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Towards a green economy Issue (Rating)


Inaugural Issue Swedish Krona (SEK) denomi- nated Green Bond (Aaa/AAA)


First US$ denominated Green Bond (Aaa/AAA) Third World Bank Green Bond (Aaa/AAA)


Fourth World Bank Green Bond (Aaa/AAA) IFC Inaugural Green Bond (Aaa/AAA)


Amount Maturity Date


2.85 billion SEK (in three tranches) November 2014


US$ 300 million


US$ 180 million (in two tranches)


NZD 150 million US$ 200 million


April 2012 December 2013


January 2015 April 2014


Coupon 3.5 per cent p.a. Floating rate 2 per cent p.a.


5.23 per cent S.A. 2.25 per cent p.a.


Table 5: Recent green bond issues by the World Bank Group Source: World Bank and IFC websites


the price of carbon. In total, 8.7 billion tonnes were traded in 2009 (see Figure 2), with a value of US$ 144 billion (US$ 123 billion in allowance-based cap-and-trade) trading and US$ 21 billion in project-based deals under instruments such as the CDMs. The largest carbon market by far is the European Union Emissions Trading System (EU ETS), the annual value of which rose to US$ 122 billion in 2009.


There is considerable uncertainty about the future structure of carbon markets following an inconclusive


outcome to the 2009 UN Climate Change Conference in Copenhagen and a stalemate on establishing a national carbon trading scheme in the US (TheCityUK 2010). Primary CDM transactions, making up the bulk of the project market, nearly halved to 211 million tonnes in 2009 from 404 million tonnes in 2008, due to difficulties in accessing finance, lack of bankability of CDM and Joint Implementation (JI) credits after 2012, and ever lengthening delays in the CDM process (see Figure 2).


Box 3: Building an insurance market for forest carbon


Carbon markets have not tackled emissions from the loss of natural forests. There are several concerns: the issues of likely permanence, additionality, leakage, measuring and monitoring, and risks of project- based changes in carbon stocks or GHG emissions. It is a significant gap in mitigation - as much as 20 per cent of anthropogenic GHGs are estimated to originate from land use change. Unlike the reduction or avoidance of GHG emissions with all other types of mitigation activities, GHG sequestration into biomass is non-permanent. Sooner or later, the sequestered carbon will be re-released into the atmosphere. In the case of forestry this can happen due to natural hazards, land-use decisions and other events (UNEP FI 2008).


To date, regulators have treated forest-based GHG permits as temporary, which has greatly reduced their value and thus demand. In the voluntary certificate sector, the approach for


non-permanence is to require projects to maintain adequate buffer reserves of non-tradable carbon credits to cover unforeseen losses in carbon stocks.


Another alternative is the deployment of insurance and other financial risk management instruments to guarantee the permanence of carbon sequestered


through forests. This means that the land occupied by the buffer would be available for a variety of purposes.


In principle, the loss of carbon from a


forest is insurable, and the use of financial tools is superior economically. Private sector providers of forest insurance focus on plantations, not public and natural forests. The primary reason is the more sophisticated risk management systems (e.g. watchtowers and firebreaks, fire-fighting personnel, equipment and procedures) in place for privately owned forests, where there is a clear financial interest. Even for plantations, the total acreage insured is low.


addressing


The main reasons for the lack of demand are its high exposure to catastrophic losses (exacerbated by climate change); low demand and inadequate pricing; and insufficient risk management, compounded by the possibility of moral hazard. Also, forest risks require specialist knowledge, and the valuation of forest carbon is difficult. While forest insurance products have been underwritten via traditional, indemnity-based insurance policies, some are also exploring the viability of alternative risk transfer and financing solutions including catastrophe bonds. There is some evidence that public sector forest insurance has been successful, for example, in Japan. Source: UNEP FI (2008)


Investors


Swedish National Pension Funds Skandia Life UN Staff Pension Fund Others


State of California


California State Teachers Retirement System (CalSTRS) Swedish National Pension Funds Swedish insurance provider SEB Trygg Liv UN Staff Pension Fund, Others


Japanese investors Details not available


600


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