The European Investment Bank (EIB) and The World Bank signed Thursday a Memorandum of Understanding (MoU) in which the two organizations agreed to cooperate in the development of a Pan-European Carbon Fund (PECF).

The PECF would be designed to help European countries meet their commitments to the Kyoto Protocol, which will enter into force early next year, and the European Union's Emissions Trading Scheme (EU ETS), which will begin in January 2005.

The EIB believes that flexible market-based mechanisms are the key to cost-effective and timely climate change mitigation efforts and a means of transferring clean technology to developing countries, said EIB Vice President, with responsibility for the environment, Peter SedgwickA vibrant global market in greenhouse gas emissions, encouraged by the fact that emissions may be reduced anywhere in the world with the same impact on climate change, is motivated by global and regional regulatory and incentive systems such as the Kyoto Protocol and the EU ETS.

The PECF would complement carbon trading within the EU ETSthe first international trading system for carbon dioxide emissions in the world, covering some 12,000 installations representing close to half of Europe's emissions of carbon dioxidewith purchases of greenhouse gas emission reductions through the Kyoto Protocol's Clean Development Mechanism (CDM) and Joint Implementation (JI) arrangements. The CDM and JI are flexible mechanisms of the Protocol, that, under strict conditions, allow industrialized countries to fulfill some of their greenhouse gas emission-reduction commitments through projects in the developing world and in countries with economies in transition.
The PECF would support climate-friendly investment projects from either bank's portfolio as well as self-standing projects. Through the PECF the two institutions would work to facilitate the involvement of the private sector, which is essential to the development of the emerging carbon market.

Odin Knudsen, Senior Advisor to the World Bank Vice President for Sustainable Development said, The World Bank believes that climate change is as much a developmental as an environmental issue, and that the poor will be at the greatest disadvantage as a result of climate change. We welcome the opportunity to collaborate with the EIB and other partners in the area of carbon finance. Improving the global environment through market mechanisms is one of our urgent priorities.
The PECF would be jointly managed by the World Bank and the EIB, according to terms to be finalized in the near future, and approved by each institution. The PECF would be open to receive contributions in the second half of 2005.