The Earth Fund was launched in Bali yesterday to facilitate market-based environmental innovation in developing countries.

The fund was launched by the Global Environmental Facility (GEF)and International Finance Corporation (IFC), the private sector arm of the World Bank Group, during an ongoing UN climate change conference in Bali, a resort island of Indonesia.

The fund will be open to the private sector, foundations and other partners, that will support innovative and market-based solutions for the most pressing environmental challenges in developing countries, a press release of GEF and IFC said.

The GEF and the IFC will designate US$50 million and US$10 million, respectively, to the fund, which has already attracted several partners and is expected to grow to 200 million dollars through additional contributions from private sector companies, foundations, NGOs and other development agencies.

"A key goal for us at the GEF is to support innovative solutions to environmental challenges in developing countries. US$50 million have been set aside towards the Earth Fund because I am committed to the proposition that the private and the public sectors together can play an irreplaceable role in addressing the underlying causes of environmental degradation," said Monique Barbut, GEF CEO and Chairperson.

In order to maximize its impact, the fund will use a wide array of financial instruments, including grants, soft loans, equity participation, as well as inducement prizes that reward environmental innovation in areas such as second generation biofuels, water treatment or clean energies.

"We hope the Earth Fund, in particular the use of prizes, will encourage innovation, venture capital and early stage investment in new products yet to be commercially developed," said Rachel Kyte, IFC Director for Environment and Social Development.

"The global environmental challenges of our time require rapid intensification of our efforts to both mobilize private investment in the search for solutions as well as to secure new partnerships to bring this investment into developing countries," he said.

The two-week UN climate conference, which kicked off on Dec. 3 and will end on Dec. 14 is tasked with drawing up a "roadmap" for negotiations on a new climate deal before the current phase of the 1997 Kyoto Protocol expires in 2012.

The GEF is a 178 member-strong international financing body devoted to the protection of the global environment in developing countries.

IFC is a member of the World Bank Group, fosters sustainable economic growth in developing countries by financing private sector investment, mobilizing private capital in local and international financial markets, and providing advisory and risk mitigation services to businesses and governments.