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Potential Future Involvement of Development Institutions, Including the World Bank
with the basic idea that the future stream of carbon emission reductions would be commercialized at the financial closure of the project. Thus, the up-front payment can contribute to the financing of the project even though the emission reductions are materialized and delivered at a later date once the project is commissioned and starts operation. In order to do such front-loading with the idea of attracting private investors early on, the emission reduction seller (that is, the entity operating the biochar system and implementing the project or program) would need to guarantee the investor a portion of the emission reduction delivery through a shortfall agreement, based on which the seller commits to pay for any emission reductions not delivered to the buyer at a pre-agreed price. Such a shortfall agreement is necessary to hedge against project and regulatory risks (that is, the stream of emission reductions does not materialize at all or not to the extent projected, or emission reductions generated are not eligible under an international trading scheme). These are still early ideas, but in principle, institutions such as the World Bank, particularly through their private sector-oriented branches, could possibly guarantee the aforementioned payment obligation of the seller based on an indemnity agreement between the seller and the Bank. It becomes clear that a certain level of sophistication is needed for such a setup and that institutions such as the World Bank would most likely not be able to offer such guarantee structures on a project-by-project basis but rather for a project aggregator or related entity working at larger scales (it could even be sovereign governments that bundle a program of biochar systems implemented for development purposes). There are numerous ways in which biochar and biochar systems may provide “triple win” benefits in developing countries, and many ways that development institutions may help to facilitate and improve them. Direct financing of biochar projects is an important way in which the World Bank and other organizations can provide targeted and essential support to ensure sustainable development of biochar systems. As part of this process, a fund could be set up to convene opensource technology developers to accelerate technology development for smallholders, along the lines of the Global Alliance for Clean Cookstoves.
Scaling Up Biochar Systems from Pilot to Program A deeper economic understanding of developing-country biochar systems is emerging. In many instances crop growth benefits for the rural household seem to outweigh the potential financial benefits of carbon markets, at least for the time being. Ultimately however, carbon mitigation-related financial revenues, which at present cannot be fully internalized due to the lack of applicable methodologies, may help to spur adoption rates. Biochar systems are a nascent technology and the private sector is not likely to easily engage on larger scales in developing-country situations due to some of the technical unknowns as well as the (soon to be predictable) variability described earlier. Therefore, institutions such as the World Bank and particularly the private sector arm of the World Bank, the International Finance Corporation, are key players in providing financing services for biochar Biochar Systems for Smallholders in Developing Countries • http://dx.doi.org/10.1596/978-0-8213-9525-7