Climate Funds

NEFCO is involved in a number of activities related to climate change mitigation and adaptation. They include the management of two carbon facilities on behalf of public and private sector investors, with combined funding resources of almost EUR 150 million, and the management of a grant fund, climate facility, aimed at promoting technology innovation of EUR 22 million.

NEFCO was a very early starter in the project-based carbon market. Through the multilateral energy cooperation in the Baltic Sea Region (BASREC), NEFCO took the initiative to set up a pioneering regional carbon fund – the Baltic Sea Region Testing Ground Facility (TGF) – for the procurement of products of the Joint Implementation (JI) mechanism. TGF was established in 2003, before the Kyoto Protocol and the EU Emission Trading System (EU ETS) came into force, and was the first multi-donor carbon fund outside the World Bank Group.

The first participants in TGF were the Nordic governments and Germany, but the fund converted itself into a Public-Private Partnership by welcoming nine private participants, primarily from the energy sector, that were seeking compliance units to meet their obligations under the EU ETS. It was ultimately capitalised at EUR 35 million. TGF ended its activities in 2015.

Building on the capacity and competence it had acquired through its management of TGF, NEFCO established a global Public-Private Partnership carbon procurement vehicle in 2008 for long-term purchasing of greenhouse gas emission reductions under the JI and the Clean Development Mechanism (CDM) up to 2020 – the NEFCO Carbon Fund (NeCF). In 2012, NeCF was capitalised at EUR 165 million. After the price collapse in 2011/12, NeCF’s activities were consolidated and the active procurement reduced.

In response to a wish for the Norwegian government to ensure the continued emission reduction activity of existing, but vulnerable, CDM projects, due to the prevailing market, and at the same time assist Norway in meeting its Kyoto II commitments in a cost-effective way, a new global carbon vehicle – the NEFCO Norwegian Carbon Procurement Facility (NorCaP) – was established in 2013 with NEFCO as the Facility Manager.

NorCaP was able to mobilise and direct funds to projects rapidly, thereby preventing GHG emissions in the short term. The facility launched a first call for proposals within months of being established. Ten projects or bundles of vulnerable projects were successfully contracted and the first credits received within one calendar year. In December 2014, a second joint call for proposals under NorCaP and NeCF was launched, with a set-aside for CDM projects, including Programmes of Activities (PoAs) in least developed countries (LDCs).

NorCaP attracted significant interest from project developers, with almost 350 project proposals, demonstrating that strong demand still remained in the market. NorCaP also showed that emission reductions can be sourced cost-effectively.

By the end of 2015, NorCaP had already reached its procurement target of some 30 million CERs and NorCaP and NeCF are not actively procuring at this point in time. NorCaP’s portfolio includes contracted projects in Latin America and Africa. The purchases under this facility encompass some of the biggest single interventions managed by NEFCO within the last five years.

In a joint Nordic effort to promote technology innovation through leveraging of private investments within areas susceptible to climate change in the developing world, including many LDCs, NEFCO has been the fund manager of a grant facility since 2009, the Nordic Climate Facility (NCF), which is funded by the Nordic Development Fund (NDF). This facility also operates on a call basis, but with each call focusing on a specific climate change theme. Six calls have been launched since 2009. NEFCO is responsible for the management and disbursement of funds to NCF projects contracted under the first four calls, whereas the NDF has taken over these functions from the fifth call onwards.

Through its involvement in the implementation of projects under NCF, NEFCO has built a considerable network and hands-on climate finance expertise in developing countries, LDCs included.

NeCF, NorCaP and NCF represent a portfolio of approximately 45 ongoing climate projects spread across different sectors in some 30 countries and, over the years, an aggregate of some EUR 300 million climate funds, including TGF, under NEFCO’s management.