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MONTREAL, CANADA - ADB is launching a special cofinancing vehicle to boost investment in new Clean Development Mechanism (CDM) projects in Asia and the Pacific. The move was announced on the sidelines of the United Nations Climate Change Conference in Montreal yesterday.

Dubbed the "Carbon Market Special Initiative," the scheme will help develop and finance projects that can generate carbon credits, leverage debt-financing from ADB, and fill in the financing gaps of host countries.

ADB is setting up a task force that will engage in intensive consultations to finalize the scheme's design and officially launch it during the first half of 2006.

"ADB has supported climate change mitigation over the past decade through technical assistance and finance," says ADB Vice President Geert van der Linden. "It now envisions playing an even greater role in promoting projects that address both development needs and the climate change issue in Asia and the Pacific."

Over the past few years, the carbon market has seen the advent of a number of procurement vehicles that provide additional resources for greenhouse gas mitigation projects.

However most of these "carbon funds" purchase credits on a payment-on-delivery basis and therefore do not significantly contribute to project financing.

With the projected supply of CDM projects insufficient to meet demand in the short to near term, ADB's scheme will address the imbalance by using the cofinancing vehicle to actually develop and finance projects that can generate carbon credits, rather than procuring credits on the back-end.

ADB will secure brokerage services that will manage and market the additional credits generated from ADB-financed projects on behalf of the project developers and sponsors. Through bundling of credits from ADB's lending portfolio across the region, the "sellers-agent" should be able to facilitate attractive terms for developers and sponsors.

As a development financing institution, ADB receives contribution from various donor governments who support the dissemination of renewable energy, energy efficiency, and climate change mitigation activities. ADB is also one of the executing agencies for the Global Environment Facility. These soft funds will be utilized to provide technical support throughout the project cycle, starting from identification and up to the first few years of project operation.

The facility will provide the crucial long-term support to ensure the delivery of carbon credits, and more important, the intended development benefits.

"The aim is to achieve the original intentions of the United Nations Framework Convention on Climate Change and the Kyoto Protocol - cause a material shift in investment patterns today, that will determine the infrastructure of developing nations over the next decades to come," Mr. van der Linden adds. "It is crucial to inject financing up front and make projects happen, rather than simply improving the return of projects that are already in the works."

The Kyoto Protocol sets binding targets for industrialized countries for the reduction of greenhouse gas emissions that would lower the risk of global climate change. Among others, it establishes the CDM, which was designed to mobilize additional financial resources for developing countries to implement projects that reduce greenhouse gases and promote sustainable development (e.g. clean energy, sustainable agriculture, forestry, urban waste management); and generate emission reduction credits that can help industrialized countries meet commitments to the international community more cost-effectively.

ADB has provided underlying finance to various CDM projects over the past few years, including coalmine methane projects in Shanxi and Liaoning provinces in the People's Republic of China and renewable energy projects in Indonesia.

There are several more projects under development across Asia and the Pacific covering livestock waste, landfill gas utilization, and run-of-river hydropower. ADB also established a CDM Facility in 2003, which has provided CDM technical assistance and marketing support for eligible ADB-financed projects.

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