World Bank prices first carbon offset bond for China hydro

The World Bank has priced a US$25 million bond linked to United Nations-approved carbon emission offset credits produced by a China small hydropower project.

Lead manager Daiwa Securities SMBC Europe said the bond is the market’s first such bond. Payments are linked to Certified Emissions Reduction credits (CERs), which are issued under the Clean Development Mechanism, a trading scheme that allows rich nations to invest in clean energy projects in developing countries.

Trade in CERs, which holders can either sell for profit or use to meet emissions targets under the Kyoto Protocol, more than doubled to US$13 billion last year, according to a World Bank report published in May.

The five-year bond initially pays a coupon of 3 percent, but then switches to a coupon linked to the future performance of CER market prices and the actual versus estimated delivery of CERs generated by the hydropower plant in China’s Guizhou province, Daiwa SMBC said.

Daiwa has contracted to buy carbon credits from the 8-MW Hongyan hydroelectric project being developed by Guizhou Sanhe Hydro Power Development Co. Ltd. on the Nanpan River in China’s Guizhou Province. The project is to generate 29,530 megawatt-hours per year, avoiding the production of 23,290 metric tons of carbon dioxide per year.

“Investors in this bond will be able to indirectly participate in the market for greenhouse gas emission reductions and support demand for CERs generated from a specific UNFCCC-registered clean energy project,” it said. UNFCCC is the United Nations Framework Convention on Climate Change.

“The market for CERs contributes to a reduction of global greenhouse gas emissions and the transition to a low carbon growth economy,” Daiwa SMBC said.

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