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Wednesday, November 22, 2017

WB pilots auction of carbon credit redemptions in ASEAN countries

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By Myrna M. Velasco

 

The World Bank (WB) has successfully piloted the auction of carbon credits redemption from the capture of methane emissions in some developing countries, including in the Southeast Asian region.

It divulged that it had succeeded in providing $3.0 million worth of innovative capital markets instruments for landfills in Malaysia and Thailand – and the other market involved is Brazil.

The carbon credits had been from four projects – the Jeram landfill gas recovery project in Malaysia; the Kamphaeng Saen West and East and Landfill Gas to Electricity Projects in Bangkok, Thailand; and the Central de Residuos do Recreio Landfill Gas Project in Brazil.

Such had been part of the World Bank’s Pilot Auction Facility (PAF) for methane and climate change mitigation – done through ‘put options’ which gave winning bidders the right “but not the obligation to sell future carbon credits to the facility at a price determined by the auction.”

The bank explained further that “ the winners redeem these options annually, with today’s payment representing the first redemption.”

When the auction was first undertaken in 2015, the bank noted that “28 firms participated” and 12 won options to sell carbon credits to the PAF at $2.40 per carbon credit over a five-year period.

“The auction provided winners with approximately $20 million in options, or about $4.0 million per year,” the World Bank has noted.

The bank added “over the past 17 months, the owners of these contracts have invested in and sustained projects that reduce methane emissions, relying on the guaranteed payment for carbon credits to back their investments.”

It expounded that “the options were structured in the form of World Bank bonds that pay zero interest and provide a final redemption amount of $2.40 per carbon credit as long as the bondholder surrenders an eligible carbon credit.” Tapped as global agent for the transaction is Citi.

The first tranche of the bonds matured on November 30, 2016 – and investors are given the choice to exercise their right to redeem – receiving a total payment of $3.1 million in exchange for carbon credits, that then represents the equivalent of over 1.3 million metric tons of reduced carbon dioxide emissions.

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