Deploying the World Bank Group Guarantee Platform to de-risk carbon markets
BAKU, Azerbaijan, November 14, 2024 – The Multilateral Investment Guarantee Agency (MIGA), which houses the World Bank Group Guarantee Platform, has launched a Letter of Authorization (LoA) template to facilitate guarantee issuance in support of private investors engaged in Article 6 carbon markets.
Carbon markets have the potential to deliver a powerful triple bottom line – imperative climate action, strong development outcomes, and much-needed private capital mobilization. Unfortunately, these markets are facing a significant trust deficit which has hindered market participation, slowed decarbonization, and reduced private capital flows to carbon projects in developing economies.
“Despite their size and complexity, market fundamentals of today are the same as those of markets which existed a thousand years ago. They include a reliable place for buyers and sellers to meet, recognized ownership rights, and most importantly, trust, the lubricant of every market. Buyers must trust that the goods they purchase will serve their intended purpose; sellers must trust that the market will provide fair compensation. For over 35 years, MIGA’s guarantees have bred trust,” said Ethiopis Tafara, MIGA Vice President and Chief Finance, Risk, Legal, and Sustainability Officer
In support of the World Bank’s Engagement Roadmap for Carbon Markets, MIGA has consulted with a wide range of market participants on the role of guarantees in strengthening Article 6 carbon markets. Feedback from these stakeholders has pointed to key gating issues related to risks associated with the delivery, use, and quality of carbon credits.
Political drivers and regulatory uncertainty are influencing risk perceptions associated with carbon credit delivery and use. Inadequate frameworks have led to poor legal clarity for salient rights, including the rights to own, dispose and trade carbon credits. In the absence of clear legal definitions, it is difficult for WBG guarantees to be deployed at scale.
In response, MIGA has developed the Letter of Authorization (LoA) template to define legal rights to carbon credits and improve the insurability of investments. Creating an enforceable host government commitment, including compensation and dispute resolution procedures, will unlock the full power of the World Bank Group Guarantee Platform.
“The LoA represents a significant step forward in de-risking the carbon credits market,” said Hiroshi Matano, MIGA Executive Vice President. “Through the World Bank Group Guarantee Platform, we aim to strengthen credibility and accelerate growth in carbon markets by reducing risk for private sector investments in developing countries.”
One key risk the LoA template can cover relates to the double-counting of carbon credits, or a government’s failure to honor its commitment to perform a corresponding adjustment. As an honest broker, the World Bank Group intervenes at the first sign of trouble to resolve potential disputes. This is critical as markets are facing supply constraints, and for many private investors carbon credits are worth more than the dollars spent to purchase them.
“Growing the markets under Article 6 requires harmonization and standardization, including legal arrangements. That’s why we’re confident the release of MIGA’s template LoA will help unlock one of the bottlenecks in the Article 6 supply chain. IETA has welcomed the opportunity to contribute to its development,” said Dirk Forrister, President and CEO of the International Emissions Trading Association.
View a replay of the launch event here: https://live.worldbank.org/en/event/2024/cop29-launching-a-new-solution-to-de-risk-carbon-markets
About the World Bank Group Guarantee Platform
Initiated in 2024, the World Bank Group Guarantee Platform consolidates guarantee products and experts from across the World Bank Group institutions at MIGA. It provides a simplified and comprehensive menu of guarantee solutions, enabling clients to select the instrument that best suits their needs. The platform streamlines processes, removes redundancies, and provides greater accessibility by de-risking investments in developing countries. Its goal is to boost the WBG’s annual guarantee issuance to $20 billion by 2030.
For more information about the guarantee platform, please visit: https://www.worldbank.org/wbgguarantees
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Contact:
In Washington: Elizabeth Howton, (202) 458-5922 or ehowton@worldbankgroup.org