World Bank, IDB say carbon market is maturing

Buildings in the financial district are obscured in a haze, as seen from Crystal Palace in south London June 26, 2010. The world's carbon credit market is maturing after being hit hard by the global financial crisis and will outlive the Kyoto Protocol that ends in 2012, World Bank and Inter-American Development Bank said.

SAO PAULO (Reuters) - The world's carbon credit market is maturing after being hit hard by the global financial crisis and will outlive the Kyoto Protocol that ends in 2012, World Bank and Inter-American Development Bank officials said

on Tuesday.

When the 2008 crisis tightened global credit markets, it also hit lines of financing for green project development, which help companies generate carbon credits to sell to buyers who want to offset their own emissions.

"Unfortunately, the green project lines come from the same pools as regular bank financing. They are simply a cherry on top of larger project financing," a World Bank specialist on sustainable development, Christophe de Gouvello, said at a carbon credit market event hosted by Brazil's BM&Fbovespa exchange.

"But the carbon credit market is maturing. It's still young but it is becoming a teenager," he added.

The Kyoto Protocol adopted in 1997 -- an international agreement that sets binding targets for 37 industrialized countries and the European Community to reduce greenhouse gas emissions -- is due to expire in 2012.

The protocol, which is linked to the United Nations convention on global warming, provided the framework for the world's carbon credit market. Its expiry date, after which participating countries are not bound by it to cap emissions, has concerned investors in green project development.

But Gouvello said that the dozens of bank representatives at the event at the swank Mofarrej Hotel in Sao Paulo were evidence of the growing interest in green financing from financial institutions.

"Only a few years ago, you would not have seen these banks at this event," Gouvello said.

The World Bank has a $5.7 billion fund from which it helps finance green technologies in combination with regional development banks such as the Inter-American Development Bank.

The two institutions are trying to help banks overcome some of the obstacles they face with green financing in Latin America, which include language barriers.

"The market has accepted the standards of Kyoto for verifying and monitoring greenhouse gas reductions through so-called Clean Development Mechanisms," said Maria Netto, the IDB's climate change specialist.

"Trade in carbon credits will go on beyond 2012."

She said the market has solid support because many European countries require businesses by law to offset their greenhouse emissions by buying carbon credits or investing in technologies and upgrades to curb their carbon footprint.

"The latter is often much more expensive," Netto said.

Netto said one of the main challenges facing growth in the carbon credit market was finding a transparent pricing system.

Most carbon credits are sold in private auctions and not on public exchanges, although the BM&F has hosted occasional public carbon credit auctions.

(Editing by Lisa Shumaker)