At a Glance
- The World Bank Group is a pioneer in developing new mechanisms and mobilizing funding for climate change mitigation and adaptation.
- The Pilot Auction Facility for Methane and Climate Change Mitigation (PAF) is an innovative climate finance mechanism, which will provide a minimum price guarantee for carbon credits to private investors.
- The minimum price guarantee will be allocated through a competitive auction where project developers will bid on a put option giving them the right, but not the obligation, to sell their future credits at the guaranteed price.
- The facility is backed by several donors and the current target capitalization is $100 million.
Financing for climate change mitigation and adaptation is an important part of the World Bank Group's mission. The World Bank Group deploys, leverages, and mobilizes climate finance through a set of innovative instruments that address gaps, risks, and barriers to climate-resilient development and mitigation for its clients.
The World Bank Group Experience
In the area of carbon markets, the World Bank Group is widely credited with helping catalyze the market through its 13 carbon funds, which have mobilized $3.3 billion of participant support to provide project financing and technical assistance to a broad range of projects, including several that reduce methane. The Bank also serves as the Monetization Agent for the Adaptation Fund.
Outside of climate change, the World Bank Group also has state-of-the-art expertise in structuring and issuing innovative financial instruments to deliver results-based financing for a range of development objectives and in mobilizing concessional finance to support them, for example the Advance Market Commitment for Pneumococcal Vaccine, the International Financing Facility for Immunization, etc.
The Pilot Auction Facility for Methane and Climate Change Mitigation
The Pilot Auction Facility for Methane and Climate Change Mitigation (PAF) is an innovative mechanism that pioneers the use of auctions to allocate public finance for climate action efficiently.
The PAF was initiated as a result of a report from the Methane Finance Study Group, an international group of experts convened at the request of the G8. The facility will demonstrate a new pay-for-performance mechanism that takes advantage of existing tools and experience developed at the multilateral level under the Clean Development Mechanism and related carbon markets to deliver financing, in the form of a price guarantee, to projects that combat climate change. The guaranteed floor price will be delivered through the auctioning of put options supported by donor funding.
The competitive nature of the auction used to allocate the price guarantee will reveal the minimum price required by the private sector to invest in climate mitigation projects, therefore maximizing the impact of public funds and achieving the highest volume of climate benefits per dollar.
The PAF is backed by several government donors and has a capitalization target of $100 million. In a first phase, it will support projects that cut methane emissions at landfill, animal waste, and wastewater sites facing the challenge of low carbon prices.