Carbon finance

Carbon finance

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Encyclopedia
Carbon finance is a new branch of Environmental finance
Environmental finance
Environmental Finance is the use of various financial instruments to protect the environment. The field is part of both environmental economics and the conservation movement....

. Carbon finance explores the financial implications of living in a carbon-constrained world, a world in which emissions of carbon dioxide and other greenhouse gas
Greenhouse gas
A greenhouse gas is a gas in an atmosphere that absorbs and emits radiation within the thermal infrared range. This process is the fundamental cause of the greenhouse effect. The primary greenhouse gases in the Earth's atmosphere are water vapor, carbon dioxide, methane, nitrous oxide, and ozone...

es (GHGs) carry 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 in GHG emission reduction projects and the creation (origination) of financial instruments
Financial instruments
A financial instrument is a tradable asset of any kind, either cash; evidence of an ownership interest in an entity; or a contractual right to receive, or deliver, cash or another financial instrument....

 that are tradeable on the carbon market
Carbon Market
The Carbon Market is the oldest and largest farmer's market in Cebu City, located in the Central Visayas region of the Philippines, and is a major tourist attraction. It is wheelchair accessible. It is located in downtown Cebu City, on MC Briones Street, Ermita barangay, and it can be reached by...

.

Joint Implementation and Clean Development Mechanism


Clean Development Mechanism
Clean Development Mechanism
The Clean Development Mechanism is one of the "flexibility" mechanisms defined in the Kyoto Protocol . It is defined in Article 12 of the Protocol, and is intended to meet two objectives: to assist parties not included in Annex I in achieving sustainable development and in contributing to the...

 (CDM), is recognised through the Kyoto Protocol
Kyoto Protocol
The Kyoto Protocol is a protocol to the United Nations Framework Convention on Climate Change , aimed at fighting global warming...

, allowing the offset of emissions in developed countries by the investment in emission reduction projects in developing countries like China
China
Chinese civilization may refer to:* China for more general discussion of the country.* Chinese culture* Greater China, the transnational community of ethnic Chinese.* History of China* Sinosphere, the area historically affected by Chinese culture...

, India
India
India , officially the Republic of India , is a country in South Asia. It is the seventh-largest country by geographical area, the second-most populous country with over 1.2 billion people, and the most populous democracy in the world...

 or Latin America
Latin America
Latin America is a region of the Americas where Romance languages  – particularly Spanish and Portuguese, and variably French – are primarily spoken. Latin America has an area of approximately 21,069,500 km² , almost 3.9% of the Earth's surface or 14.1% of its land surface area...

.

Joint Implementation
Joint Implementation
Joint implementation is one of three flexibility mechanisms set forth in the Kyoto Protocol to help countries with binding greenhouse gas emissions targets meet their obligations. JI is set forth in Article 6 of the Kyoto Protocol...

 (JI), is another mechanism, allowing investments in developed countries to generate emission credit for the same or another developed country.

Market value


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
Carbon Market
The Carbon Market is the oldest and largest farmer's market in Cebu City, located in the Central Visayas region of the Philippines, and is a major tourist attraction. It is wheelchair accessible. It is located in downtown Cebu City, on MC Briones Street, Ermita barangay, and it can be reached by...

 according to the World Bank
World Bank
The World Bank is an international financial institution that provides loans to developing countries for capital programmes.The World Bank's official goal is the reduction of poverty...

:

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)


Dollars (millions of USD)
  • 2005: 10,908 (7,971 in Main Allowances Markets & 2,937 in Project based transactions)
  • 2006: 31,235 (24,699 in Main Allowances Markets & 6,536 in Project based transactions)
  • 2007: 64,035 (50,394 in Main Allowances Markets & 13,641 in Project based transactions)

World Bank


The World Bank
World Bank
The World Bank is an international financial institution that provides loans to developing countries for capital programmes.The World Bank's official goal is the reduction of poverty...

 has created the World Bank Carbon Finance Unit (CFU). The World Bank CFU uses money contributed by governments and companies in OECD countries to purchase project-based greenhouse gas emission 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) development .

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