Facility leverages capital markets for climate action to reduce 21 million tons of CO2 equivalent
WASHINGTON DC, December 14, 2021 – The World Bank (International Bank for Reconstruction and Development, IBRD) has made a bond payment worth $3.2 million as part of the repayment of bonds issued in connection with the Pilot Auction Facility for Methane and Climate Change Mitigation (PAF). The payment, the sixth and final payment under the piloting phase of the facility, supports the reduction of methane emissions at landfill project sites in Brazil and Malaysia, representing 1.6 million tons worth of eligible emission reductions.
The PAF is an innovative program that uses auctions and price guarantees to leverage private sector investment in climate action. IBRD issued bonds in connection with the PAF after companies competed in the PAF’s fourth online auction, in March 2020, by bidding on the lowest financial incentives they needed to make climate-friendly investments and reduce emissions. The winners of the auction paid to purchase IBRD bonds that gave them the right, but not the obligation, to sell eligible carbon credits from methane abatement projects to the PAF at a specified price level in the future.
The investors received redemption payments on their bonds only after achieving and delivering to the PAF independently verified emissions reductions. The bonds allow investors flexibility as they can sell their bonds to other firms if they either cannot deliver the relevant emission reductions or if they choose to sell the relevant emission reductions to another buyer, taking advantage of favorable carbon markets prices for their carbon credits.
Since the start of the program in 2015, US$54.7 million have been paid to investors in exchange for carbon credits representing 21.3 million tons of CO2 equivalent, in effect reducing more emissions than a country like Kenya produces in a year. The carbon credits represent the amount of harmful greenhouse gases that companies have prevented from being released in the atmosphere.
The climate auctions model, piloted by the PAF, is being explored for replication in other high-emitting sectors. The results achieved through the four auctions and the redemption of bonds in exchange for verified emission reductions has demonstrated its potential to be used by governments and other institutions to leverage private sector financing for climate action.
Head of Investor Relations and Sustainable Finance
World Bank Treasury