 1,000 registered projects to date, more than half are in just two countries, China and India, according to the UNFCCC Web site.

By contrast, climate bonds may reduce costs for investors, thereby making a greater number of projects in African and other developing countries more attractive for them.

The bonds would be backed by the issuing government, and once they mature, investors would receive carbon credits, tradable securities each guaranteeing a metric ton of carbon- dioxide reductions were made. CO2 is the main greenhouse gas blamed for global warming.

The UN's plan is part of a new wave of global efforts to boots clean energy investments in poor countries. Earlier this week, the World Bank announced its own plan to "raise at least $5.5 billion with the U.S., U.K. and Japan this year for climate change funds that will help poor nations use clean technology and tackle global warming," according to Yuji Okada and Shigeru Sato over at This is certainly a step in the right direction, but Yvo de Boer, executive secretary of the United Nations Framework Convention on Climate Change, is concerned, rightly, that the amount is significantly below what is required to make a real difference in energy access for the poor. This concern appears to have motivated the UN's Climate Bond Plan.

Source: The African Uptimist

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