World Bank Launches $20M Carbon Credit Auction for Methane Projects

Almost three months have passed since the COP21 climate talks in Paris. While much of the world seems to have already forgotten or moved on, many businesses and organizations are still aggressively moving forward. One of them is the World Bank, which has taken a forceful stance on various means of climate finance this decade. Among its various projects are auctions of carbon credits, including one series that is specifically focused on reducing methane emissions globally.

Central to this effort is the Pilot Auction Facility (PAF), which the World Bank has started in an effort to invest in projects that reduce greenhouse gas emissions that maximize funds donated from both the private and public sectors. Backed largely by Germany, Sweden, Switzerland and the United States, the PAF currently has a target market capitalization of $100 million. Countries that have the potential to benefit from such an auction includes the Philippines, one of many developing nations that has struggled with both its carbon and methane emissions but can potentially benefit from the World Bank’s various carbon credit programs.

The second PAF auction will occur this year on May 12, though bidders interested in participating must send an application by April 8. Projects that could qualify include those that address emissions that emanate from landfills, wastewater processing sites and locations where animal waste has been a persistent problem. While the PAF’s funding may seem small at global scale, its long term impact is promising, especially when considering that the U.S. Environmental Protection Agency (EPA) has stated that pound-for-pound over a 100-year period, methane is 25 more times more potent than carbon emissions.

For the May auction, the PAF will offer a strike price of $3.50 a ton, with the initial bid starting at 6 cents per ton. Bids can be small as 200,000 tons per CO2 equivalent with the maximum bid up to 2.5 million tons. Organizations with the winning bids will be required to purchase a series of put options for four years. According to Reuters, that high of a strike price is in start contrast to currently traded prices, which are hovering around 38 cents per ton.

In the World Bank’s view, there is precedent for this May’s auction, as the first auction held last summer specifically for methane-related projects attracted 28 bidders, with 12 companies scoring winning bids. That auction, held online, resulted in price guarantees for 8.7 million tons of CO2 at a price of $2.40 for each credit.

The World Bank insists that its effort is critical as 1,200 methane reduction projects currently on the books are threatened with decommissioning due to the current low prices of carbon credits. In order to raise awareness, this month the World Bank will soon start the equivalent of a “road show” around the world to tout the potential benefits the PAF can reap for these carbon credit buyers. The first such consultation will be held next week, with additional meetings scheduled in India, Switzerland, Colombia, Brazil and finally, Washington DC. Two online seminars are also on the World Bank’s agenda. Should the World Bank find success with this approach, look for other global organizations to follow suit as they seek more innovation solutions to avoid risks associated with climate change.

Image credit: Flickr (World Bank)