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TABLE OF CONTENTS

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UNLOCKING GLOBAL EMISSION REDUCTION CREDIT

Mobilizing ERC Finance

1. Introduction to Emission Reduction Credits

• The World Bank's Emission Reduction Program

• Emission Reduction Credits

• Classification of Emissions Reduction Credit

• Policy Context of Emissions Reduction Credit

2. Financing ERC Generation

• ERC Market Status

• Current Landscape of ERC Financing

• Financing structures to address key risks

• Debt: Example of Emission Reduction-Linked Bond from Vietnam

• Equity: The London Stock Exchange and Foresight Sustainable Forestry

• Fund: Liveligoods Carbon Fund 3

3. Key Enablers of ERC Finance

• Credit Risk in ERC Finance Transactions

• ERC Activity Risk

• Market Risk for ERCs

• Political Risk for ERC Activities

• Rights to ERCs and Their Benefits

• Cross-border ERC Trade

• Government Engagement and Public Sector Participation

• Political Risk Insurance

4. Scaling Finance for ERC Generation

• Key Findings to Scale Up Private Sector Capital for ERC Activities

• Expand ERC-Backed Debt Issuance

• Aggregate ERC Activities

• Establish an ERC Club

Abbreviations: ERC Finance Working Group Report

List of Figures and Tables

Find Full Outline

Debt: Example of Emission Reduction-Linked Bond from Vietnam

Photo Credit: Image by Freepik

On this page: Example of Emission Reduction-Linked Bond from Vietnam. Read more below, or visit Strategic Guidance for Country System Assessments, Guidance for Countries in Assessing ERC Projects, or Mobilizing ERC Finance.

In February 2023, The World Bank issued $50 million Emission Reduction-Linked Notes that mobilized private capital to finance a water purifier project in Vietnam and provided bond investors with a return linked to carbon credits, see Case Study: "Emission Reduction-Linked Notes Mobilize Private Capital for Climate Friendly Project".

Transaction Structure:

Figure 7 Example of Emission Reduction-Linked Bond from Vietnam.

Key features included:

100% principal protected bond with investors receiving the return of principal plus a minimum return at maturity
Use of forgone ordinary bond coupons (monetized through an interest rate swap) to make upfront financing available to a climate friendly project that will generate carbon credits in the future
By securitizing the future carbon credit sales revenue, bond investors earn coupons linked to the number of verified carbon credits generated by a project

Note(s):

This section is intended to be a living document and will be reviewed at regular intervals. The Guidelines have not been prepared with any specific transaction in mind and are meant to serve only as general guidance. It is therefore critical that the Guidelines be reviewed and adapted for specific transactions. Unless expressly stated otherwise, the findings, interpretations, and conclusions expressed in the Materials in this Site are those of the various authors of the Materials and are not necessarily those of The World Bank Group, its member institutions, or their respective Boards of Executive Directors or member countries. For feedback on the content of this section of the website or suggestions for links or materials that could be included, please contact the Public-Private Partnership Resource Center at ppp@worldbank.org.

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Updated: August 7, 2024