17.01.2012

Start-up financing for climate investment

As part of its International Climate Initiative, the German Environment Ministry is providing ten million euros as endowment capital for the 'Future of the Carbon Market' foundation being established by KfW Entwicklungsbank. The foundation issues start-up funding for climate change mitigation programmes under the Clean Development Mechanism (CDM), one of the Kyoto Protocol’s climate financing instruments.

Support will go mainly to investment in small-scale emissions reduction measures such as the use of energy-efficient stoves, the replacement of incandescent lamps by compact fluorescent lamps, the construction of biogas facilities or the installation of micro-hydropower systems. Projects receiving support should be financially viable in the long term, without external finance, and should pay back the start-up capital. The aim is for the projects to prove their feasibility and cost-effectiveness, leading banks and other financial institutions to invest more into similar projects. The foundation will seek cooperative ventures with other financing partners from the outset.

After 2012 new CDM projects wishing to sell carbon credits to companies under the European Emission Trading Scheme (ETS) must be located in one of the least developed countries. This group of countries has scarcely profited from the carbon market up to now and is in urgent need of assistance to tap its emissions reduction potential. This is where the foundation comes in. Besides supplying start-up capital, it will also be important to provide advice to developing countries on how to make use of the carbon market.