NEFCO is able to provide carbon financing in the form of additional revenues to projects by monetising the value of greenhouse emission reductions generated through the use of the Kyoto Mechanisms, namely Joint Implementation and Clean Development Mechanism. The credits from these projects are used for compliance with the obligations of the Kyoto Protocol and the EU Emissions Trading Scheme. The main operating funds are the NEFCO Carbon Fund (NeCF) and the Baltic Sea Region Testing Ground Facility (TGF).

The Baltic Sea Region Testing Ground Facility (TGF) is a regional carbon finance facility structured as a Public Private Partnership between Governments and private sector utilities and industrial companies in the Baltic Sea Region. It is a compliance vehicle which purchases AAUs and ERUs from energy related and other projects on behalf of its investors.

In September 2003 an intergovernmental agreement, the Testing Ground Agreement, was concluded between several of the governments in the Baltic Sea Region establishing a regional Testing Ground for Joint Implementation with the aim to stimulate an early follow-up of the Kyoto Protocol and to help the countries of the Baltic Sea Region to position themselves favorably in respect of fulfilling their own commitments under the Kyoto Protocol. The countries participating in the Testing Ground cooperation are Denmark, Estonia, Finland, Germany, Iceland, Latvia, Lithuania, Norway, Poland, Russia and Sweden.

As a part of the Testing Ground cooperation a new fund, the Testing Ground Facility (TGF), was established at the end of December 2003, to provide financial assistance to investment projects by purchasing emission reduction credits.

Following the closure of the second subscription on 31st March 2006, the TGF now has a total fund capital of 35 million. The principal investors are:

• Kingdom of Denmark
• Republic of Finland
• Federal Republic of Germany
• Republic of Iceland
• Kingdom of Norway
• Kingdom of Sweden
• DONG Naturgas A/S (Denmark)- Energy
• Fortum Power and Heat Oy (Finland)- Heat and power
• Gasum Oy (Finland)- Gas transmission
• Keravan Energia Oy (Finland)- Heat and Power
• Kymppivoima Oy (Finland)- Power
• Outokumpu Oy (Finland)- Stainless steel
• Vapo Oy (Finland)- Heat and power, biofuels
• Vattenfall Europe Berlin AG & Co. KG (Germany)- Heat and power

The Nordic Environment Finance Corporation (NEFCO) is the Fund Manager. NEFCO is an international financial institution with wide experience of financing environment and energy projects in the potential host countries in the region.

The TGF invests in projects with a potential for delivering cost-effective ERUs (according to Article 6 of the Kyoto Protocol) and AAUs (according to Article 17 of the Kyoto Protocol) for the account of the investors.