Clean Energy and Greenhouse Gas Mitigation - a 'Win-Win' Strategy for Asia and the Pacific

Asian Development Bank (ADB) - www.adb.org/cdmf

The Asian Development Bank (ADB), a major multilateral development finance institution with 63 member countries, aims to reduce poverty across the Asia and Pacific region. This region has made great economic strides in recent decades. Asia's total share of world gross domestic product almost doubled from 13% in 1960 to 25% in 2000.¹ Despite the 1997 Asian financial crisis, economic recovery was swift and strong. Developing Asia is expected to grow by 6.5% in 2005.²

Economic growth has been, and will continue to be, essential in reducing poverty and attaining overall progress in the region. However, along with rapid growth, serious challenges to the environment have emerged. The past approach of "grow now, clean up later" has left a legacy of water contamination, soil degradation, and air pollution-a legacy which, if not stopped or reversed, will slow economic growth and stifle efforts to reduce poverty and achieve the Millennium Development Goals.

The need to put Asia and the Pacific on a sustainable course is vital since Asia is expected to experience unprecedented growth in energy demand in the coming decades. In the next 20 years, energy use in developing Asia will more than double from the present level of 2.1 billion tons of oil equivalent. These demands must be met to ensure continued growth and poverty reduction. However, as energy supply meets the rising demand, the potential local and global environmental impacts-including climate change-must be addressed.

Climate change will severely impact the poor, who have limited means to adapt. In Asia, greenhouse gas (GHG) emissions are expected to increase from 6 billion tons of carbon dioxide (CO2) (representing 28% of the world's share) to 12 billion tons of CO2 (32% share) over the next 20 years.

The greatest challenge in moving forward is funding the region's energy needs in a sustainable manner. According to the International Energy Agency, about $16 trillion in infrastructure investment will be needed to meet the global energy demand by 2030³ and Asia will account for a significant portion of that need. Given the lifetime of energy infrastructure, the investments today will determine the long-term trend of GHG emissions from the region.

To minimize the impact of energy infrastructure development on climate change and the environment, developing countries and aid organizations need to integrate these issues in their strategies and programs. ADB has been working to generate awareness of both the UN Framework Convention on Climate Change and the Kyoto Protocol among its developing member countries (DMCs) and to help develop their capacity to address the issue of climate change. ADB has also assisted in preparing national GHG inventories and least-cost abatement planning strategies, and in identifying energy efficiency and renewable energy options.

To help develop projects for sustainable energy and GHG reduction, ADB operates the Renewable Energy, Energy Efficiency, and Climate Change (REACH) Program, which works at three levels: (i) identifying policy barriers, (ii) financing and risk mitigation, and (iii) developing capacity. The program consolidates several trust fund initiatives provided by the governments of Canada, Denmark, Finland, and the Netherlands. It provides assistance to DMCs for projects that promote investment in renewable energy and energy-efficiency to mitigate the effects, and that help communities adapt to the impacts of climate change.

In the carbon market, ADB is one of the few institutions today that provides base financing for projects aimed at reducing GHG emissions from business-as-usual trends. In 2003, ADB established the Clean Development Mechanism (CDM) Facility to assist DMCs and project developers by providing CDM-specific technical and transaction assistance in parallel with ADB loans for eligible projects and by making carbon credits available to the market. Through the CDM Facility, ADB provides capacity building and shoulders the up-front cost of CDM due diligence and regulatory requirements until a certified emission reduction (CER)transaction is attained.

The CDM Facility has generated significant interest among DMCs, as well as many public and private sector buyers in some countries. The CDM Facility's first project, the Fuxin Coal Mine Methane/Coal Bed Methane (CMM/CBM) Utilization Project in Liaoning Province, People's Republic of China, was offered to the market in March 2005. The project will improve CMM and CBM extraction and distribution in Fuxin. It will thereby upgrade safety conditions in the mining area and allow the supply of methane as a clean fuel to residents, industry, and electricity generation schemes. The project is expected to generate up to 5 million CERs before the end of 2012, and is currently negotiating agreements with buyers at CER values well above average quoted prices. Several other projects are in the pipeline.

Asia has become the hotspot for potential CDM projects in the past 2 years, and the portfolio of GHG mitigation projects among ADB DMCs looks very promising. ADB's CDM Facility will continue building upon the momentum to help bridge the gap between demand and supply in the carbon market.

ADB has been involved in setting up and investing in clean energy funds. One current activity to support the transition to clean energy is a feasibility study to establish a dedicated Renewable Energy and GHG Mitigation Investment Fund. The proposed fund will assist DMCs by providing capital, project expertise, and international and emerging market experience by investing directly into clean energy projects.

If Asia achieves the right balance between achieving economic growth and meeting its environmental challenges, the entire world will benefit from its success. ADB will strive to channel more funds and capacity development assistance to its member countries to help them realize opportunities granted by the UNFCCC and the Kyoto Protocol, and to help the international community slow down the pace of climate change.

¹ World Bank. 2004. World Development Indicators 2004. Washington, DC. Figures include Japan.
² ADB. April 2005. Asian Development Outlook 2005. Manila.
 International Energy Agency. 2004. Energy and Sustainable Development, 9 October 2004. Final Draft Report.
 For further details, visit www.adb.org/reach
 For more information, visit www.adb.org/cdmf.
 The units of CERs are defined as tons of carbon dioxide equivalent reduced.
 These nations, mainly members of the Organisation for Economic Cooperation and Development and former Eastern bloc countries, have committed to mandatory GHG emission reductions, under the Kyoto Protocol.

For more information: adbcdm@adb.org