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.
| Paris alignment | Reasoning |
|---|---|
| Unaligned | There is no publicly available information to suggest that IsDB is using a shadow carbon price (SCP) mechanism as part of its project evaluation processes, nor information as to plans for its implementation in the near future. Despite this, E3G maintains that a SCP can be a valuable addition to the Bank’s decision-making process. |
Explanation
The implementation of a shadow carbon price (SCP) can result in several benefits. Fundamentally, adopting a SCP can help to incentivise greener investments by accounting for the negative externality of emissions in the economic calculations for projects alternatives. An effective SCP should be a flexible tool, adjustable according to the policy environment where the operations take place. While by no means a perfect solution or ‘silver bullet’ for generating the shift to low-carbon investments, a SCP can be a valuable input in the appraisal and decision-making process of projects alongside other elements. Even modest SCP application has been shown to be effective to incentivise emissions reductions.
Recommendations:
- The IsDB should consider the implementation of a shadow carbon price (SCP) for emissions intensive projects. This should be adopted utilising the High-Level Commission on Carbon Prices (HLCCP) framework to apply different price ranges according to different contexts and country situations. Using a dynamic SCP in this manner acknowledges that shadow carbon pricing is not a deterministic or “solve-all” tool. Instead, it serves as a valuable input for making effective and informed decisions regarding the potential risks and costs of emissive projects.
- Should the IsDB resolve to not use a SCP, the rationale behind this (as well as potential conditions for future implementation) should be clearly set out in the next iteration of its Climate Change Action Plan.
Last Update: July 2025