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This report prepared by Vivid Economics, aims to present an overview of the potential and suitability of climate auctions to support the implementation of Nationally Determined Contributions (NDCs). The study considers the role of climate auctions in more detail:
- Discusses the role of auctions in delivering cost-effective climate outcomes.
- Presents the World Bank’s PAF model as an example of the climate auction model, illustrating some of its potential and initial lessons learnt.
- Assesses the policy context in which climate auctions might support the activities embedded within any country’s NDC; indicating that climate auctions can support NDC implementation by playing a transition role, taking account of the role of public resources in the model.
- Highlights that the climate auction model may be most effective in delivering climate outcomes when identified opportunities are suitable for auctions, results-based payments, and can benefit from price guarantees.
“Climate auctions may be an attractive option for supporting cost-effective NDC implementation, as part of a transition towards the greater use of market-based instruments. The use of competitive bidding and the results-based nature of the auction model helps ensure that public resources are allocated efficiently and effectively, and allows firms to become increasingly familiar with responding to price signals to deliver abatement. At the same time, the continued use of public funds embedded in the model may enhance its political feasibility relative to carbon pricing measures, at least in the short term. Over time, climate auctions can help build [monitoring, reporting and verification] MRV capacity and an ecosystem of firms (project developers, consultants) well versed in understanding where there are climate outcome opportunities and what the costs may be, which may allow a transition towards more conventional carbon pricing instruments.”