The role of multilateral institutions.

Abstract

In line with its mission of alleviating poverty through support for environmentally and socially sustainable economic development, The World Bank (along with some other multilateral development banks) is working to help developing countries capture a share of the emerging global market in greenhouse-gas-emissions reductions ('carbon trading'). Under the Kyoto Protocol of the United Nations Framework Convention on Climate Change (UNFCCC), the Joint Implementation instrument and the Clean Development Mechanism now provide an opening for substantial international resource transfers and potential for supporting sustainable development through the transfer of cleaner technologies or sustainable forestry and agro-forestry practices. For example, carbon sequestration represents a non-extractive non-consumptive sustainable use of living natural resources that can be incorporated within a multiple-use 'integrated ecosystem management' approach. The World Bank initiated the Prototype Carbon Fund (PCF) in April 2000, to help spur the development of a global carbon market and to 'learn by doing' how to use carbon-purchase transactions across a range of energy-sector technologies (and some forestry applications) to achieve environmentally credible and cost-effective emissions reductions that benefit developing countries and economies in transition. Building on the success of the PCF ($145 million raised from public and private-sector investors), The World Bank expects to launch two new funds in 2002: the Biocarbon Fund and the Community Development Carbon Fund. These funds will target synergies between carbon markets and objectives such as biodiversity conservation, combating desertification and small-scale community-driven development. Experience from the PCF shows that developing countries can have a comparative advantage in supplying this global market, as emissions reductions can be achieved in developing countries in the range of $3-$5 per ton of CO(2) equivalent, compared with a marginal abatement cost of $10-$15 per ton of CO(2) equivalent in most countries within the Organization for Economic Cooperation and Development. However, realizing this economic potential over the next decade, and targeting the market to the rural poor, will require substantial assistance with project development and government legal and institutional capacity building. Specific needs include raising awareness of the potential of carbon markets at all levels (particularly in energy and land-use sectors), clarifying property rights, particularly in the case of communally held land and resources, ensuring the existence of an attractive investment climate, eliminating policies that create perverse incentives and constraints, and mitigating logistical, political and 'reputational' risks that could deter private-sector investors. It will also be necessary to find ways to reconcile the short-term needs of the rural poor and the typically long-term revenue stream associated with carbon sequestration.