Florian Sekinger, who is head of KfW’s carbon fund, says the new Future of the Carbon Market Foundation will provide finance for Clean Development Mechanism (CDM) projects at an early stage, bridging one of the barriers that has stymied the development of renewables in poorer areas of the world.

The fund will back a carefully selected number of CDM projects, which bundle together thousands of similar emissions-reduction activities — such as household biogas plants, or replacing incandescent light bulbs with energy-saving ones — into a single project.

Such projects, known as Programmes of Activities (PoAs), are seen as a way of scaling up emissions reductions in countries that lack the ability to develop big wind farms or curb emissions from industrial flue gases.

Sekinger says: “In Africa you don’t have, as you do in China, big industrial installations where you can capture a lot of emissions with a single [CDM] project. In Africa you have a lot of villages where kerosene is used for heating or cooking or lighting, and if you manage to bundle this in an economically efficient way, you can make a lot of difference.”

Concerns that carbon finance is eluding poor countries — which account for only 38 of the 3,793 projects registered with the CDM so far — led the EU to decide that after 2012, it will accept offsets in only the poorest countries.

Yet the CDM’s PoA scheme is in its infancy. Only 14 PoAs have been registered by the UN to date, and none have been issued with credits.

Sekinger says the problem is that developers get paid for credits only after they deliver a project. “We want to close that financial gap by making 100% upfront payments for projects. If the PoA is successful, that upfront financing will be paid back with the credits.”

The initiative comes at a crucial time for the CDM and the wider carbon market.

Certified Emissions Reduction certificates — carbon credits based on emissions-reduction projects in the developing world — fell to €3.28 per tonne on the EU Emissions Trading Scheme (ETS) last week, half the price of European Emission Allowances, which are themselves near historic lows.

Jeff Swartz, director of international policy at the International Emissions Trading Association (IETA), welcomes the German initiative to try to make PoAs work at a time when their future after 2015 is being debated.

The IETA hopes that the ETS will accept PoAs in the next phase of the EU scheme. “It’s very important for these projects to get registered and credited,” Swartz adds.