The paper presents a new innovative approach that the authors call “Climate Impact Auctions”. They argue that this could transform international climate finance by offering results-based incentives for renewable energy projects, allowing funds to stretch further, attract small and medium-sized enterprises, and prioritise impactful, measurable outcomes. Over time, the approach could be expanded to other types of projects that reduce emissions or help developing countries adapt to a changing climate.
“Developing countries are essential partners in reducing greenhouse gas emissions, but they need targeted and efficient financial support” said Joanes Atela, the Executive Director of African Research & Impact Network, who co-authored the paper with a group of international climate-finance experts. “Climate Impact Auctions could be key to accelerating renewable energy in these countries by offering incentives based on actual impact.”
Low- and middle-income countries account for 72 per cent of global greenhouse-gas emissions. Without swift action in these countries, the goal of limiting global temperature increases to under two degrees Celsius cannot be reached. High-income countries have committed US$100 billion annually to support climate action in developing countries, with plans to establish a new goal at COP29.
“But current financial aid flows have limitations” added economist Aidan Hollis, one of the paper’s co-authors. “Current processes for providing climate finance are lengthy and burdensome and often lack measurable outcomes. The model we are proposing aims to address these gaps by implementing results-based auctions, allowing donor and recipient countries to get the maximum impact from each dollar spent.”
Under the proposed Climate Impact Auctions model, public or private entities submit competitive bids for a fixed total amount of climate-related subsidies. Successful bidders then receive results-based payments for producing renewable energy, such as solar and wind. Additionally, by offering payments per kilowatt-hour of renewable energy produced, the model supports transparency and accountability, aligning incentives with real-world outcomes.
High-income countries, like Canada and Germany, have previously used similar reverse-auction methods domestically to accelerate renewable energy investment. Applying a results-based approach offers the potential to rapidly expand the effectiveness of international climate finance in developing countries.
“High-income countries caused most of the emissions that have accumulated in the atmosphere” said co-author Clara Brandi of the German Institute of Development and Sustainability (IDOS). “They have a duty to support solutions in those countries that did not contribute as much to the problem yet are often most impacted by climate change. Climate Impact Auctions can help ensure that support is impactful and measurable, while providing benefits to countries around the world through reduced emissions.”
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