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After Kyoto

The Kyoto Protocol treaty has now entered into force for the 126 nations who have joined it so far. Now is the time to start thinking about how to engage all nations, including large emitters, in conversations about what to do after the treaty’s expiration in 2012. This is exactly what the European Commission did recently by providing its first strategy for a post-Kyoto era, which will be discussed by the European Council next March.

While the Kyoto Protocol represents only a modest reduction of carbon emissions in industrialized countries – 5.2% between 2008-2012 relative to 1990 levels, with varying targets for individual countries – real progress can be made in sustaining development efforts and preserving our planet.

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But first, all countries must integrate climate concerns into policy planning, and improve their governance in key sectors such as energy, infrastructure, and transport. In other words, we must act in accordance with the recognition that climate change and its effects on people in both rich and poor countries remains a threat to global security.

At the end of the day, the long-term approach is likely to include a rules-based system, an incentives system, and investments in technology change. Increasingly, adaptation at the national level will be recognized as a major issue that will require appropriate funding. Dealing with the impacts of climate change and with emission reductions should not be mutually exclusive, but complementary.

Looking ahead to the post-Kyoto world offers us the chance to start a new dialogue and to look at new options on climate change. Nations could set the more ambitious goal of limiting the long-term change in the earth’s temperature, and then assign emissions rights among countries in such a way that will eventually limit temperature increases to an acceptable level. This would require increasing investments in energy research and development for new and improved technologies – a process that needs to be supported by stronger public-private partnerships.

Up to now, with only 15% of the world’s population, rich countries have been responsible for more than 75% of global carbon dioxide (CO2) emissions, and thus most of the environmental damage. However, it is the developing countries – and thus the world’s poor – who are most vulnerable. It is unrealistic to ask poor countries, where more than 1.6 billion people do not have access to clean energy and technologies, to bear the costs associated with the much needed technological change.

Working with partners, the World Bank is supporting financial strategies to assist developing countries in meeting the costs caused by climate change. To date, over $1 billion dollars in Global Environment Facility (GEF) grants, together with about $8 billion in co-financing, have been committed to programs related to climate change.

While the regulatory mechanisms of both Kyoto and the European Trading Scheme have contributed to the establishment of an emerging market for carbon trading, interested parties are now concerned about the immediate future. Without a regulatory framework beyond 2012, the window of opportunity for initiating project-based transactions will close by 2006/2007.

Given the long lead time between project preparation and the first benefits of emissions reductions, project developers have only a few years to act before carbon payments cease to make a meaningful contribution to project finance in the current context. Developing infrastructure projects is a long process that requires 3-7 years from identification, through licensing, financing, and construction, and finally to the first certification of carbon emission reductions.

Therefore, projects need to be operational at the latest by 2007. The World Bank has been instrumental in advancing carbon finance as a viable development tool, and in facilitating private-sector participation in the market. The Bank is focused on representing the interests of its borrowing countries, helping them to develop assets for carbon trading according to their own priorities.

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But, without a commitment by governments to limit greenhouse gas emissions beyond 2012, the carbon market will remain uncertain, and the private sector – vital to the market’s success – is unlikely to expand its participation in a meaningful and sustained way. According to a recent World Bank-supported survey of companies interested in carbon finance, only one in five respondents declared that they were interested in buying post-2012 emissions reductions.

Now is the chance to look forward and enlist the global community – with no exclusions, although with differentiated responsibilities – in the pursuit of a more secure world, one that avoids the dire risks of environmental degradation and social conflict implied by inaction.