The Energy Challenge
There are today about 1.4 billion people without access to electricity, 85% of which are in rural areas. About 2.7 billion people are relying on the traditional use of biomass for cooking, which results in an estimated 1.45 million premature deaths each year due to indoor air pollution. Achieving universal access to electricity by 2030 would require an additional annual average investment of $36 billion.
At the same time, energy is the greatest contributor of greenhouse gas emissions worldwide and poor countries are among the most vulnerable to climate change, underlying the importance of clean energy for increasing energy access.
To date, carbon markets have played a significant role in funding clean energy projects with over 66% of registered projects in the energy sector. Very few of these projects however are taking place in Least Developed Countries, and the current low demand for CDM credits means that other sources of finance need to be harnessed until carbon markets recover. At the same time, the rigorous monitoring and verification framework of the CDM can provide a powerful vehicle for disbursing results-based climate finance. Supporting CDM experience in LDCs is also a means to raise climate mitigation awareness in these countries and prepare them to benefit from future carbon markets.
The Carbon Initiative for Development comprises two reinforcing components:
• The Readiness Fund (US$23 million)
Through its on-the-ground work creating carbon assets for its various carbon funds, the World Bank has made significant contributions to capacity-building, knowledge creation and dissemination of carbon finance - efforts which benefit the whole carbon finance community ("public good creation") - and can generate lessons of value for future carbon market mechanisms. The Readiness Fund will continue these efforts by financing capacity building activities in least developed countries for developing standardized baselines and technical assistance to energy access programs. It also supports the development of new methodologies and of proposals for simplified Clean Development Mechanism (CDM) rules, and dissemination of the results.
It will focus on enhancing existing and developing new carbon finance mechanisms, building capacity to undertake carbon finance transactions in the poorest countries and disseminating the lessons learned.
The Readiness Fund will contribute to ongoing efforts to reform the CDM. This will help ensure that when demand for carbon offsets returns, countries with lower technical capacity have sufficient opportunities to participate. The technical work of the Readiness Fund will include:
• The Carbon Fund (US$53 million)
- Supporting poor countries' DNAs develop standardized baselines in such key areas as rural electrification, household energy access and energy efficiency;
- Ensure the crediting of low-carbon projects in energy poor countries by establishing "suppressed demand" accounting standards; and
- Contributing proposals to further improve and extend the scope of the CDM towards new market mechanisms for use by the poorest countries
The Carbon Fund provides performance-based-payments to energy access programs in the form of purchases of Certified Emission Reductions (CERs), commonly known as carbon credits.
It will purchase CERs from projects selected in accordance with project selection criteria which will be published soon. These projects will also be eligible for technical assistance, as needed, funded from the Readiness Fund, to support inter alia their validation, registration, and successive verifications.
The Carbon Fund will complement the Readiness Fund in the sense that it plans to support projects and programs that would apply and benefit from the standardized baselines and other new CDM methodologies to be developed.
It is anticipated that the Carbon Fund will support between 5-10 pilot projects.