CANCUN, Mexico: With billions of dollars in climate aid for poor nations set to go into operation, officials and businesses are looking at a role for private markets, but critics are deeply suspicious.

A draft agreement presented at the UN Cancun climate summit would set up a “Green Climate Fund” to administer assistance to poor nations, steered by a board of 24 members from developed and developing nations.

Wealthy economies already promised to help provide 30 billion dollars in rapid assistance -- for measures such as cleaner technologies and incentives to protect forests -- as well as 100 billion dollars a year in the future, at last year's Copenhagen summit.

Pledges have since increased, including by millions of dollars during the latest major talks here, but overall targets remain distant, with some countries just restating pledges because of tough economic times.

“It's absolutely clear that this (the current targets) cannot be delivered by public funding but that it requires private capital,” said German Environment Minister Norbert Roettgen at a side event in Cancun this week.

“Approximately 85 per cent of investment flows in climate projects so far have been private,” Danish climate minister Lykke Friis pointed out.

How private investment would flow into the green fund is a contentious issue, with many NGOs and poorer countries concerned they would be sidelined.

Financiers have pointed to a potential role for investment funds, venture capital or international banks.

Companies around the world will need to undergo an enormous shift in the way they operate, Imtiaz Ahmad, executive director of carbon finance at Morgan Stanley, said at a Cancun meeting.

“This is not business as usual. If it was we'd still be building coal-fired factories,” Ahmad said.

He pointed to bond markets as a possible solution to absorb the 100 billion dollars per year pledged by 2020 at Copenhagen.“It's very important that we don't as a private sector have the multilateral development banks dictating to us,” he added.

Local operators of environmental projects have meanwhile expressed fears that they will miss out on new investment opportunities, as they did during decades of industrial development.

Simon Thuo, East African coordinator for the Global Water Partnership, said small African businesses feared that slick operations by international companies or powerful local monopolies would win potential funds.

“The regulatory measures need to be improved so it is a level playing field for all actors,” Thuo said.

“At the end of the day, the most important thing is to enhance resilience of societies, especially the poor, not just to meet targets.” The draft agreement suggested the new international organization would be a trustee of the World Bank for the first three years -- a point of controversy for some activists who distrust the Washington-based lender.

Guidelines still need to be set for reporting financial information efficiently, and a dispute remains on whether wealthy nations would be required to provide half of the aid to help the poor adapt.

Then is also the question of how wealthy nations would raise the money.

The Dutch government set up a website, www.faststartfinance.org, in September to improve transparency with publicly available information on the first rapid finance pledges.

Those participating in the website, including the European Union, the United States and Japan, have so far pledged more than 24 billion dollars and committed almost five billion in 2010.

Many hope that concrete financial pledges and successful projects will help maintain momentum in climate talks, despite difficult negotiations.

“It is important to see that, beside this negotiation track, that there is action,” Roettgen said.