World Bank launches emerging carbon market drive

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The World Bank expected a growing number of nations to look at so-called cap-and-trade systems, in which firms or countries face restrictions on carbon emissions blamed for climate change but can trade credits on the market.

"We are launching this partnership for market readiness to try to share information but also provide some additional financial support," World Bank president Robert Zoellick announced on the sidelines of UN-led climate talks in Cancun, Mexico.

"We have a number of countries such as China, Chile, Indonesia (and) Mexico actively exploring how they can use market-based instruments to support their overall domestic emissions mitigation and action plans," Zoellick said.

China's climate negotiator Xie Zhenhua welcomed the initiative, saying that his country -- the world's largest carbon emitter -- has set up low-carbon pilot projects in five cities and eight provinces.

"China intends to explore feasibility of domestic emissions trading schemes to achieve mitigation," Xie said in a statement.

The World Bank partnership would help countries set up markets similar to the cap-and-trade system in place for for companies in the European Union.

The World Bank initiative would also look at systems along the line of the Kyoto Protocol's Clean Development Mechanism, under which wealthy nations required to cut emissions can receive credit by investing in green energy projects in the developing world.

"Some of these programs can be done within a country, or a region or a sector but one of the possibilities is then how do you interconnect these markets over time," Zoellick said.

Australia led support for the initiative with a pledge of $20 million, the World Bank said.

"A broad and well-functioning carbon market will help countries reduce carbon pollution in the fairest, most efficient and cost-effective way," said Greg Combet, Australia's climate change minister.

The European Commission pledged five million euros ($6.6 million) and the United States and Norway each offered five million dollars, the World Bank said, adding that Britain, Germany and Japan have also said they will provide financing.

Friends of the Earth, an environmental advocacy group which is strongly critical of carbon markets, said the World Bank was playing a "perverse role" in efforts to fight climate change.

"Carbon markets are an irreparably flawed means of addressing climate change," said Karen Orenstein of Friends of the Earth US.

"They further entrench the economic arrangements that facilitate the North's over-consumption and have landed us in this climate crisis in the first place."

The European Union's Emissions Trading System, or ETS, is the world's premier cap-and-trade market.

A proposal to create a similar system in the United States died in Congress this year and prospects for a nationwide cap-and-trade system are all but dead after the Republican Party won November elections.

However, a number of US states have taken action on their own, with California -- the largest state -- setting up its own cap-and-trade system.