Perhaps most importantly, it is one of the few proposals which seems
to
have gained the support of all the participants at the
third conference of parties (COP-3) to the UN Framework Convention
on
Climate Change -- although disagreement remains
about its form, and whether it will have a monopoly on the carbon trade.
It could therefore be the key to reaching an agreement at the
contentious talks, where the rift between developed and
developing countries is especially wide.
Originally proposed by Brazil, the concept of the ''clean development
mechanism'' has undergone changes in recent days,
but one way or another it should help to transfer financial resources
from the developed countries to the developing world in
exchange for carbon credits.
In its initial form, it was supposed to be a fund that would collect
fines from developed countries which fail to meet their
greenhouse gas (GHG) emissions targets, and then disperse those monies
to developing countries which agree to carry out
''carbon offset'' projects -- projects that either stored carbon in
forests or reduced GHG emissions elsewhere.
But the mechanism, which is now enshrined in Article 14 of the draft
Kyoto Protocol, has since evolved into a more general
trading mechanism between investors from developed countries -- which
under the expected protocol will be forced to
reduce their GHG emissions -- and carbon offset sellers in the
developing world, or perhaps anywhere.
In a sense, it is a more advanced form of the proposed Joint
Implementation programme, under which a company or country
would finance GHG reduction projects abroad in exchange for carbon
offset credits to be used to meet its domestic
requirements.
There are problems with the ''clean development mechanism'', however.
Some fear it may obtain a monopoly of the carbon
trade, driving up costs.
The World Bank, meanwhile, maintains that it is both expensive and risky
to carry out these carbon transactions on a
bilateral level. It has therefore proposed the establishment of a Global
Carbon Initiative that would serve as a multilateral
trading mechanism.
''It is rather inefficient to manage transactions on a bilateral level
because there are high transaction costs,'' explained
Charles Feinstein, chief of the World Bank's global climate change
committee.
''It's also very risky for investors, just as on the stock exchange
it's
risky for investors to put all their money into a single
company. If the carbon offset project doesn't work for some reason,
then
the investor is in some trouble.
''So we have proposed setting up this initiative as a kind of carbon
mutual fund, where investors can invest in a pool, thereby
reducing their risk.''
The price for carbon would essentially be set by the market.
Assuming the ''clean development mechanism'' does not become a monopoly,
the bank's Global Carbon Initiative could
become just one entity among many serving a future trade in carbon.
''We see the prospect for many different entities bundling together
carbon offset projects and putting them on the exchange
that Article 14 would set up,'' Feinstein said.