Renewable energy, climate change and carbon funding
Practical Action
An industrialised country, can purchase a ‘certified emission reductions’ or CER for around $25
per tonne of CO2. That is the industrialised country can pay US$25 to be allowed to emit CO2 by
paying towards a low-carbon project in a developing country.
Similarly, a private sector company may decide, for corporate social responsibility reasons, to off-
set the cost of its carbon emissions (say energy used in its buildings or the emissions form air
travel). Offsets can be purchased for around US$10 to US$20 per tonne CO2 of emitted.
This money can then be invested in a range of renewable energy or energy efficiency projects
which can verify that one tonne of CO2 has been avoided for every carbon offset purchased.
Details of carbon funding mechanisms are given on the next page.
Carbon funds
Global Environment Facility
The Global Environment facility (GEF) is a co-operative venture between over 30 National
Governments and the World Bank, United Nations Development Programme (UNDP) and the
United Nations Environment Programme (UNEP).
An independent financial organization, the GEF provides grants to developing countries for
projects that benefit the global environment and promote sustainable livelihoods in local
communities. Since 1991, the Global Environment Facility has provided $6.8 billion in grants to
support over 1,900 projects that produce global environmental benefits in more than 160
developing countries and countries with economies in transition. About one quarter of this fund
has been spent on climate change and renewable energy projects. GEF funds are contributed by
donor countries. In 2006, 32 donor countries pledged $3.13 billion to fund operations for four
years.
GEF Small Grants Programme (SGP) was launched in 1992 to provide support for community-
level initiatives. Medium size projects are limited to a maximum of $1 million in GEF funds. Full
size project (larger than $1million) go through a rigorous application and monitoring process.
Further Information from: http://www.gefweb.org
Clean Development Mechanism
The Clean Development Mechanism (CDM) is an arrangement under the Kyoto Protocol allowing
industrialised countries with a greenhouse gas reduction commitment to invest in projects that
reduce emissions in developing countries, as an alternative to more expensive emission reductions
in their own countries.
The presence of a market for carbon reduction credits (known as ‘certified emission reductions’ or
CER)) creates a value for emissions reductions which stimulates investment (known as carbon
financing) for low-carbon projects in developing countries.
The most important factor of a carbon finance project is that it can demonstrate that it would not
have occurred without the additional incentive provided by emission reductions credits. Projects
acceptable for carbon financing under the CDM must demonstrate that they:
• Deliver real emissions savings that go beyond what would happen in a "business-as-usual"
scenario
• Are independently verified (note: the verification process to demonstrate that CO2
emissions reduction has taken place does incur some additional cost to the project)
Further information from: http://cdm.unfccc.int
Community Development Carbon Fund: http://carbonfinance.org
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