06 March 2012

World Bank Says Carbon Fund May Shrink Following Price Slump

A World Bank Group unit says its fund for investing in carbon projects that generate emissions credits after 2012, when the first commitment period of the United Nations’ Kyoto Protocol ends, will probably shrink

By Catherine Airlie and Mathew Carr | Bloomberg | Mar 5, 2012

The International Finance Corp. said its Carbon Facility Fund, which had raised 150 million euros ($198 million) when it closed in June, was suspended by November after plummeting UN offset prices triggered a measure to protect projects supplying the credits. Investors will probably scale back their commitments to the fund, according to the corporation.

“I think the fund size will reduce,” Vikram Widge, head of climate financial products at the IFC inWashington, said in a March 2 telephone interview. “Watching where the market settles is the prudent thing to do.” The bank’s unit is looking at ways of changing the structure of the fund and will make a decision around the end of the month, he said.

JPMorgan Chase & Co (JPM), Royal Dutch Shell Plc (RDSA), and Mercuria Energy Group Ltd. are among investors that committed to the fund, which will provide credits that may be eligible for use in the European Union carbon market. United Nations carbon prices lost 60 percent in the past year as industrial production stagnated and climate talks struggled to achieve progress on reaching a global agreement to reduce carbon emissions.

UN carbon credits for delivery in December fell below previous record levels on Oct. 13 on the ICE Futures Europe exchange in London and plummeted as low as 3.28 euros a metric ton on January 16. The contract traded as high as 13.60 euros last year and was down 1.1 percent today to 4.66 euros as of 8:36 a.m. local time.

‘Plunged and Recovered’

“They plunged and recovered a bit but they’re not likely to go back to where they were in a hurry,” Widge said. He said a new structure will probably involve reducing the floor price in purchase contracts agreed by the fund. Widge declined to specify where the previous floor price was, which triggered the suspension. There will probably be some projects interested in a floor price around 4 euros, he said.

The IFC has access to a limited number of projects, Widge said. Before it was suspended, the fund had only committed to one carbon project. It purchased credits for the seven years through 2020 from a biomass power project in India developed by Shalivahana Green Energy Ltd., according to a statement in August.

To contact the reporters on this story: Catherine Airlie in London at cairlie@bloomberg.net; Mathew Carr in London at m.carr@bloomberg.net
To contact the editor responsible for this story: Stephen Voss at sev@bloomberg.net

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