Chile, along with the World Bank and the group of six governments and the 17 companies that make up the Prototype Carbon Fund (PCF) announced a landmark event in the fight against climate change last week.

The Chacabuquito run-of-river hydropower project, high in the Chilean Andes is delivering more than electricity. The project is putting Chile into the history books with the first ever, verified greenhouse gas emission (GHG) reductions in the developing world, intended for the Clean Development Mechanism (CDM) of the Kyoto Protocol, the 1997 international agreement to limit climate altering greenhouse gases.

The CDM will allow industrialized countries and companies with greenhouse gas reduction commitments, to purchase some of their required reductions, in developing countries. Chacabuquito opens a new era of possibilities for Chile and other developing countries, in which reductions in greenhouse gases are exchanged for development dollars. The project demonstrates the potential and value of the Clean Development Mechanism as a powerful development tool for Latin America.

"By selling emission reductions to developed countries, Chile is entering fully the international market of environmental cleansing. That will enable the national private sector to access resources to improve their technologies and introduce clean technologies," said Gianni López Ramirez, Executive Director, of Chile’s CONAMA, the National Commission for Environment.

"Throughout the world, and especially in Europe, there is growing demand for these type of emission reductions. This opens great possibilities for Chile, a country with low risk rating for investments, compared with other similar nations. Chacabuquito is the first success story."

Chile and Latin America have already demonstrated their attractiveness to the newly emerging carbon market.

Thirty percent of the Prototype Carbon Fund’s 2003 portfolio is located in Latin America. The driving force is the Kyoto Protocol, which commits industrialized countries to reduce their carbon emissions by 5 percent below 1990 levels in the period from 2008 to 2012. Companies can supplement their commitments at home by purchasing lower cost emissions in developing world countries.

As a result, projects in developing countries will get a new source of financing for sustainable development in the energy, industrial and waste management sectors, land rehabilitation, and clean technologies. Industrialized countries can meet part of their Kyoto obligation, while the threat of climate change is reduced at lower overall cost.

Chacabuquito is a leading example of the opportunities available through carbon finance. The project is part of the portfolio of the PCF. Six governments and 17 companies teamed up with the World Bank in 2000, and contributed $180 million to create the PCF. It has so far purchased or plans to buy about $110 million of greenhouse gas emission reductions from 26 projects in developing countries.

"It is amazing to see how this result has been obtained by continuing and converging efforts of people all around the world, from Japanese companies to European governments and World Bank staff, and so many people here in Chile and Latin America," said Jean Claude Steffens, Chairman of the Participants’ Committee of the PCF.

The carbon finance business has taken on a new sense of urgency in the face of mounting evidence that the Earth’s climate is changing, which could have dire consequences for major parts of humanity. The main culprits are fossil fuels that are pumping heat trapping carbon dioxide into the Earth’s atmosphere creating an invisible blanket around the planet. Climate change, and accompanying disrupted weather patterns could wreak havoc on the planet, particularly parts of the developing world. The threat climate change poses to long-term development and the ability of the poor to escape from poverty is of particular concern to the World Bank.