Pilot Auction Facility for Methane and Climate Change Mitigation Framework
The Pilot Auction Facility for Methane and Climate Change Mitigation ("PAF") is an innovative results-based climate finance facility aimed at stimulating investment in low-cost greenhouse gas emission reductions. The PAF would auction put options that guarantee a floor price on carbon emission reduction credits ("ERs").
| Country/region | Period | Budget |
|---|---|---|
|
Global |
31.10.2014
- 31.12.2022 |
CHF 2’375’000
|
-
Project number UR00879
| Background |
In 2013 the G8 commissioned a Methane Finance Study Group to find innovative pay-for-performance mechanisms that can target this potent short lived climate pollutant. The World Bank was requested to serve as a secretariat to the Study Group. In its final report, the group recommendation included the piloting of an auctioning approach. Subsequently, the World Bank, at the request of two Study Group members, Sweden and the United States, commenced a process to design a Pilot Auction Facility for Methane and Climate Change Mitigation. |
| Objectives |
The PAF is intended to facilitate low-carbon development by stimulating climate mitigation and innovation in the delivery of climate finance. The PAF is expected to achieve the following goals: a) informing the design of scaled-up pay-for-performance climate finance approaches, including the Green Climate Forming the design of scaled-up pay-for-performance climate finance approaches, including the Green Climate Fund, by piloting an innovative climate finance mechanism that leverages private capital and uses auctions to ensure maximum value-for-money. b) initially achieving "quick-win" methane emission reductions that otherwise would be released into the atmosphere due to a lack of other policy or financial incentives. c) maximizing the direct engagement and expertise of the private sector. d) testing an innovative contract structure by offering put options to guarantee a minimum carbon price. |
| Medium-term outcomes |
Methane emission reductions that otherwise would be released into the atmosphere due to a lack of other policy or financial incentives. The facility is a pilot for climate finance, which will test a new model to incentivize private sector action in a cost effective way. The pay-for-performance approach will bring important lessons and if successful, can be scaled up by others, including the Green climate Fund. |
| Results |
Expected results: Execution of four to five auction rounds of USD 25 millions. Issuing of put options. Generating of Emmission Reductions (ER). |
| Directorate/federal office responsible |
SECO |
| Credit area |
Development cooperation |
| Budget | Current phase Swiss budget CHF 2’375’000 Swiss disbursement to date CHF 0 Budget inclusive project partner CHF 51’300’000 |
| Project phases |
Phase 1 31.10.2014 - 31.12.2022 (Completed) |
