The World Bank has teamed up with a consortium of credit insurer Atradius and International Financial Consulting to support the development of renewable energy projects. The World Bank will finance these projects by buying carbon (CO2) emissions rights. The World Bank wants to use credit insurance to cover risks associated with financing these projects.

The consortium has been selected because of its worldwide expertise and experience. Atradius, one of the leading global credit insurers, has its head office in Amsterdam, Netherlands. The Canadian firm of International Financial Consulting is a prominent consultant in credit insurance.

After the ratification of the Kyoto Protocol, the majority of industrialised countries are faced with limitations to CO2 emissions. These limitations also extend to individual companies, such as energy utilities and industrial enterprises, within these countries.

It is very likely that many of these countries, and companies within these countries, will go beyond these limits. When this occurs, there are four options:
  • A fine
  • Investing in reducing CO2 emissions in your own country or company.
  • Investing in reducing CO2 emission in other countries.
  • Buying emissions reduction rights from a country that will not exceed the limits.

The goal of the World Bank is focused mainly on the third option.

All Kyoto Protocol countries are assigned emissions reduction targets. As they reduce emissions, they are granted emissions rights. These rights represent a certain amount of money. The demand for these rights has increased enormously as companies in Europe, Canada, Japan and other countries have now received their targets for emissions reductions.

The World Bank manages a number of funds for renewable energy projects. Different countries, including Canada, Netherlands, Spain and Italy, have made these funds, totalling hundreds ofmns of dollars, available.

The World Bank purchases up-front emission rights not yet realised in renewable energy projects. Proceeds from the purchase of these rights can then be used to (partially) finance these projects. The World Bank acquires the emissions rights once the projects have been completed and the CO2 reductions have been realised.

The World Bank runs the risk that the rights are not realised, for example due to technical problems preventing the anticipated amount of emissions reductions or because a war prevents a project from being completed. These are the risks that the World Bank would like to have cover for. The consortium of Atradius and International Financial Consulting has been asked to explore the feasibility and potential for such an insurance product to protect the World Bank.