Why Carbon Finance

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Why Carbon Finance?
Carbon finance is a general term referring to resources provided to obtain greenhouse gas (GHG) emission reductions. Recognizing the impacts and threats of global climate change, governments and other entities have met annually at the Conference of the Parties (COP) of United Nations Framework Convention on Climate Change (UNFCCC) since 1995. The Kyoto Protocol was adopted in 1997, in which 36 industrialized countries (called the Annex B countries) committed collectively to reduce emissions of six main GHG by an average of 5% against the 1990 levels during the First Commitment Period of 2008 to 2012. Fifteen European Union countries committed to reduce emissions by 8%; the United States committed to a 7% reduction. Some
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The Kyoto Protocol developed three carbon finance mechanisms: International Emissions Trading Systems (ETS), the Clean Development Mechanism (CDM), and the Joint Implementation (JI). ETS was the first carbon finance mechanism designed for countries to trade emission allowances or emissions removal credits. CDM allows an industrialized country to invest in GHG reduction projects in a developing country in exchange of carbon credits (i.e., offsetting). Similarly, JI allows an industrialized country to purchase offset credits from another industrialized country. Many countries and jurisdictions have developed their own ETS to ‘nest’ under the Kyoto ETS and comply with reduction targets; or to voluntarily reduce emissions. The EU launched its own Emission Trading System (EU ETS) in 2005. Table 2 shows a comparison between the major carbon finance mechanisms and the types of carbon credits being traded. According to the World Bank’s annual carbon pricing report, the market value of global ETSs as of April 1, 2015 was about US$34 billion. As the EU countries accounts for more than half of the Annex B countries, the EU ETS has been the largest carbon trading system since its establishment in …show more content…
Assigned Amount Units (AAUs), Removal Units (RMUs)

European Union Emission Trade System (EU-ETS) The largest trading system created by EU to comply with the Kyoto Protocol. EU Allowances (EUAs) Clean Development Mechanism (CDM) Kyoto mechanism; payment occurs between industrialized countries and developing countries. Certified Emissions Reductions (CERs) Joint Implementation (JI) Kyoto mechanism; occurs between two industrialized countries. Emissions Reduction Units (ERUs)
Voluntary Markets There is a wide range of trading systems and transaction types in the global and regional voluntary markets. Carbon finance outside of the compliance market and the Kyoto systems; usually has smaller amounts of transaction and allows smaller players to participate Verified Emission Reductions (VERs); numerous VERs exist in the market
Table 2: Major carbon trading

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