The Asian Development Bank (ADB) has established a new fund that will use carbon credits generated beyond 2012 to provide financing for clean energy projects in the Asia-Pacific region.

The current regulatory framework – based on the Kyoto Protocol – expires 31 December 2012, which means trading in carbon credits post-2012 contains a high degree of uncertainty.

This would affect the level of interest in funding new clean energy projects and other climate change initiatives in developing countries. Without long-term price incentives for reducing greenhouse gas emissions, investment funds would quickly flow elsewhere.

“The new fund offers an opportunity to take long-term action on climate change now,” said ADB vice president Ursula Schäfer-Preuss.

“We urgently need new sources of financing for clean energy projects to better design the large infrastructure being built across Asia that will lock in emissions for the next 20 to 30 years. Proper incentives can lead to more balanced, low-carbon investments,” she added.

The new ADB fund, called the Future Carbon Fund, can stimulate new investments in clean energy projects even before a new international agreement to replace Kyoto is reached.

Participants in the fund may include both public and private sector entities in ADB’s 67 member countries. It is a public-private partnership between Philippines-based ADB and governments and companies that have decided to act now.

The fund will provide financing for ADB-supported projects that will continue to generate carbon credits after 2012. The initial target size of the fund is $100m (£51m). It may be increased to $200m (£101m) if there is sufficient demand, said the bank.

“The new fund will provide an incentive for Asia’s developing countries to scale up energy efficiency and use renewable energy sources that will contribute to both climate change mitigation and enhanced energy security,” said Schäfer-Preuss.

The new fund will complement ADB’s Carbon Market Initiative (CMI), said the bank, which provides finance and technical support to projects in the lead up to 2012. CMI’s Asia Pacific Carbon Fund, focusing on carbon credits up to the end of 2012, became operational in May last year and has raised more than $150m (£76m).

The Asia-Pacific region is particularly vulnerable to climate change. Some 1.2 billion people could experience freshwater shortages by 2020, while crop yields in central and south Asia could drop by half between now and 2050.

Asia’s major coastal cities, including Bangkok, Jakarta, Karachi, Manila, Mumbai, and Shanghai are vulnerable to flooding.