World Bank Auction Spurs Carbon Credit Price 5 Times Market

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A reverse auction of put options held by the World Bank resulted in price guarantees for emission credits at $2.40 (2.20 euros) a metric ton, five times Thursday’s benchmark price on ICE Futures Europe.

The price guarantees will cover 8.7 million tons, said Vikram Widge, head of climate and carbon finance for the Washington-based development bank. There were initially 28 bidders seeking guarantees for 22 million tons when Wednesday’s auction started offering guarantees at $8 a ton, indicating healthy demand, he said Thursday on a call with reporters.

The Pilot Auction Facility for Methane and Climate Change Mitigation employs auctions to maximize the use of public resources. Investors bid for tradable put options that give the right to sell emission reductions to the $50 million fund at guaranteed prices. The facility is needed to keep projects running because carbon-credit prices have plunged amid flagging demand.

The first sale result shows the program is “extremely efficient and scalable,” providing sorely needed finance to projects and making capturing methane worth the cost, Widge said. Methane is a potent greenhouse gas with a global-warming potential 25 times that of carbon dioxide.

$20.9 Million

Twelve unspecified companies won in the auction and will be paid $20.9 million should they exercise through Nov. 30, 2020, Widge said.

Certified Emission Reductions for December settled down 2.3 percent Thursday at 43 euro cents, according to ICE data.

The first auction focused on methane-reduction projects at landfills, agricultural and wastewater sites, the bank said. It’s planning a second auction following climate talks in December, Widge said.

Most of the eligible projects are in Brazil, India, Indonesia, Malaysia, Mexico and Thailand, the bank said. The auction winners, who pay a 30 cent-a-ton premium for their options, purchase a special type of World Bank bond that pays holders a guaranteed price upon delivery of eligible carbon credits, it said.

Donors are Germany, Sweden, Switzerland and the U.S., which have agreed to contribute more than $50 million to the facility. It has a capitalization target of $100 million and is fundraising.

Some nations including the EU and China are preparing carbon markets to help them comply with targets under the planned universal climate accord being put together this year under a United Nations process.

Some of the facility’s donor countries will receive their share of the credits delivered through the methane program and have agreed not to use them for international compliance goals, the bank said in an e-mailed reply to questions. Discussion about whether countries may use the credits for compliance in the future is speculative, it said.

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