The World Bank Group is taking the leadership on piloting innovative climate finance solutions that maximize the impact of public funds and leverage private sector financing by putting a price on carbon at a time when carbon markets have collapsed. Due to low price on carbon, green investments by the private sector in developing countries have slowed down.
The Pilot Auction Facility for Methane and Climate Mitigation (PAF) aims to stimulate such investments by revealing a price on carbon through auctions, and providing a “floor” price on carbon which is guaranteed by the facility.
Limiting the average global temperature rise to under 2°C is a prerequisite to avoiding dangerous climate change. Urgent action is needed to not only reduce greenhouse gas emissions, but to help countries build resilience and prepare for a world of dramatic climate and weather extremes.
Mobilizing finance for climate action is a priority, but public resources are not sufficient. In the energy sector alone, the additional investment required consistent with a 2°C scenario is estimated to be $910 billion per year during 2010-2050.
With limited public resources there is a need to ensure they achieve maximum impact and leverage private investments. But the collapse of carbon prices has removed the important incentive which encouraged the private sector to invest in clean technology projects, and consequently many projects that reduce greenhouse gas emissions are at risk of being decommissioned.
Targeting methane emission reductions.
Methane, a by-product of a range of industrial and agricultural processes – mainly waste and fossil-fuel extraction – is a highly potent greenhouse gas with a global warming potential 25 times that of carbon dioxide. Methane actions alone are responsible for approximately half of the potential of 0.4-0.5°C in avoided global warming by 2050. Implementation of technically feasible and cost-effective methane reduction measures would not only slow the rate of climate change over the next decades but also contribute to improvements in local air quality and food security. Additionally, captured methane can be burned for cooking or electricity generation, contributing to increased access to clean energy.
Commercial technologies are available.
Technologies that reduce methane emissions are relatively inexpensive and had been used more widely as the carbon market developed. But with the dramatic plunge in carbon prices since 2011, carbon revenues are not sufficient to make those projects viable. As a result, about 1,200 methane-reduction projects have been identified in 2012 as dormant or incomplete. Most of the projects are located in Brazil, China, India, Indonesia, Malaysia, Mexico and Thailand. The additional revenue required to unlock these investments is often small. The methane sectors studied could deliver as much as emission reductions of 8,200 million tons of carbon dioxide in developing countries by 2020 at less than $10 per ton in incremental cost financing.