Inter-American Development Bank

Shadow carbon pricing

This page is part of the E3G Public Bank Climate Tracker Matrix, our tool to help you assess the Paris alignment of public banks, MDBs and DFIs.

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Paris alignmentReasoning
Some progressShadow carbon price not consistently applied – but does use High-Level Commission price ranges.

 The table below provides a summary of how a shadow carbon price is applied. The Inter-American Development Bank (IDB) only  applies a shadow carbon price to some projects. Further clarification is needed from IDB in this area.

Which projects subject to greenhouse gas (GHG) assessmentUnclear.
Which projects apply shadow carbon pricingUnclear – appears to be on a project by project basis and dependent on those leading project.
Price levelWhen used in a project, prices align with the High-Level Commission on Carbon Prices (HLCCP) price range.
How shadow carbon price is usedMore information needed.
What is it compared to?More information needed.
Are Scope 3 emissions included?More information needed.

E3G understands that IDB Invest is working on designing a transition risk filter for credit analysis to inform transactions’ creditworthiness as part of TCFD adoption. This is expected to be in place by 2022.

Recommendations:

As stated in our metric methodology, we recommend that the IDB:

  • Applies a shadow carbon price across all investments.
  • Uses carbon price scenarios that are at the highest end of the range of the High-Level Commission on Carbon Prices as a screen for alignment with limiting warming below 2°C.  The IDB should also apply a second – higher – carbon price scenario to assess alignment with limiting warming to below 1.5°C (Chapter 2 of the IPCC Special Report estimates that the (non-discounted) social cost of carbon for a below- 1.5◦C pathway ranges between $135-5500/tCO2-eq in 2030, and $245-13000/tCO2-eq in 2050).
  • Ensure that indirect emissions, even if not directly controlled by the project (Scope 3) are included. Their inclusion can substantially change the assessment of the environmental impact and thus are material to investment decisions.
  • Clarify the procedures on how the shadow carbon pricing is applied to decision making. This includes disclosing which discount rates are used for country categories, alongside the rationale and evidence for such rates.

Last Update: November 2020

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