In August of 2017, The Climate Trust launched the Environmental Price Assurance Facility (EPAF) with the support of a Conservation Innovation Grant from the U.S. Department of Agriculture. The EPAF brings the World Bank’s successful Pilot Auction Facility (PAF) model for international offsets to benefit conservation in the U.S. The EPAF is designed to mobilize private capital to invest in conservation by auctioning contracts that provide long-term price assurance for environmental markets.
The outcomes of the PAF auctions to date clearly demonstrate strong demand for long-term price assurance in international carbon markets and the opportunity to adapt the PAF to new markets. As a nonprofit with two decades of experience managing carbon funds, The Trust is ideally positioned to adopt this model for landowners, project developers and investors building conservation projects in the U.S.
The uncertain value of future environmental credits diminishes the ability of markets to mobilize much-needed capital for conservation projects. Investors and lenders heavily or completely discount the future value of environmental credits based on perceived political risk that credit value could fall significantly. Given this perceived risk, insufficient capital is being invested into sectors that have the opportunity to generate environmental credits and provide verifiable conservation benefits.
The EPAF will auction long-term, minimum price guarantees to project developers, landowners, and green investors working on projects with the potential to generate environmental credits. To begin, EPAF price guarantees will be structured as a put option. These contracts guarantee a minimum value for future credits—assuring projects, investors, and lenders that environmental markets have real value. The EPAF anticipates running its first auction in the third quarter of 2018.
The success and impact of the EPAF will be quantified according to the level of auction competition, and the quantity of additional capital raised over the next three years.
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We Can Meet the U.S. Paris Commitment without Federal Support | February 8, 2017
Using Auctions to Support Climate and Development Outcomes | December 12, 2016
How the Public Sector Can Mitigate Risk for Conservation Investors | March 16, 2016
Lessons Learned: the First Auction of the Pilot Auction Facility | July 2015