In Cologne yesterday the International Emissions Trading Association (IETA) released a discussion paper proposing a new international scheme of green bonds linked to carbon credits.
The scheme would involve emerging nations issuing green bonds for projects that combine economic development and emissions reduction objectives.
The bonds would be backed by rich countries wanting to support climate change mitigation. Funds would be linked to emission reductions by being ring-fenced or asset-backed.
In a briefing to the Climate Bonds Advisory Panel in London, IETA CEO Henry Derwent explained that the return to investors would be made up of low-coupon conventional financial returns, with an upside of getting a marketable stream of carbon reduction units.
Guarantees mean that countries get access to capital at developed market rates, but failure to meet carbon reduction plans would mean higher rates and a cut in further access to loans.
Climate Bonds Initiative Chair, Sean Kidney, welcomed the IETA proposals. "To move forward from our dire global CO2 position we need visionary approaches. These must allow emerging nations to achieve their development objectives at the same time as keeping emissions down."
He added "Rich countries may argue they don't have available funds, but they could provide selective guarantees and other mechanisms that will make the difference to the flow of institutional investment."
"Without that support, we face a grim global picture; but with that support we can deliver a sustainable, low-carbon future for both emerging nations and the developed world."
"The IETA proposal has the potential to be an important part of doing that."
