The World Bank has developed an Engagement Roadmap for Carbon Markets to support countries in achieving their climate goals. This roadmap includes a new crediting approach called policy crediting, aimed at helping countries meet their Nationally Determined Contributions (NDCs) and align with Article 6 of the Paris Agreement.
"Policy crediting is a mechanism to reward countries for making policy changes that along with broader development impacts, lead to a decrease of greenhouse gas emissions in the atmosphere," states the World Bank. The process involves monitoring, reporting, and verifying emission reductions, which are then converted into carbon credits. Countries can receive payments for these credits through pre-arranged agreements or by selling them on carbon markets.
In Uzbekistan, energy subsidies have been distorting actual energy costs. With support from the World Bank's Innovative Carbon Resource Application for Energy Transition Project (iCRAFT), funded by the Transformative Carbon Asset Facility (TCAF), the government is reducing these subsidies. This move is expected to result in more efficient energy use and incentivize renewable energy scale-up. The first results-based payment for verified emission reductions was made in June 2024.
Most climate financing has traditionally focused on single projects like renewable energy investments or methane reduction from landfills. However, policy actions can create broader incentives and attract more investment than individual projects. "To fight climate change there is a need for actions from all parts of society and economies," emphasizes the World Bank.
Policy crediting can mobilize financial resources on a larger scale, addressing one of the biggest challenges facing developing countries: access to finance and capacity building support. By implementing supportive policies, countries can achieve economic development, green transition, and meet their NDCs.
The benefits of policy crediting extend beyond financial and environmental gains. It helps countries prepare to participate in international carbon markets by establishing regulatory and legal frameworks for carbon transactions. "By assisting countries in establishing the regulatory and legal frameworks for carbon transactions, we are also laying the groundwork for the country to further replicate this type of project design going forward," notes the World Bank.
Overall, incentivizing policy change provides governments and communities with confidence that their actions will benefit the entire country in the long term while generating results-based payments and reducing greenhouse gases.