DUBAI, UNITED ARAB EMIRATES (8 December 2023) — The Asian Development Bank (ADB) today announced that it will start on 1 January 2024 operations of its Climate Action Catalyst Fund (CACF)—a first-of-its-kind carbon fund under the Paris Agreement.
The fund aims to mobilize innovative carbon finance through the purchase of carbon credits to catalyze investments in transformative mitigation actions in ADB’s developing member countries (DMCs). The fund will provide up-front finance to high impact climate mitigation actions for the future delivery of carbon credits under long-term transactions, in significant contrast to the usual carbon market practice of payments upon delivery, which can take years to benefit project owners.
“We are nowhere near the levels of financing needed to scale up the decarbonization of economies in Asia and the Pacific,” said ADB Director General for Climate Change and Sustainable Development Bruno Carrasco at COP28. “Carbon finance can play a critical role in incentivizing investments into climate mitigation projects in our region. The commencement of the CACF is another step towards helping our members cut emissions and raise their ambitions in a cost-effective way.”
Under Article 6 of the Paris Agreement, nations can pursue so-called cooperative approaches—where countries cooperate directly with one another. For example, this can enable the carbon emissions reduced through climate mitigation measures in one country to be transferred to another country and count towards the latter’s nationally determined contributions (NDCs).
The Swedish Energy Agency has signed an agreement with ADB to contribute 300 million Swedish krona (approximately $27 million) to the fund. The fund aims to mobilize more than $100 million in commitments from national and subnational government entities, and the private sector in ADB members.
By prioritizing high quality climate mitigation actions and environmental integrity, the fund will help to diffuse advanced low-carbon technologies and deliver sustainable development impacts for the local communities in Asia and the Pacific.
The fund seeks to help ADB DMCs achieve—and then raise the ambition of the targets under their NDCs over time. For financing partners, it can help meet compliance requirements or fulfil other purposes by purchasing carbon credits from a diverse portfolio of projects, programs, and scaled-up activities supported by ADB.
“No country, region or institution can tackle the challenge of combating climate change alone. Instead, we must form partnerships and leverage our collective strengths to address the challenges of transitioning to a low carbon economy,” said Swedish Energy Agency Director General Robert Andrén. “Today, we are proud to continue our journey of pioneering carbon markets’ role together with ADB, contributing to a clean energy transition, low carbon development and increased ambition by countries.”
The announcement cements ADB’s position as an early mover in operationalizing international carbon markets under Article 6. As the markets are new, the first tranche of Article 6 transactions under the fund will aim to set examples for new stakeholders interested in engaging in Article 6. The fund will also provide an important price signal while contributing to the development of new international carbon markets under the Paris Agreement.
As Asia and the Pacific’s climate bank, ADB’s carbon markets initiatives are part of its wider efforts to enhance climate action and pursue green growth in the region. ADB aims to provide $100 billion in climate financing from its own resources from 2019 to 2030, including $34 billion for adaptation. In 2022, ADB committed $7.1 billion of climate finance and mobilized an additional $548 million from the private sector.
ADB is committed to achieving a prosperous, inclusive, resilient, and sustainable Asia and the Pacific, while sustaining its efforts to eradicate extreme poverty. Established in 1966, it is owned by 68 members—49 from the region.