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BMU and KfW Entwicklungsbank launch global climate protection fund

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With the signing of contracts in Berlin at the end of the two-day conference entitled "Financing climate protection in developing countries and threshold countries – instruments and incentives for environmentally-friendly investments in the private sector", the German Federal Ministry of the Environment (BMU) and KfW Entwicklungsbank have taken the first steps to set up an innovative global climate protection fund. The fund provides financial support to small and medium sized enterprises (SMEs) as well as private households in developing countries and threshold countries for investment in energy efficiency measures and renewable energies. Together, BMU and KfW Entwicklungsbank have promised more than USD 100 million of initial funding. In addition, further funds are also to be raised from public and private investors. Particularly through the involvement of the private sector the assets under management are hoped to swell to more than USD 500 million in the next five years. The fund will make a valuable contribution towards the promotion of renewable energies and towards efficient and frugal use of energy. Developing countries will be helped to reduce their CO2 emissions, whilst at the same time improving the reliability of energy supplies.
The German Minister of the Environment, Dr. Norbert Röttgen explains: "As a result of the BMU providing equity capital and hence taking on some of the commercial risk, we are creating the necessary incentives for private investors to take a stake with outside capital. As a result, through intelligent use of comparatively small budget resources, we are able to raise significant overall capital for international climate protection."

Unlike other funding programs, with this innovative financing instrument for international climate protection the fund does not eat into the public funds; instead, the funds are used on a rolling basis, allowing the money which is paid back to flow into the fund assets.

"The reliability of energy supplies and global climate protection are two of the key challenges for the 21st century. Correspondingly, it is a central issue for the future for KfW Entwicklungsbank to promote wide-ranging investment in climate protection in developing countries and threshold countries," says Dr. Norbert Kloppenburg, member of the board of the KfW Group of Banks. The public-private partnership concept on which this global climate protection fund is based, i.e. the cooperation between private and public investors, plays an important role in financing these investments.”

The BMU has provided the fund with equity capital totaling EUR 20 million (around USD 28 million) from the international climate protection initiative. Through the international climate protection initiative, which was set up in 2008, the BMU supports climate protection projects in developing countries, threshold countries and transition countries. The initiative is financed through auctioning of emissions allowances. KfW Entwicklungsbank has today promised in excess of USD 75 million for the fund, which was founded on behalf of the BMU. The fund will be managed by a private fund manager.

Due to the continuous economic growth, a significant increase in energy consumption is forecast for developing countries and threshold countries, with all the negative effects on the environment that this entails. Consequently, the global climate protection fund will focus its activities on countries which already have a significant industrial basis and a large population: Brazil, Chile, China, India, Indonesia, Mexico, Morocco, Philippines, South Africa, Tunisia, Turkey, Ukraine and Vietnam.

For sustainable and wide-ranging climate protection, the small and medium-sized enterprises (SMEs) and private households in these countries will play an important role. Just as in the so-called developed countries, they account for a significant proportion of greenhouse gas emissions. The national programs successfully implemented by KfW on behalf of the German Government in order to promote climate protection in SMEs and private households have been the benchmark for the development of this fund. Access to funding and consultation services will be implemented via the relevant principal banks, which will provide access to refinancing packages. The fund also has a financing component of some EUR 2.5 million for accompanying consultation services.