World Bank: ‘Offsets will play a role post-Kyoto’

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Emissions offsets will play an important role in any future global climate deal, but it will be necessary to scale up the climate efforts and move from projects to programmes, Joëlle Chassard , who manages the World Bank’s carbon finance unit, told EURACTIV in an interview.

Joëlle Chassard manages the carbon finance unit at the World Bank.

To read a shortened version of this interview, please click here.

What role do you think emissions offsets in developing countries will play in the new climate agreement, set to be negotiated in Copenhagen in December?

We expect that international offsets will continue to be part of the future landscape, mainly as a way to encourage and provide financial incentives to developing countries to immediately undertake climate change mitigation. That’s not to say that they haven’t started, but we want to accelerate the pace at which they do climate change mitigation.

We do recognise that they don’t necessarily have all the financing to do that. They have enormous development needs, and choosing low-carbon options costs more money. So we believe it’s justified to provide them initially with some financial incentives.

Another aspect is that it would lower the overall mitigation cost at global level. 

Isn’t there a problem here? Wouldn’t using CER credits hinder emissions cuts in industrialised countries by seeking cheaper cuts in developing countries?

I believe cuts are very much needed everywhere. International offsets should enable the international community to adopt more ambitious reduction targets. 

I see it as a positive component of an ambitious future programme of climate change mitigation. It’s not incompatible.

We have evidence that Europe and Japan are doing a lot domestically, but they are also relying partly on international offsets to meet their overall reduction targets. I don’t see it as a problem. 

The EU is proposing to move from CDM projects to a ‘sectoral crediting mechanism’. Do you think this is a viable solution?

We are very supportive of the idea and we have included it ourselves. We call it slightly differently.

The way we see the future evolution of this market mechanism is that CDM has – despite all its flaws – had a positive impact in the sense that it has enabled a number of countries to start mitigation. It has helped to understand how to do mitigation at the project level, and it continues to be a vehicle for significant capacity building and policy formulation.

But with the challenge we are facing, needing to reduce emissions much more significantly, we now think that we need to find ways to scale up these mitigation efforts and the use of market mechanisms to achieve large-scale mitigation and emissions reductions.

What we are working on – and we see it really as an evolution – is to move from projects to programmes, and eventually to help individual countries to adopt national mitigation plans. What is proposed through the very general term of sectoral crediting is an illustration of how one could scale up the use of market mechanisms to move away from individual projects and try to encourage countries to take a more comprehensive and strategic approach to climate change mitigation.

We don’t think one can jump straight away from a project to a sectoral approach, because there are many details and requirements from an institutional point of view that need to be put in place. And the capacity in developing countries is not yet there, but we believe strongly that it is something to work towards.

The EU proposed to create an OECD carbon trade system. Is there support for this within the World Bank?

We are ourselves not directly, at least not yet, involved in the establishment of domestic or regional markets. We are only operating once the policy framework for these markets has been adopted.

But because of the need to make major indents in greenhouse gas emissions and with the experience of carbon markets so far, we hope that the world  will eventually move towards a global carbon market. 

But we suspect it will be done gradually. We have a regional market in the EU, we have a market going to be established in Australia and New Zealand, and probably at some point in Japan. In the US, they are discussing the establishment of a carbon trade market. Eventually, we hope these markets will all be linked together, plus new ones will have been established in a number of individual countries. 

So yes, we think that is the way to go.

Some developing countries think the carbon market cannot adequately finance climate change, arguing that more predictable funding is needed for adaptation and mitigation, such as a percentage of indutrialised countries’ GDP. Do you see a movement towards other more viable options?

It’s correct that the market is not doing everything that needs to be done and is unlikely to do so in the future. It’s an important piece of the puzzle, but it’s not the whole puzzle.

We agree that there have to be other pieces added to complete the puzzle. We are actually providing some of the pieces through our regular lending operations, which are increasing their focus on climate change mitigation as well as adaptation.

We are also managing the Clean Technology Fund, which is providing professional funding to countries to accelerate the adoption of clean technologies. And we have of course other financial instruments, such as guarantees, that we are making available.

Financing has to come from different sources. What the market has facilitated in our view is to leverage significant amounts of private sector financing to support investment in climate change mitigation. It’s one instrument, but cannot be the only one.

What other funding instruments would you like to see in the climate treaty in Copenhagen?

Pure investment financing from public and private sector sources will need to be made available. One has to create the policy framework to encourage the flow of these resources to the investment that meets the objective of the climate change convention. 

We haven’t found the magic instrument: that hasn’t been made available yet. We believe very strongly in making the best use of the ability to package different financing instruments to actually deliver large-scale programmes for climate change mitigation and also adaptation. You should not of course forget the large financing needs for adaptation.

Should forest credits be included in the EU ETS and other emerging trading schemes?

The World Bank has been working a lot on forestry as a means of sequestering greenhouse gases. We have been working on developing methodology for afforestation and reforestation through one of our carbon funds. We have also used it to pilot a methodology for avoiding deforestation at project level. And we are working very actively, through a facility called the Forest Carbon Partnership Facility, on piloting financial incentive mechanisms for reducing emissions from deforestation and forest degradation, the so-called REDD.

We were asked two years ago by the G8 to lead efforts on that front, and we have made a lot of progress in the past two years and continue to do so. Whether it will be in the form of credits or not, and part of the global regime or not, that is up to the negotiators to decide, but we strongly believe that there is a need to provide financial incentives to keep forests in place rather than cutting them, and we are trying to figure out what the best mechanism is.

Do you see any problems with including forest credits in carbon trading schemes?

First, we have to figure out what it means to include these credits in carbon markets. There are many ways you could do that, and it’s important to think through how they could be considered.

It’s a complicated issue, but maybe the best way for me to put it is that because of the importance of a significant contribution of deforestation and forest degradation to greenhouse gas emissions, we need to tackle the problem. It’s about 20-25% of the problem.

The facility we have put in place is mainly to look at what can be done and find different options. How these eventually get integrated into the broader international policy regime, we leave to the negotiating parties. Our contribution is to provide experience.

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