CO₂ investment funds: The rise of private capital - Research Note no. 12, November 2007

Since the first study published in 2005 by the Climate Mission of Caisse des Depots, the number of carbon investment funds initiated in 1999 by the World Bank with the Prototype Carbon Fund (PCF) has multiplied: 58 investment funds have a total capitalization estimated at 7 billion euros. The last two years have been marked by changes in investment strategies and approaches. The number of funds targeting financial capital gains has grown more than those aiming to provide CO₂ credits for compliance. Investors are now getting involved early in the project development process, exposing themselves to higher risks in order to achieve greater profitability. However, demand for projects is likely to exceed supply, since only 50% of the capital raised is actually invested. Carbon funds play an important role on the international market: they finance a quarter of certified emission reduction units and a third of Carbon Emissions Reduction Units, and could contribute to the reduction of 700 million tons of CO₂ equivalent. Awaiting the negotiation of a post-Kyoto agreement, the future of the carbon market is uncertain. A third of funds have announced that they will invest in post-2012 credits, but the amounts invested remain low. In October 2007, the European Investment Bank launched the first fund entirely dedicated to post-2012: some players remain confident in the future of carbon finance