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Carbon Payments for Development
$4.4 trillion
It is estimated to cost US$ 4.4 trillion for developing countries to implement their Nationally Determined Contributions, countries’ pledges to the Paris Agreement.
70%
Annual energy-related CO2 emissions need to decline 70% below today's levels by 2050 to set the world on a pathway toward meeting climate goals.
The Carbon Payments for Development (CP4D) Facility is a framework that aims to enable participating countries and partners to leverage carbon markets for private climate investments that advance global development and climate goals.
To address today’s interconnected crises, it is essential to find innovative, effective and context-sensitive ways to stimulate and scale up investment and finance for NDCs and national development plans. While critical, public funds won’t be enough to finance developing countries’ climate plans. The vast majority of emission reduction activities need to be implemented and financed by private sector and businesses. These same activities will also help countries achieve other sustainable development objectives, as most climate solutions have multiple co-benefits for people and planet.
Many well thought-out and carefully designed plans to implement NDCs are in place. It’s now time to identify suitable finance approaches so these plans can be implemented. Article 6 of the Paris Agreement details a set of tools and mechanisms, such as cooperative approaches and the transfer of Internationally Transferrable Mitigation Outcomes (ITMOs), that can stimulate investments into mitigation activities and NDC implementation.
What is the Carbon Payments for Development Facility?
The Carbon Payments for Development Facility (CP4D) aims to promote ambitious climate action with a focus on energy-based mitigation approaches by supporting developing countries implement their climate plansachieve ambitious mitigation goals. It has been designed to deliver climate and social impacts quickly and at scale. Through a performance-based payments modality and carbon finance, the Facility will de-risk and incentivise private sector investments into projects that directly contribute towards countries’ conditional NDCs.
Through engaging partners across the value chain—from donors to local project developers—over its ten-year lifespan, CP4D aims to reduce emissions by approximately 27 million tCO2e – equivalent to the emissions emitted by 5.8 million gasoline-powered passenger vehicles driven for one year. By targeting a private sector-driven approach to NDC implementation, CP4D hopes to stimulate lasting changes to developing countries’ economies and frontier markets and catalyse sustainable, low carbon development. By de-risking investments into climate projects, CP4D will create jobs and drive market growth to support a green recovery from the COVID-19 crisis.
Alongside its core objectives of reducing emissions, mobilizing private green finance, providing value for money for donors, generating new projects in underserved communities, the provision of technical assistance to countries entering carbon markets is an essential element of the support the CP4D will offer to countries, to facilitate the achievements of the above listed objectives.
Our focus
Overall, CP4D currently supports 7 countries through project implementation, technical assistance and/or capacity development: Peru, Senegal, Georgia, Ghana, Vanuatu, Ukraine and Uruguay. Key CP4D activities include:
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Internationally Transferrable Mitigation Outcomes (ITMOs) for Development as a collaboration with the Swiss Federal Office for the Environment, with active projects in Ghana, Georgia, Peru, Ukraine and Vanuatu and with a pipeline of projects in additional countries.
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Article 6 Transfer Readiness Project with the Swiss State Secretariat for Economic Affairs (SECO), soon with additional funding from South Korea and Sweden, with active projects in Peru, Senegal, Georgia and Ghana.
ITMOs for Development
This joint activity with the Swiss Federal Office for the Environment (FOEN) is a $42 million pay-for-results collaboration to unlock the development benefits of private climate investments in developing countries while supporting Switzerland to reduce greenhouse gas emissions generated by its government operations.
Beyond emissions reductions, climate mitigation projects can directly or indirectly yield many development benefits – including job creation, access to energy, support to livelihoods and food security, gender empowerment and more. This new agreement – the first of its kind for UNDP – will be active from 2022 until 2031 and aims to boost the development benefits associated with climate mitigation projects. It currently supports energy access through solar power in Vanuatu and climate-smart agriculture and composting in Ghana, Peru and Ukraine and waste management in Georgia. Through this initiative, UNDP is among the first to create concrete demand for ITMOs and is bound to become one of the world’s biggest ITMO buyer.
How does it work?
In-line with the outcomes of the COP26, Switzerland will reduce its greenhouse gas emissions by using Internationally Transferrable Mitigation Outcomes (ITMOs) to indirectly pay for climate mitigation projects with strong development benefits in developing countries. UNDP will implement projects that will generate up to 2,3 million tonnes of CO2 equivalent in emissions reductions for Switzerland while advancing progress on the Sustainable Development Goals (SDGs) in developing countries. In order to catalyze finance and increase the scale and impact of these projects, UNDP will focus on projects that leverage private sector investments, with all project investment and implementation costs to be covered by private sector partners. UNDP will channel payments for ITMOs to private sector project proponents who invest upfront in low-carbon solutions in developing countries through a payment-for-result mechanism. The payment-for-result scheme incentivizes private investments by creating additional revenue for investors, which lowers the risks and makes these investments bankable. On average, for a project under this mechanism, private sector investments will be equivalent to four times the carbon payments generated by ITMOs.
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Article 6 Transfer Readiness Project
The Article 6 Transfer Readiness Project with the Swiss State Secretariat for Economic Affairs (SECO), with additional support from South Korea, aims to complement the ITMO for Development project by providing the technical assistance necessary to countries to develop Article 6 transfer readiness and enhance countries’ carbon market participation in up to six developing countries. The Transfer Readiness Assistance project will provide technical assistance in up to 6 countries targeted towards the following deliverables:
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Assessment of capacity gaps and needs for ITMO transfer readiness
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Development of the legal setting for Article 6.2
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Strengthening of ITMO operational processes
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Facilitation digital process flows to strengthen cooperation and enhance awareness of Article 6.2
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Hands-on ‘learning by doing’ on the operationalization of the ITMO project cycle
Countries currently supported include Peru, Senegal, Georgia and Ghana to conduct a capacity gaps and needs assessment for ITMO transfer readiness to identify countries’ readiness and capacity building needs to develop and operationalize ITMO projects, track results and process the Corresponding Adjustments.
UNDP will help countries build capacity and improve their carbon market readiness and enhance ITMO workflows through Carbon Cooperation, a new digital platform which aims to help countries process ITMO projects more transparently and efficiently. UNDP and UNFCCC also launched at COP27 an Article 6.2 capacity development online course. The course aims to equip government representatives, private sector and civil society to make decisions related to the participation in cooperative approaches under Article 6.2 of the Paris Agreement, and to help relevant policymakers and technical staff to understand the different policy, technical and processes components required to operationalize Article 6.2 in their country.