IFC manages carbon facilities, offers a carbon delivery guarantee product to client companies, and provides up-front loans to projects earning income from sales of carbon credits. IFC also offers advisory services products that help IFC client-banks enter carbon markets.
Carbon markets have been a key driver of channeling finance and investment to projects that reduce greenhouse gas emissions in developing countries since 2005, when the Kyoto Protocol came into effect. The verified emission reductions associated with these projects are used to generate financial assets (carbon credits) that are tradeable in several carbon markets that have emerged at regional and national levels. The carbon finance associated with the sales of these credits contributes to meeting the incremental costs of 'greening' investments. Between 2005 and 2010 the cumulative value of origination and trade in these carbon credits was US $95 billion (Cumulative value of trade in primary and secondary Clean Development Mechanism contracted credits. Source: State and Trends of the Carbon Market Report 2011, The World Bank). Significant investment flows have been mobilized, especially from the private sector, as carbon credits can be used to meet climate commitments while simultaneously contributing to low-emissions economic development in IFC client countries. As more countries seek to establish domestic carbon markets and use carbon pricing to achieve their climate related objectives, carbon finance is expected to remain a key instrument for catalyzing finance for low-emissions development.
Having an active presence in the carbon market for more than nine years, Carbon finance is a key component of the IFC climate business strategy. IFC has introduced value-added financial products to help mitigate risks in the carbon market by leveraging its ability to take long-term project and credit risks in emerging markets. It manages carbon facilities, offers a carbon delivery guarantee product to client companies, and provides up-front loans to projects earning income from sales of carbon credits. IFC also offers advisory services products that help IFC client-banks enter carbon markets.
The IFC Post-2012 Carbon Facility helps address post-2012 market uncertainty faced by climate-friendly projects eligible under the Clean Development Mechanism by creating a pathway to market. The Facility was fully subscribed to in June 2011 and is now closed for new investments. The Facility is currently being restructured to operate in a future carbon market environment with prices likely remaining below recent price levels.
IFC is currently managing two Dutch-funded facilities for the purchase of carbon credits by IFC for the benefit of the Government of the Netherlands. The IFC-Netherlands Carbon (CDM) Facility (INCaF) and the Netherlands European Carbon Facility (NECaF) have committed $135 million in 12 transactions and are no longer accepting new transactions.
Carbon Delivery Guarantee:
IFC has completed three Carbon Delivery Guarantee (CDGs) transactions with structured carbon finance exposure for IFC’s account. A mature carbon market with a clear and long-term price signal is a precondition for IFC offering this financial product to clients.
Monetization of Carbon Off-take Agreements:
IFC also offers innovative debt financing to projects that rely on carbon revenue from sale of post-2012 carbon credits to bankable buyers. By monetizing firm carbon off-take agreements, IFC helps projects reach financial closure despite few or no fixed assets and substantial dependence on future generation of carbon credits.
Advisory Services for Financial Institutions:
This product is a comprehensive capacity building and training package that enables FIs to access carbon finance provided by carbon markets transactions. The three main deliverables are knowledge, transaction support, and support for carbon wholesaling through programmatic CDM interventions.
IFC has significant experience managing funds. Below are examples of projects managed for the Government of the Netherlands:
Villa Dominico, Argentina - €5,500,000 invested for landfill gas capture
Brascan Energetica, Brazil - € 8,500,000 invested for run-of-river hydros
Deqingyuan, China - € 3,500,000 invested for bigoas to power
Enercon, India - €6,600,000 invested in wind farms