World Bank develops new umbrella program for its results-based climate finance initiatives
To successfully achieve climate and development objectives, the world must mobilize trillions of dollars in the coming decade. Public, private, and concessional climate finance needs to be deployed in more transformative and catalytic ways, leveraging additional capital to bridge the gap between available resources and needs. Financing is needed to both incentivize climate action and to build the capacity and infrastructure upon which climate projects and carbon markets will rely. This is where the Scaling Climate Actions by Lowering Emissions [SCALE] will play a key role, catalyzing transformative climate action by deploying Results-Based Climate Finance (RBCF).
Designed as an umbrella program to rapidly achieve scale in deploying climate finance for verified carbon emissions reductions, the new trust-funded program will complement World Bank lending operations with result-based payments that help reduce emissions, provide operational liquidity over the lifecycle of a project, scale up transformative mitigation action in developing countries, and potentially motivate client countries to set more ambitious targets. Perhaps most importantly, SCALE funding will also support those who need it most, with project benefits flowing directly to local communities and indigenous people.
SCALE will help countries to accelerate fulfilment and increase the ambition of their NDCs (Nationally Determined Contributions), while also incentivizing private sector financing and providing potentially tradable carbon assets.
RBCF can accelerate mitigation investments, particularly where the incentives align with cost structures over the lifecycle of a project, and address critical political economy barriers or up-front investment costs. By providing the collateral of an ongoing revenue stream during project operation, RBCF can crowd in up-front capital investments for climate action, including by private sector actors. It also increases successful project delivery by providing an additional revenue stream to cover ongoing operating costs and an incentive for good performance.
RBCF can play a vital role in helping developing countries to realize and expand their climate goals, generating verifiable carbon emissions reductions for client countries to cover NDC commitments and stimulate international carbon markets. It is an efficient way to deliver climate finance under Article 9 of the Paris Agreement, and is intended to generate emissions reductions credits (ERCs) measured and structured to facilitate trading as Internationally Transferred Mitigation Outcomes (ITMOs) in line with Article 6. RBCF directly pays for verified ERCs and can accelerate the transition of entire economic sectors to a lower emissions future.
SCALE projects will thus trigger transformations by providing RBCF, helping countries build systems to access and participate in international carbon markets. As manager of SCALE, the World Bank will oversee efforts intended to ensure that ERCs are accurately monitored and verified, promoting a high level of environmental integrity and social inclusion in all SCALE supported projects, thereby enhancing the co-benefits and value of the ERCs generated.
Most importantly, SCALE will incorporate a significant experience and track record the World Bank has in reducing emissions from deforestation and degradation (REDD+), including jurisdictional approaches and representing the next generation of innovative programs such as the Forest Carbon Partnership Facility (FCPF) and the BioCarbon Fund Initiative for Sustainable Forest Landscapes (ISFL).
SCALE has the potential to make a real impact by providing an innovative one-stop shop for all RBCF within the World Bank, and will serve as an instrument for policy dialogue and broader in-country engagement. It will enable a strategic climate approach by which Development Partners and the World Bank can support our client countries’ priorities and allow high-level policy dialogue, delivering climate finance at scale to achieve greater carbon emissions reductions in support of NDC implementation and increased ambition and incentivize the countries to set more ambitious climate targets.
We must continue to see the two issues of climate and development as inextricably linked if we are to achieve the low carbon and climate-resilient future we all seek. Innovative approaches to climate finance will leverage existing funds to accelerate private sector investment while developing carbon markets and driving more ambitious climate goals and action among countries. Ultimately, financing which addresses transformational goals at both country and international market levels will be key to achieving the collective climate goals of the Paris Agreement and the Glasgow Climate Pact.
Photo Credit: Edwin Baez / World Bank