Carbon finance is a branch of
environmental finance
Environmental finance is a field within finance that employs market-based environmental policy instruments to improve the ecological impact of investment strategies. The primary objective of environmental finance is to regress the negative impac ...
that covers financial tools such as
carbon emission trading
Emission trading (ETS) for carbon dioxide (CO2) and other greenhouse gases (GHG) is a form of carbon pricing; also known as cap and trade (CAT) or carbon pricing. It is an approach to limit climate change by creating a market with limited ...
to reduce the impact of
greenhouse gas
A greenhouse gas (GHG or GhG) is a gas that Absorption (electromagnetic radiation), absorbs and Emission (electromagnetic radiation), emits radiant energy within the thermal infrared range, causing the greenhouse effect. The primary greenhouse ...
es (GHG) on the environment by giving
carbon emissions
Greenhouse gas emissions from human activities strengthen the greenhouse effect, contributing to climate change. Most is carbon dioxide from burning fossil fuels: coal, oil, and natural gas. The largest emitters include coal in China and larg ...
a price.
Financial risks and opportunities impact corporate balance sheets, and market-based instruments are capable of transferring environmental risk and achieving environmental objectives. Issues regarding climate change and GHG emissions must be addressed as part of strategic management decision-making.
The general term is applied to
investments
Investment is the dedication of money to purchase of an asset to attain an increase in value over a period of time. Investment requires a sacrifice of some present asset, such as time, money, or effort.
In finance, the purpose of investing is ...
in GHG emission reduction projects and the creation (origination) of
financial instruments
Financial instruments are monetary contracts between parties. They can be created, traded, modified and settled. They can be cash (currency), evidence of an ownership interest in an entity or a contractual right to receive or deliver in the form ...
that are tradeable on the
carbon market.
History
The market for the purchase of carbon has grown exponentially since its conception in 1996.
The following is the estimated size of the worldwide
carbon market according to the
World Bank
The World Bank is an international financial institution that provides loans and grants to the governments of low- and middle-income countries for the purpose of pursuing capital projects. The World Bank is the collective name for the Interna ...
:
Volume (millions metric tonnes, MtCO2)
* 2005: 718 (330 in Main Allowances Markets & 388 in Project based transactions)
* 2006: 1,745 (1,134 in Main Allowances Markets & 611 in Project based transactions)
* 2007: 2,983 (2,109 in Main Allowances Markets & 874 in Project based transactions)
The 1997
Kyoto Protocol
The Kyoto Protocol was an international treaty which extended the 1992 United Nations Framework Convention on Climate Change (UNFCCC) that commits state parties to reduce greenhouse gas emissions, based on the scientific consensus that (part ...
recognised
Clean Development Mechanism
The Clean Development Mechanism (CDM) is a United Nations-run carbon offset scheme allowing countries to fund greenhouse gas emissions-reducing projects in other countries and claim the saved emissions as part of their own efforts to meet internati ...
(CDM) allowing the offset of emissions in developed countries by the investment in emission reduction projects in developing countries like
China
China, officially the People's Republic of China (PRC), is a country in East Asia. It is the world's most populous country, with a population exceeding 1.4 billion, slightly ahead of India. China spans the equivalent of five time zones and ...
,
India
India, officially the Republic of India (Hindi: ), is a country in South Asia. It is the seventh-largest country by area, the second-most populous country, and the most populous democracy in the world. Bounded by the Indian Ocean on the so ...
or
Latin America
Latin America or
* french: Amérique Latine, link=no
* ht, Amerik Latin, link=no
* pt, América Latina, link=no, name=a, sometimes referred to as LatAm is a large cultural region in the Americas where Romance languages — languages derived f ...
.
Joint Implementation Joint Implementation (JI) is one of three flexibility mechanisms set out in the Kyoto Protocol to help countries with binding greenhouse gas emissions targets (the Annex I countries) meet their treaty obligations. Under Article 6, any Annex I cou ...
(JI), is another mechanism that allowed investments in developed countries to generate emission credit for the same or another developed country.
World Bank
The
World Bank
The World Bank is an international financial institution that provides loans and grants to the governments of low- and middle-income countries for the purpose of pursuing capital projects. The World Bank is the collective name for the Interna ...
has created the World Bank Carbon Finance Unit (CFU). The World Bank CFU uses money contributed by governments and companies in
OECD
The Organisation for Economic Co-operation and Development (OECD; french: Organisation de coopération et de développement économiques, ''OCDE'') is an intergovernmental organisation with 38 member countries, founded in 1961 to stimulate e ...
countries to purchase project-based
greenhouse gas emission
Greenhouse gas emissions from human activities strengthen the greenhouse effect, contributing to climate change. Most is carbon dioxide from burning fossil fuels: coal, oil, and natural gas. The largest emitters include coal in China and ...
reductions in developing countries and countries with economies in transition. The emission reductions are purchased through one of the CFU's carbon funds on behalf of the contributor, and within the framework of the Kyoto Protocol's Clean Development Mechanism (CDM) or Joint Implementation (JI). The World Bank is particularly supportive of
Program of Activities (PoA)
Program of Activities (PoA) is a modality of project development under the Clean Development Mechanism (CDM) of the United Nations Framework Convention on Climate Change (UNFCCC).
The rationale
The aim of PoAs was to allow replicable projects with ...
development.
See also
*
Carbon price
Carbon pricing (or pricing), also known as cap and trade (CAT) or emissions trading scheme (ETS), is a method for nations to reduce global warming. The cost is applied to greenhouse gas emissions in order to encourage polluters to reduce the co ...
*
Carbon tax
A carbon tax is a tax levied on the carbon emissions required to produce goods and services. Carbon taxes are intended to make visible the "hidden" social costs of carbon emissions, which are otherwise felt only in indirect ways like more sev ...
*
Emission trading
Emissions trading is a market-based approach to controlling pollution by providing economic incentives for reducing the emissions of pollutants. The concept is also known as cap and trade (CAT) or emissions trading scheme (ETS). Carbon emission t ...
*
Carbon credits
A carbon credit is a generic term for any tradable certificate or permit representing the right to emit a set amount of carbon dioxide or the equivalent amount of a different greenhouse gas (tCO2e).
Carbon credits and carbon markets are a compo ...
*
Reforestation
Reforestation (occasionally, reafforestation) is the natural or intentional restocking of existing forests and woodlands (forestation) that have been depleted, usually through deforestation, but also after clearcutting.
Management
A debate ...
*
Renewable energy payment
A feed-in tariff (FIT, FiT, standard offer contract,Couture, T., Cory, K., Kreycik, C., Williams, E., (2010)Policymaker's Guide to Feed-in Tariff Policy Design National Renewable Energy Laboratory, U.S. Dept. of Energy advanced renewable tariff, ...
*
Carbon rationing
Carbon () is a chemical element with the symbol C and atomic number 6. It is nonmetallic and tetravalent—its atom making four electrons available to form covalent chemical bonds. It belongs to group 14 of the periodic table. Carbon makes up ...
*
Verified Carbon Standard
The Verified Carbon Standard (VCS), or Verra, formerly the Voluntary Carbon Standard, is a standard for certifying carbon emissions reductions. VCS is administered by Verra, a 501(c)(3) organization.
History
In 2005, carbon markets investment ...
References
External links
Carbon Finance AdvisoryCarbon Finance TVCarbon Finance InternationalCarbon Finance ServicesDaily carbon finance newsGlossary of Terms
{{DEFAULTSORT:Carbon Finance
Corporate development