The World Bank has launched a pilot auction facility to catalyse investment in methane-reduction projects in developing countries.
The pilot will allow project developers and financiers compete to deliver the most efficient projects by auctioning price guarantees for emission reductions from projects.
It will begin with technologies that reduce methane emissions at landfill, animal waste and wastewater sites.
There are a large number of these projects in developing countries, but many are struggling financially, according to the World Bank.
However, the additional revenue needed to unlock investments in such projects is often small, the bank says. It has estimated that there are enough potential projects to deliver as much as 8,200 million tonnes of emission reductions at less than $10 per tonne.
Buyers will bid to receive a tradable option for a guaranteed price for each tonne of methane emissions that such projects reduce.
This price guarantee will give private investors a financial incentive to fund projects as the competitive nature of the auction will determine the value of the guarantee, maximising the efficient use and impact of public funds, according to the bank.
Under the scheme, the guaranteed price will only be paid once the emission reductions are independently verified by auditors.
It will also be possible to transfer ownership of options if, for example, the buyer has a landfill site that is not generating the anticipated volume of carbon credits and they can find a buyer.
Trading will maximise the likelihood that the facility will achieve its full potential to reduce emissions, the bank said.
"We hope this pilot auction facility will be an efficient way to reduce emissions and price carbon.
"If so, it will be the latest example of the kind of financial innovation needed to spur the private sector investment for scaled up climate action,” said Rachel Kyte, World Bank group vice president and special envoy for climate change.
If the pilot is successful, it will consider other sectors and technologies, the bank said.
