The World Bank held its first methane-reducing auction, where it is piloting the idea of paying businesses that capture and reuse the gas.
This first round focuses on reducing methane emissions from landfills, wastewater treatment plants and agriculture. Projects are in developing countries, mostly in Brazil, India, Indonesia, Malaysia, Mexico and Thailand. In this first round – which occurred online – 12 of 28 bidders won, ranging from multinationals to small, local businesses.
The World Bank explains: "If a business manager or owner in a developing country captures methane from his landfill – instead of releasing it into the atmosphere – the resulting emission reductions could generate carbon credits. But today, the price of a carbon credit is so low that managers can’t cover the operating and maintenance cost of capturing methane. As a result, a pool of 1200 identified similar operations in developing countries are at risk of stopping capturing methane."
Winners receive a price guarantee based on performance – how much methane they capture and reuse. They are paid with carbon credits – which can be used or traded – after independent auditors verify emission reductions on the ground.
The US, Germany, Sweden, Switzerland are contributing over $50 million for the methane auctions and the World Bank is fundraising to double that. It plans to hold several auctions over the next near year or so.
"This is just the kind of financial innovation needed to help bolster the impact of scarce public funds and entice the private sector to make investments in projects that reduce greenhouse gas emissions," says Rachel Kyte, Vice President and Special Envoy for Climate Change for the World Bank. "This structure has the potential to be applied to other climate pollutants in addition to methane, which we are excited to explore," says Doris Herrera-Pol, Global Head of Capital Markets at the World Bank.
Decarbonizing Development: Three Steps to a Zero-Carbon Future
In a recent World Bank report, Decarbonizing Development: Three Steps to a Zero-Carbon Future, getting prices and incentives right is crucial for successfully getting emissions to zero by 2100. The other steps are "plan for the end goal, not just the short-term" and "smooth the transition for those most affected."
Besides carbon taxes, other policies that encourage the right private investments are: performance standards for energy efficiency, rebates on fuel-efficient vehicles, reduced tariffs on low-carbon technologies, and Renewable Portfolio Standards that require electricity providers to get a percentage of their power from renewable sources. This is still fairly affordable, but if the world waits until 2030, it will cost 50% more, they say.
They also advocate for eliminating fossil fuel subsidies – which primarily benefit the wealthy – and to use carbon taxes or cap-and-trade systems to generate revenue for education, health and infrastructure. This will smooth the transition for those most affected and help businesses reinvent themselves for a cleaner world.
Learn more about the World Bank auctions: