Results-Based Finance in the Paris Era

The report argues that while carbon markets were originally designed for zero-sum offsetting, they can be repurposed for results-based climate finance (RBCF) to quantify and verify mitigation impacts. It identifies a specific 'niche' for RBCF: supporting technologies that have passed the R&D stage but are not yet market-mature. The authors highlight several limitations, including a bias toward the cheapest mitigation options, high transaction costs for monitoring, reporting, and verification (MRV), and a lack of effectiveness in least developed countries (LDCs) where emissions are low. To maximize impact, the report suggests shifting from rewarding to enabling through host-country policy commitments, reducing MRV stringency when credits are not used for offsetting, and complementing RBCF with upfront grants or loans.

• Results-based climate finance (RBCF) using carbon market infrastructure allows for climate impacts to be quantified and verified using a standard metric (CO2e) and can facilitate the 'crowdfunding' of projects by connecting small donors to ground-level activities.
• A primary limitation of RBCF is its tendency to prioritize the cheapest emission reductions over more expensive, transformative 'high-hanging fruit' technologies, which are often more critical for developing countries.
• RBCF is poorly suited for Least Developed Countries (LDCs) because these nations often have very few emissions to reduce, making a finance model based on tonnes of CO2e ineffective.
• The use of 'suppressed demand' assumptions to inflate baselines in LDCs has led to projects that misrepresent actual emission reductions, such as water purification projects in Kenya.
• High transaction costs associated with baseline development and MRV create significant barriers for smaller projects in poorer countries.
• RBCF can create perverse incentives where project developers or national governments may increase emissions to ensure they are paid to reduce them.
• The report defines the ideal 'niche' for RBCF as supporting technologies that are in the late stages of research and development and are upscaling toward market maturity, rather than very early R&D or fully mature technologies.
• To improve sustainability, RBCF should shift from merely rewarding results to enabling transformation, such as requiring host countries to implement policies that ensure abatement continues after RBCF support ends.
• When credits are used for RBCF rather than offsetting, there may be an opportunity to streamline MRV processes and reduce stringency, provided this does not create a precedent for claiming carbon neutrality.

APA

Kachi, A., & Day, T. (2020). Results-Based Finance in the Paris Era. Carbon Market Watch. https://carbonmarketwatch.org/wp-content/uploads/2020/12/NewClimate_Results_-based_finance_in_the-Paris_era_Dec20-1.pdf

Chicago

Kachi, Aki, and Thomas Day. Results-Based Finance in the Paris Era. Carbon Market Watch, 2020. https://carbonmarketwatch.org/wp-content/uploads/2020/12/NewClimate_Results_-based_finance_in_the-Paris_era_Dec20-1.pdf.

Wikipedia

{{cite report |last1=Kachi |first1=Aki |last2=Day |first2=Thomas |title=Results-Based Finance in the Paris Era |publisher=Carbon Market Watch |date=December 2020 |url=https://carbonmarketwatch.org/wp-content/uploads/2020/12/NewClimate_Results_-based_finance_in_the-Paris_era_Dec20-1.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{kachi2020resultsbased, author = {Kachi, Aki and Day, Thomas}, title = {{Results-Based Finance in the Paris Era}}, institution = {Carbon Market Watch}, year = {2020}, month = dec, url = {https://carbonmarketwatch.org/wp-content/uploads/2020/12/NewClimate_Results_-based_finance_in_the-Paris_era_Dec20-1.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }