The Asian Development Bank is to launch a $200 million carbon fund to entice private sector investors who believe they can take advantage of uncertainty in environmental regulation.
The future carbon fund, which is expected to be launched later this year with participation by public and private sector investors, will invest in renewable energy projects that will start producing carbon credits after 2012, when the Kyoto agreement expires.
There is already a forward market for such credits, but because of uncertainty about the policy framework that will replace Kyoto and govern emissions trading from 2013 onwards, they trade at a fraction of the level of credits for the period governed by Kyoto.
According to Woo Chong Um, director of the energy, transport and water division in the ADB’s regional and sustainable development department, these permits trade at around $4-5, compared to E25-30 for Kyoto credits.
Once a post-Kyoto framework is established, the value of those credits should rise; far-sighted investors can cover future emissions offset obligations more cheaply by investing in the fund now. “It suits the private sector because post-Kyoto is more risky, but so is the payback potential,” Um said.
The new fund will follow the same model as the first, $150 million carbon fund launched last June: it will commit funds to invest in clean energy projects (generally ones already within the ADB pipeline) and buy the carbon credits from those projects. Unlike other carbon funds, which only pay once the credits are produced, the ADB fund puts money in up front.
Progress with the first fund has been slower than expected. Of 40 ADB projects in which its participation is being considered, only one has actually signed: a small hydro project in China. Three others, including one in Indonesia, are expected to sign shortly, and heads of agreement have been signed with a further 17. “It’s not happening as fast as it should, but it’s happening,” Um added.
The new fund comes at a time when concern is growing about the piecemeal development of carbon trading exchanges in the Asia Pacific region. At least five are under development or being actively considered . Australia is planning a carbon trading arm of the Australian Securities Exchange in Sydney.
Hong Kong Exchanges and Clearing has completed a feasibility study and “has commenced discussions with external parties regarding the potential for emission trading in Hong Kong,” according to spokesman Scott Sapp; it expects to commence trading in some form at the end of the year.
In China, the Tianjin Binhai New Area is to be home to a pilot emissions trading exchange. And exchanges are being mooted in Singapore and India too.
But concern is already growing about the lack of a standard policy or coordinated framework between these exchanges. “It makes sense to have many different points of trading, but you need to have one set of rules,” Gordon Noble at Responsible Investment Consulting in Sydney said.