EU member states have agreed to distribute 300 million carbon allowances from the bloc’s emissions trading scheme (ETS) to fund renewable energy and carbon capture and storage (CCS) projects from 2013.

This would amount to around €3.9 billion ($5.4 billion) at the current market price of about €13 per tonne of carbon dioxide (CO2), but the sum could increase significantly if the price of carbon rises.

The allowances will be allocated from the ETS’ new entrants’ reserve – a quantity of allowances set aside for newly built installations.

The EU climate change committee agreed funds should be awarded in two stages: the first awarded by the end of December 2011 will offer 200 million allowances to fund eight CCS demonstration projects and one project from each of the 34 renewables sub-categories. Decisions for the second round of 100 million allowances will be made by 31 December 2013.

The committee insisted that the CCS projects in the first call should include at least three with hydrocarbon reservoir storage and at least three with saline aquifer storage. It also noted that more projects may be financed if there are sufficient resources, as long as a balance is maintained between CCS and renewables projects.

The funds should be spread around the EU, with at least one project, but no more than three, per member state, said the committee, adding that the most cost-effective projects should be selected unless “a marginal decrease in cost-effectiveness is offset by a substantial reduction in total cost”.

Financing should be reserved for projects which make use of “innovative technologies” that are “not yet commercially available, but sufficiently mature to be ready for demonstration at pre-commercial scale”, said the draft decision. They should also be advanced enough so that “no significant problems” are faced when projects are scaled up, be easy to replicate and offer “significant prospects for cost-effective CO2 reduction” in the EU and globally.

Since most projects will be co-financed by member states, the committee argued it was only fair for them to decide which projects to submit to the Commission for final selection. Moreover, it agreed that the European Investment Bank, with its “expertise in project selection and financing”, should help Brussels identify projects, performing an assessment of the financial and technical viability of a project.

The draft decision will now go to the European Parliament and the Council of Ministers for scrutiny. If no objections are raised, the Commission should adopt the text in May.

Indonesia, which aims to cut heat- trapping gas emissions by 26 percent by 2020, plans to set up a $1 billion fund to invest in renewable energy projects and water treatment to address the effects of climate change.

The Government Investment Unit, the sovereign wealth fund, will contribute $100 million to the Indonesia Green Investment Fund, which it will oversee, Edward Gustely, a senior adviser at the Ministry of Finance in Jakarta, said in an interview. The fund, which will be set up this year, will raise the remaining $900 million from governments that have expressed interest in investing in it and institutional investors, he said.

Indonesia is turning to low-carbon strategies and tapping its resources to meet demand for energy, food and water to help Southeast Asia’s biggest economy expand. About 52 percent of the 248 million population has access to electricity and about 30 percent to potable water, while 43 percent is engaged in the agriculture sector, Gustely said.

“Other countries are doing it because they want to be good stewards of the environment,” Gustely said. “Indonesia’s immediate focus is less on inventing the technology, but rather on ways to scale greater investment and market deployment of it for supporting these new economic growth poles in a sustainable fashion.”

The governments of the U.S., Australia, Japan, U.K., France, Norway and other European Union nations have shown interest to contribute to the fund, which will also invest in agriculture technology and reforestation, he said.

The size of the fund may be raised to $5 billion over the next five years through “expanded public-private partnerships” and co-investment opportunities, he said.

“IGIF could scale very quickly, though it all depends on a robust project pipeline, asset quality and investor appetite,” he said.

The fund will invest as much as $80 million in each project, according to the fund’s marketing document. Returns will depend on the “expectations” of the investors, Gustely said.

Public-sector investors may want “verifiable evidence” of reduction in greenhouse gas emissions or repayment in the form of carbon credits instead of investment income, while private- sector investors will want “full returns,” he said.

The fund will be modeled after the $250 million Indonesia Clean Technology Fund, in which the Government Investment Unit is a 10 percent co-investor, Gustely said. The fund was closed to investors at the end of last year.

President Susilo Bambang Yudhoyonosaid last year the government was targeting to cut greenhouse gas emissions by 26 percent by 2020 from “business as usual” levels, and as much as 41 percent with international support.

Negotiators at United Nations talks in Copenhagen last month failed to reach agreement on a legally binding treaty establishing limits of carbon dioxide emissions.

Without a legal treaty, envoys reached a non-binding, so- called Copenhagen Accord that sets a Jan. 31 deadline for richer nations to specify 2020 emission targets and poorer countries to state actions being taken to curb greenhouse gases by that year. The agreement also pledges $100 billion a year by the end of the decade for developing countries to adapt to climate change.

Indonesia’s fund will seek investment opportunities to reduce emissions from deforestation and forest degradation, Gustely said.

Indonesia trails China and the U.S. as the biggest carbon dioxide emitting nations, when greenhouse gases from deforestation and land-use changes are included, according to the World Wildlife Fund. Deforestation and forest degradation account for more than 83 percent of Indonesia’s carbon emissions, according to WWF.

The Government Investment Unit was set up in 2007 and manages less than $1 billion in investment capital, Gustely said. It has funded ports and land acquisitions for the 1,800- kilometer (1,119 miles) Trans-Java toll road project, and also invests in domestic-listed securities such as bonds and stocks, he said.

India may let power companies start trading renewable-energy credits in May in a push to create a multibillion-dollar market to encourage reductions in greenhouse-gas emissions.

“We’ll be moving toward completely market-driven renewable energy development with this,” Pramod Deo, chairman of the Central Electricity Regulatory Commission, the power regulator, told Bloomberg News in an interview in Mumbai yesterday.

India is pressing ahead with its own efforts to fight climate change after last month’s Copenhagen talks failed to reach a new global climate treaty. The move puts the world’s fourth-largest emitter ahead of China and other developing nations in creating a domestic emissions-trading market to boost investment in solar, wind and other clean-energy projects.

“This will become one of the most progressive regimes as far as renewable energy is concerned,” said Vinod Kala, managing director of Emergent Ventures India, a New Delhi-based consulting company that estimates trade in renewable energy credits could rise to as much as $10 billion by 2020.

“By April or May, we should have the Renewable Energy Certificate mechanism in place,” Deo said.

The plan would require power distributors including billionaire Anil Ambani’sReliance Infrastructure Ltd, Tata Power Co. and large-scale consumers to ensure a portion of the electricity they carry comes from renewable sources.

If their supply of clean energy falls short, companies must buy certificates from others with surpluses, an incentive for renewable-energy production and a more stable market. Similar rules exist in the U.K. and some U.S. and Australian states.

 “Without a market-based mechanism, renewable energy would have required a large amount of subsidies,” Kala said. “This way you can let the market bear the financial burden rather than government. A proper forward trade of RECs will also let you better assess the financial feasibility of renewable energy projects.”

India rejected binding emission targets on greenhouse gases, saying they might hamper industrial growth, at international climate negotiations in Copenhagen. Without a global climate treaty governing developing countries, the government is moving ahead with efforts to combat climate change by setting up a domestic market for trading emissions credits.

The latest development follows plans to set up a parallel system for trading credits from energy-saving projects, which is expected to grow into a $16 billion market in five years, Ajay Mathur, director-general of India’s Bureau of Energy Efficiency, said last week.

The renewable and energy-savings credits will both trade on the country’s two power exchanges, creating a domestic market that may rival India’s $4 billion-$6 billion international trade in carbon credits if the government’s projections are accurate, said Pranav Nahar, managing director of Evolution Markets, a New Delhi-based carbon finance company.

India is the second-largest generator of carbon credits in the United Nations Clean Development Mechanism, the world’s second-biggest greenhouse-gas trading market. Certified Emissions Credits, or CERs, issued for pollution-cutting projects in India are sold to businesses in Europe and elsewhere seeking to meet either mandatory or voluntary limits.

“It will take at least one year for liquid trade to begin” in renewable energy and energy-saving credits, said Nahar. In time, they will likely be traded interchangeably with CERs, he said.

Separate targets and certificates will be issued for solar versus other renewable sources to ensure investment in the more- expensive solar industry, Deo said.

Credits will have a life of 365 days, plus a grace period, and won’t be transferrable. They will trade in a price band that will be adjusted periodically, he said.