- The Washington Times - Saturday, May 31, 2008

The United Nations is considering a new type of bond that would spur investment in clean-energy projects in the developing world.

The so-called climate bonds would be sold to investors by developing countries in Africa, Asia and Latin America, said Yvo de Boer, the U.N.’s top climate-change official. Each security would finance projects designed to reduce greenhouse gases blamed for global warming. Mature bonds could be exchanged for credits that allow industrial plants to emit a certain amount of carbon gases, he said.

The U.N. runs the world’s second-biggest greenhouse-gas credit market, valued at $18.3 billion last year. The proposal would simplify the funding of wind-farm and solar projects because each bond would group together multiple clean-energy projects. The plan would encourage investment in nations struggling to meet their renewable-energy targets, Mr. de Boer said.

“This is a mechanism that allows market players to engage without having to get involved in the nitty-gritty of projects,” said Mr. de Boer, head of the Bonn-based U.N. Framework Convention on Climate Change (UNFCCC). It would “create an opportunity of blending of public and private money,” he said.

Mr. de Boer said he hasn’t yet suggested the idea to countries or investors. He said the amount of money generated by the bonds would depend on the level of emissions-reduction targets set in the current round of climate talks, aimed at negotiating a new treaty by the end of next year in Copenhagen.

Under the existing U.N. system, known as the Clean Development Mechanism, investors must choose among hundreds of specific emissions-cutting projects in developing nations. Trading in U.N.-approved credits from such projects tripled last year, according to Point Carbon, an Oslo research company.

Because investors are looking to achieve the greenhouse-gas reductions as cheaply as possible, the mechanism favors some countries above others, Mr. de Boer said. Of more than 1,000 registered projects to date, more than half are in just two countries, China and India, according to the UNFCCC Web site.

Climate bonds would be beneficial and may reduce costs for investors, said Eric Boonman, head of environment markets at Fortis in Amsterdam.

“It’s a good idea,” he said. “Developing countries would do all the work themselves,” rather than potential investors having to research and finance the smaller projects, as they do now, he said.

The bonds would be backed by the issuing government, and once they mature, investors would receive carbon credits, tradable securities each guaranteeing a metric ton of carbon-dioxide reductions were made, Mr. de Boer said. Carbon dioxide is the main greenhouse gas blamed for global warming.

“It’s clear that the UNFCCC are looking at every possible innovation to break the logjam on what could be a very disappointing Copenhagen if we’re not careful,” said Dominic Waughray, head of the World Economic Forum’s environment program. “There’s a lot of work going on to try find innovations like this bond idea, which could quite possibly work.”

The U.S., Japan and other industrialized nations have demanded that developing countries such as India and China be required to cut greenhouse gases under any new climate-change treaty. The existing agreement, the Kyoto Protocol, expires in 2012 and doesn’t set targets for developing countries. Selling climate bonds would enable developing nations to raise funds for their renewable-energy projects, Mr. de Boer said.

“Developing-country engagement is essential to get whatever is agreed ratified in industrialized countries,” Mr. de Boer said, referring to a successor agreement to Kyoto. “This would be a way of getting a national policy priority funded.”

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