CARBON MARKETS MARCH ON

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INTERVIEW

Interviewee: Joelle Chassard, Manager, World Bank Carbon Finance Unit

Interviewer: Toni Johnson, Staff Writer, CFR.org

February 5, 201

The UN's December development, it's almost now a given

Copenhagen meeting
on climate change
ended with draft text
of an agreement that
left many provisions
undecided. The
subsequent uncertainty about the
future of international action on
climate change suggested that
interest in carbon trading and
carbon financing could be
depressed (FT). But Joelle Chassard,
manager of the World Bank's Carbon
Finance unit, sees hopeful signs in the
February 1 submissions by more than
fifty countries on their voluntary
emissions reduction actions
(PDF) under the Copenhagen
Accord. "We feel quite encouraged,
but from an outsider's perspective, it
may not be as meaningful because
there still is so much work to be done
to translate that political
commitment into the nitty-gritty of
implementation," Chassard says,
arguing the overall demand for
carbon trading will continue to rise.
"[If] you talk to companies, all the
economic actors working on future
that you have to take into account
the impacts of climate change." She
notes that movement on a U.S.
carbon market is also playing a role
in improving the outlook for global
carbon markets. "We do hope if
there is a legislation adopted by the
U.S., it will include some sort of cap-
and-trade scheme," she says. "That
will create a lot of demand for
emissions-reducing projects in
developing countries."
What impact is Copenhagen's lack of
clarity having on markets? Will the
Copenhagen Accord's voluntary
target approach be enough to
bolster markets?
We don't think that Copenhagen
was such a disaster. We were hoping
the uncertainty would diminish, but
we were not confident that
everything would become clear
after Copenhagen. Prices in the
market have not fallen that
significantly. They have actually
stayed relatively steady. This reflects
the fact that the market had already

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managed expectations about the mechanism. There has been

outcome of Copenhagen. There is
still a lot of uncertainty, but if you look
at the totality of what happened in
Copenhagen, we certainly feel that
there is cause for optimism. Important
political signals on certain aspects of
the future climate change regime
have been stated, and now of
course all the work that needs to be
done is to build on this important
direction that Copenhagen has laid
out. We are quite confident that the
latest submission [by countries under
the Copenhagen Accord] over the
weekend confirmed that there is
momentum to continue on this.
What specifically has you confident?
There is definitely a momentum
[behind the scenes] to make
significant improvements in the way
the current flexibility mechanism of
the Kyoto Protocoloperates. The
discussions from the CDM [Clean
Development Mechanism] are
moving quite nicely and reflect a
general recognition that, yes, there
are problems and we need to fix
them. I would say also the prospect
of a possible mechanism or a cap-
and-trade regime in the United
States has had a very positive
influence on encouraging the
current regulators to look more
seriously at the weaknesses and the
efficiencies of the Kyoto Protocol
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significant progress on the
whole REDD [Reducing Emissions
from Deforestation and Forest
Degradation] agenda, and
reinforced in the Copenhagen
Accord, you saw an immediate
direct reference to moving
immediately on the REDD
mechanism.
There was also in the Copenhagen
Accord a political statement that
acknowledged, or at least opened
the door to continue exploring, the
role of markets. Even more
significantly, it's really the first time, in
Copenhagen and pre-Copenhagen,
where developing countries have
stated that they are committed to
undertaking significant mitigation
action. From a general perspective,
there is a strong movement toward
acting on friendly change and
putting in place the means to act in
a meaningful way, both by bringing
public finance and letting the market
play a role in supporting this
mitigation action. We feel quite
encouraged, but from an outsider's
perspective, it may not be as
meaningful because there still is so
much work to be done to translate
that political commitment into the
nitty-gritty of implementation.
The World Bank's Carbon Finance unit
started working on financing carbon
projects more than a decade ago.
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What do you tell people when there
is all this uncertainty?
What we say is, first, this is nothing
new for us. When we started in 2000,
the world was much more uncertain
than it is today. The world knew
nothing about how carbon markets
were going to function, how the
mechanism would be used. The
market has developed sufficiently,
and carbon finance has reached a
certain level of maturity, certainly not
yet an adult, but we have been able
to garner enough experience to
have a pretty good idea of how it
should evolve. We feel that the next
ten years are there to build on the
first ten years, and we are putting in
place instruments that will help
pioneer what could be the future
market instruments.
THE TREND IS GOING TO BE THAT THE
PRICE OF CARBON WILL GO UP, BECAUSE
THE MORE SERIOUSNESS THERE IS IN
DOING MITIGATION, THE MORE THE
DEMAND FOR EMISSION-REDUCTION
INVESTMENT WILL GO UP.
Certainly, greater clarity on an
international regime is needed to
make that happen. But if you talk to
companies, all the economic actors
working on future development, it's
almost now a given that you have to
take into account the impacts of
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climate change, and there is an
expectation that as an economic
actor you will be subjected to certain
kinds of regulation. It's clearer in
some parts of the world than in
others, but companies are definitely
anticipating that and already acting
on it.
What's the biggest worry for carbon
financing outside of a lack of clarity
on an international regime?
Carbon finance is a very important
catalyst for mitigation, but it doesn't
do everything. It needs help from
other elements. Some countries
pursue policies that go against the
implementation of certain types of
projects. Their energy-sector policies
are not yet fully consistent with
promoting CDM projects. We have,
in many countries, tariff policies that
are not adequate yet. Or you have
simply the investment climate that is
not fully adequate to promote
private investment. For instance, the
African continent has so far
[participated] very little in the [Clean
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Development Mechanism]. One market. That for us is very

reason for that is that they are low
emitters, so the potential for
reduction is limited. But participation
in the market is certainly lower than it
could occupy if it were fully
responding. Some of this is due to a
private sector that is much less
vibrant than in other regions of the
world. Part of it is a perception of risk
for investment in these countries. We
need to help overcome this bias.
Is this atmosphere of uncertainty
about what Copenhagen
accomplished hurting carbon-
finance investment in developing
countries?
It's probably slowing down the pace
at which market participants were
ready to continue their activities. I
see more of a slowdown, and
slowdown just means that getting
developing countries to fully embark
on mitigation strategies is not going
to go at the pace we would like. We
know how much must be put in
place before you really can get into
action, and it's something that I think
richer countries don't fully
appreciate. We see also market
players that are already very actively
involved in considering projects for
post-2012 and so on. We are
receiving a lot of requests to consider
programs in developing countries
that could be supported by the
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encouraging.
There's some discussion about
shifting the Clean Development
Mechanism to focus on least-
developed countries. Right now,
India and China have the bulk of the
projects. What do you think of this
plan?
That least-developed countries
should benefit from the market to a
greater extent than they have today
is something we fully support. I
mentioned earlier that Africa is hardly
anywhere to be seen in the carbon
market. They have less than 2
percent of the [CDM] projects that
are currently active. In our own
operations, Africa represents 21
percent of the number of CDM
projects, so we have always had that
focus, and we see by working in
Africa that there is a lot of potential
that needs to be further developed
in carbon finance.
The trend is going to be that the
price of carbon will go up, because
the more seriousness there is in doing
mitigation, the more the demand for
emission-reduction investment will go
up.
But if you stand back and ask
yourself, "How can we tackle the
challenge of climate change?" we
need to continue to have the big
countries, the big emitters [such as
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China and India] not only continue
their mitigation efforts but
accelerate. And we cannot just
decide because we have seen it
work for them, that we will pull the
plug. It just does not make sense. We
need the global community to
encourage these countries to go
forward, [but] not indefinitely. There is
recognition that at some point they
will need to rise to the same level as
developed countries. But we are only
at the beginning of these mitigation
efforts. So we feel the mechanism
needs to be available to everybody
at least for another few years.
Some activists were disappointed
with the tabling of deforestation
policy in Copenhagen. How much
has this affected REDD projects?
We are very encouraged by what
Copenhagen did, and by the follow-
up to Copenhagen that is taking
place on REDD. The day you would
tell me an environmental group is
happy, then we must have a
problem. They are there to push and
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push, and maybe their expectations
were not realistic. We welcome very
much their input and their push, we
find it very constructive, but REDD will
not appear in isolation. The text has
been negotiated already to a very
large extent, but it's not going to be
a stand-alone text. It will have to wait
for all of the other pieces to fall into
place. But the good thing is in the
meantime, the countries are already
getting ready.
What do you think about the debate
over whether the World Bank should
be in charge of the proposed global
green finance fund? Several
developing countries said they would
prefer to have a different
organization, maybe one created out
of the negotiations.
In the end, it's very important to let
the parties negotiate. We are aware
of the criticisms that are voiced
about the bank; we acknowledge
that a lot of points of view are
justified, and the bank as an
institution is already responding to this
criticism. There is a lot of discussion
currently among the shareholders of
the bank about the relative
distribution, the voice to be given to
its membership. So this is a debate
that goes well beyond climate
change. But because [climate
change] is an area where finance is
such a critical aspect of future
action, the role of institutions like the
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World Bank is debated. It's an

encouraging trend that the
developing countries want to have a
bigger say, and we need to listen to
how they want to conduct their
affairs. The world is different from
what it was sixty-five years ago when
institutions like the World Bank were
established. The world is changing,
and we need to change. We are
ready to help in whichever way the
parties decide the bank should play
a role. We believe there are services
we can offer, but we will do so in
response to demand from
developing countries.
The United States is still debating a
carbon market, and the climate bill's
future is unclear. How much of an
impact would a U.S. market have on
carbon finance?
Even before there is any legislation in
place, the debate that is taking
place in the United States is having
already a positive influence on the
current market mechanisms. Being
users of the mechanism, we know
that the U.S. mechanism can't be
vastly different from the existing ones.
But if they [improve on some of the
deficiencies in the current
mechanisms], it provides an incentive
for the existing ones to align
themselves and get improved in the
process. We do hope if there is a
legislation adopted by the U.S., it will
include some sort of cap-and-trade
scheme, because we see it's working
well [and would] like to expand that.
That will create a lot of demand for
emissions- reducing projects in
developing countries.

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