Expanding the Pilot Auction Facility (PAF)

Together with Climate Focus, Ecofys investigates how the current use of the World Bank’s Pilot Auction Facility (PAF) could be expanded for efficient delivery of climate finance. The PAF is an innovative, pay-for-performance mechanism which uses auctions to allocate public funds and attract private sector investment to projects that reduce methane emissions.

It builds on the infrastructure of the Clean Development Mechanism (CDM) and takes advantage of the readily available low cost emission reduction opportunities. Via an auction scheme, the PAF rewards the lowest bidders with a minimum price guarantee for their Certified Emission Reductions (CERs) in the form of tradable put options. Project developers have the flexibility to exercise the option, or sell their CERs on the market in case the market price rises above the guaranteed price by the PAF.

The project investigates further opportunities for the use of the PAF model beyond the project categories already targeted. The team analyses under which circumstances auctions can incentivize new investments and whether sectors left out from CDM could be price responsive if targeted through different metrics. The project develops several blueprints for sectors that offer the most potential to be implemented in the short term.

Find the resulting report and additional insights at: pilotauctionfacility.org