Investors in the global carbon market were waiting for signals from the Copenhagen climate conference, hoping for an extension of the Kyoto Protocol (KP), said Abyd Karmali, President of the Carbon Markets & Investors Association (CMIA).

Karmali told Xinhua in an exclusive interview during the conference that the current KP-backed mechanisms for the carbon market, such as the Clean Development Mechanism (CDM)," would expire in 2012, so most investors were not willing to purchase credits beyond that date.

The KP, which was adopted by the Conference of Parties of the UN Framework Convention on Climate Change (UNFCCC) in 1997, laid the foundation for global carbon markets via mechanisms such as CDM. But the 2012 expiry date leaves the future of the carbon market uncertain.

"So we will still be in a state of heightened policy uncertainty, which means high risks for investors," said Karmali, "We definitely wish the extension of the Kyoto Protocol."

CMIA members consist of leading investors, including Bank of America Merrill Lynch, JP Morgan and Deutsche Bank, which accounted for 75 percent of the global carbon market in 2008.

Karmali is also the global head of carbon markets at Bank of America Merrill Lynch, which has prepared "US$20 billion for green investment and lending over the next 10 years." He said the total potential of investments from CMIA members was hard to estimate.

But in the UN climate conference currently underway here, some developed countries are arguing against a second period of the KP, which sets a legally binding emission reduction target for developed countries.

Therefore, Karmali and other bankers are here to probe the situation. Their decisions "depend on what signals come out of Copenhagen." There could be more money flowing more quickly if direction was clearer.

Karmali has also given speeches and taken part in side events. "My involvement here is to help educate policy makers and other stakeholders like NGOs and large emitters, about the importance of market-based mechanisms," he said.

According to Karmali, there would be a need of 200 billion dollars a year by 2020 in the carbon market, most of which can't be met by the government offers on the table. A big portion, perhaps US$150 billion, might have to come from the private sector, he said.

"Public funding and private funding have to go hand in hand," and a small amount of public funding could incentivize large flows of market capital, he added.

There were already "good signals" in Copenhagen, Karmali said, adding that the EU target of reducing emission by 20 percent could be probably pushed to 30 percent, which could help increase the demand for carbon market.

"The challenge about climate change and the carbon market is that the whole market is created by policy," he said.

Karmali welcomes the two tracks at the climate conference, one of which is aimed at Kyoto Protocol extension, which "extends the period for the mechanisms."

(Xinhua News Agency December 17, 2009)