Sold! Using Auctions to Unlock Capital Markets for Climate Action

Thu Mar 01 00:00:00 EST 2018
Dr. Chantale LaCasse and Benjamin Chee

Climate-related risks continue to threaten global prosperity, according to the World Economic Forum’s The Global Risks Report 2018. While extreme weather events damage business and government operations, the costs of reducing greenhouse gas (GHG) emissions are high and the public funds available are limited. Marsh & McLennan Companies—a leader in climate resilience solutions for corporations and governments—has published The 2018 MMC Climate Resilience Handbook (the Handbook) first released at the 2018 Greenbiz Forum. The Handbook provides case studies on effective strategies for cost efficient shifts to low-carbon economies and societies, financing options for stimulating capital investments in green technology, and risk management insights that may be applied to enhance organizational climate resilience.

NERA Managing Director Dr. Chantale LaCasse and Director Benjamin Chee contributed the chapter, “Sold! Using Auctions to Unlock Capital Markets for Climate Action,” to the Handbook. Dr. LaCasse and Mr. Chee discuss the World Bank’s Pilot Auction Facility for Methane and Climate Change Mitigation (PAF). The PAF offers a financial incentive for GHG abatement programs, which may be used at the local, national, and global level. The PAF, using a clock auction format to allocate public funds, selects entities that require the least additional funding per ton of carbon dioxide equivalent (tCO2e). The PAF also features a pay-for-performance mechanism: the public funds allocated are only delivered upon achievement of emissions reductions, which transfers the risk of any project implementation failure or inefficient project implementation outcomes from the PAF to the winning bidders. NERA developed the detailed auction rules and managed successful auctions held under the PAF.

For more information about the PAF, please visit the Pilot Auction Facility website.