Carbon finance

Carbon finance is a new branch of environmental finance. Carbon finance explores the financial implications of living in a carbon-constrained world, a world in which emissions of carbon dioxide and other GHG 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 greenhouse gas (GHG) emissions must be addressed as part of strategic management decision-making.

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The general term is applied to investments in GHG emission reduction projects and the creation (origination) of financial instruments that are tradeable on the carbon market.

Carbon finance experts estimate that the global carbon market is now worth over $27 billion. [1]

Joint Implementation and Clean Development Mechanism

Clean Development Mechanism (CDM), is recognised through the Kyoto Protocol, allowing the offset of emissions in developed countries by the investment in emission reduction projects in developing countries like China, India or Latin America.

Joint Implementation (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 already grown exponentially since its conception in 1996. As of May 2004, the market for GHG emission reductions has now grown to 320 million tons of carbon dioxide equivalent and is expected to grow even further.

The World Bank estimated the carbon market value at 11 billion USD for 2005, the first year of operation of the EU ETS. The market value jump at 30 billion USD for 2006, and is estimated to reach 60 billion USD for 2007. According to Point Carbon, the world carbon market could reach 565 billion USD by 2020.

See also

Emission trading

Carbon credits