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Blog » Case Study-Pilot Auction Facility for Methane and Climate Change Mitigation (PAF)

Case Study-Pilot Auction Facility for Methane and Climate Change Mitigation (PAF)

Created Feb 13 2017, 12:00 AM by Julian Sosa Valles
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The Pilot Auction Facility for Methane and Climate Change Mitigation (PAF) is a facility of the World Bank Group and is supported by the USA, Germany, Sweden and Switzerland.[1] The program was launched in 2014. The primary goal of PAF is to “stimulate investment in projects that reduce Greenhouse Gas (GHG) emissions while maximizing the impact of public funds and leveraging private sector financing”.[2] The initial two auctions target projects that reduce methane emissions at landfill, animal waste, and wastewater sites. The first auction targeted only CDM project activities and was conducted in July 2015, with price guarantees cleared at $2.4 US$ per credit for 8.7 million tons of CO2 emission reductions.[3] The second auction was conducted in May 2016 and extended to also include voluntary carbon projects. The auction cleared at $3.5 US$ per credit for 5.7 million tons of CO2 emission reductions.[4] A third auction will target nitrous oxide (N2O) abatement projects and is planned for early 2017. 




Developing countries


Non-combustion emissions


2014 - Present


US$ 53 million


USA, Germany, Sweden and Switzerland fund the program


World Bank

Final beneficiary

Local communities

Inputs and activities Inputs: Finance, knowledge, etc.;
  1. Activities: 1.The World Bank issues “putable bonds” to guarantee a price on GHG abatement results; 2. Auctioning is conducted to ensure that the least-cost climate mitigation activities are selected; 3. Auction winners purchase the “price guarantee” by paying a premium.

On which level are RBCFs used?

At the project level

Disbursement linked indicator(s)





























Program Design: The PAF is designed to set a floor price for future carbon credits by auctioning put options. The put option is embedded into bonds that are issued by the World Bank (obligations are backed by the PAF). In a scenario that market prices of carbon credits exceeds the strike price of the put options, participants forego on the redemption of the option and monetize the carbon credits on the market at higher price. If the carbon prices fall below the strike price, then the owners have the right but not the obligation to sell the carbon credits to PAF at the strike price. This arrangement secures a minimum return for realized GHG mitigation action.



Purpose / Goal


Allocation of climate finance via price guarantees determined through an auctioning approach


Maximize the achievement of greenhouse gas emission (CH4) reductions and also maximize the impact of public fund in efficient ways.


Combat climate change

On which of these levels are measurable indicators defined / formulated?



RBCF Design & DLIs: The PAF is solely based on a RBCF mechanism. Resources of the PAF are disbursed only against verified emission reductions in unit of $/tCO2e. Eligible standards include the CDM, Verified Carbon Standard, and the Gold Standard.

Support Instrument

Type of support granted:

A guaranteed floor price on carbon reduction credits delivered through the auctioning of put options supported by donor funding.

How is the payment related to the goal(s)?

If carbon prices in international markets fall below the strike price, the put option owner has the right to sell the carbon credits to PAF at the strike price.


Lessons-learn: PAF utilizes existing infrastructure, namely MRV systems in respective countries that have participated in the international carbon market. In addition, it can be seen that innovation of design can be integrated into RBCF initiative. At the center of PAF, the market risk mitigation mechanism is crucial to the leverage of private investments. By allocating the put options through an auction, the program introduces competition into the mechanism to ensure good usage of public money.




[1] PAF, Pilot Auction Facility, 2016,
[2] PAF, Pilot Auction Facility, 2016,
[3] Under CDM rule, 1 tonne of methane reduction generates a 25 metric tonnes CO2 equivalent of Certified Emission Reductions.
[4] The net price guarantee was almost equivalent for both auctions as the premium (i.e. the cost of purchasing the price guarantee) was $0.30 US$ per credit for the first auction, and $1.41 US$ per credit for the second auction