Deploying finance towards low carbon infrastructure

The Bhutan Climate Fund acts as a banker to the country in its bid to battle climate change issues, further cementing efforts undertaken by other analogous Organizations

The World Bank has aided the creation of the Bhutan Climate Fund (BCF) to aggregate and monetize emission reductions under the Paris Agreement. Initially focusing on the hydropower sector, the BCF will gather emission reductions from Bhutanese projects and sell them globally to generate revenue, signaling Bhutanโ€™s entry into the carbon market and commitment to combating climate change.

Initially, the World Bank assisted in establishing a Trust Fund based on feedback from a Task Force appointed by the Royal Government of Bhutan (RGoB) for the BCFโ€™s purposes. This involved capacity support and the development of operating procedures. To monetize emission reductions from hydropower and other renewable resources, the National Environment Commission (NEC) will adopt rules aligning with Article 6 of the Paris Agreement, including a national monitoring, reporting, and verification (MRV) system and an emission reductions credit registry as per Article 13.

The BCF aims to reduce transaction costs in climate markets by aggregating emission reductions and employing a commercialization strategy to attract potential buyers, thus enhancing value for Bhutan. It also directs mobilized resources towards low carbon development activities, while bolstering the viability of hydropower projects by creating an additional revenue stream.

Envisioned as a USD 50 million fund, the BCF is funded by international climate finance buyers. It supports the preparation of project design documents for emission reductions from hydropower projects under the Inter-Governmental Agreement (IGA) or Joint Venture (JV) structure with India. Emission reductions may be retained by the BCF until a suitable buyer or favorable price is secured.

The BCF is a bank-executed trust fund and will be transitioned to a Royal Charter trust fund after two years.

Bhutan actively seeks funds from the Green Climate Fund (GCF) for implementing its Nationally Determined Contribution (NDC) and adaptation priorities. The Bhutan Trust Fund for Environmental Conservation (BTFEC) is accredited as the National Implementing Entity for both the GCF and the Adaptation Fund, facilitating direct access to climate finance.

In addition, Bhutan is pursuing access for the private sector with three financial institutions (Bhutan Development Bank, Ltd., Bank of Bhutan, Ltd., and the Bhutan National Bank, Ltd.) undergoing the accreditation process for access to the Private Sector Facility of the GCF.

The Green Finance Roadmap aims to transform Bhutanโ€™s financial system for 21st-century sustainable development. It enhances resilience post-COVID-19, prioritizes green investments, mobilizes funds for green sectors, and fosters a transition to a low carbon economy through innovation.

By Tashi Namgyal, Thimphu