World Bank closes $1 billion carbon deal

London, 31 August: The World Bank and a syndicate of private sector buyers have closed the largest greenhouse gas emissions reduction transaction to date.

The Bank's Umbrella Carbon Facility (UCF) has inked a $1.02 billion deal that will see it buy carbon credits from two Chinese companies, equivalent to the reduction of more than 100 million tonnes of carbon dioxide (CO2).

"The largest carbon finance deal ever is a windfall for sustainable development in China and a major opportunity for the private sector," the Bank said in statement.

The facility is to buy carbon credits from two projects – operated by two private Chinese chemical companies, Jiangsu Meilan Chemical Co., and Changshu 3F Zhonghao New Chemicals Material Co., both in Jiangsu Province – which qualify under the terms of the Clean Development Mechanism (CDM).

Sixty-five percent of the revenues from the deal will be funneled into a Chinese government-run Clean Development Fund. This will help underwrite climate change mitigation projects in "priority sectors", such as energy efficiency and renewable energy.

The CDM, established under the Kyoto Protocol on climate change, allows projects in developing countries to earn carbon credits to the extent that they reduce, or avoid, GHG emissions. In this case, the two projects involve the destruction of HFC-23, an extremely potent GHG which is the by-product of refrigerant production.

These credits can be used to meet emission reduction targets taken on by industrialised countries during the Kyoto Protocol target period of 2008–12, or by companies with CO2 caps under the EU Emissions Trading Scheme.

Some of the carbon credits will be allocated to carbon funds run by the World Bank on behalf of investors and governments. Others, however, are being bought by private sector entities. These include: Natsource Asset Management, the world's largest private sector carbon asset management company, with some $800 million in assets; Deutsche Bank; and boutique merchant bank Climate Change Capital.

A number of large energy companies, including RWE, Statkraft and Tokyo Electric Power, are also involved.

The World Bank, which manages some $1.9 billion in its suite of carbon funds, is planning subsequent tranches of the UCF, which was designed to facilitate and syndicate large carbon trades.