Carbon Market - Carbon Finance - Cap and Trade
This is blog 1 in my two part response to Alan Bey's request as to what is " Carbon Finance Thing". Part 1 provides a more detailed answer to my earlier entry stating that the carbon Market is by definition the trading in carbon and the permits to emit Green House Gasses (GHG).
The EBRD defines Carbon finance' as the term used for carbon credits to help finance GHG reduction projects. As UNEP points out “emissions reductions can be achieved more quickly, and with less economic dislocation, by harnessing market mechanisms with a skilful blend of policies and measures”. In that respect the objective of carbon finance is to find the lowest cost emissions reduction possibilities.
From this perspective Carbon Finance is the branch of Environmental Finance which studies and analyses the functioning of Carbon Markets: a market for the purchase and sale of emissions credits. Also known as Emissions trading (or emission trading) it is a market based approach used to control pollution through economic incentives for achieving reductions in the emissions of pollutants. It is sometimes called cap and trade. In effect the Carbon Market deals with the trading of credits for carbon dioxide emissions. By definition therefore the Carbon market refers to the buying and selling of emissions permits that have been either distributed by a regulatory organization or created by Green House Gasses (GHG) emission projects.
The source of the emissions permits provide the basis for the two different types of carbon markets operating throughout the world. In addition to the existing “compliance carbon markets” which is associated with countries that have ratified the Kyoto treaty, there is the ´Voluntary carbon market´ operating in countries that have not ratified the Kyoto treaty, such as the U.S. There are significant differences in these markets, both in terms of how they operate and the market prices for carbon credits.
Generally there are two (2) types of carbon transactions in Carbon Market . The first is the Allowance-based transaction: the carbon units traded offer a “right to pollute”, and are created and assigned by regulators under cap-and-trade schemes, such as the EU Emissions Trading Scheme (EU ETS). The second type of carbon transaction is the Project-based transaction. Under this scheme the carbon units are often referred to as offsets or carbon credits, which aim to negate or neutralize greenhouse gas emissions released in one place by avoiding the release of emissions elsewhere. The Kyoto Protocol Clean Development Mechanism (CDM) and Joint Implementation (JI) schemes allow for the development of projects which give rise to carbon credits known as CERs and ERUs respectively.
I am sure there is a lot to digest in this post and I am willing to further expand on a per need basis, and if requested in subsequent posts.
The EBRD defines Carbon finance' as the term used for carbon credits to help finance GHG reduction projects. As UNEP points out “emissions reductions can be achieved more quickly, and with less economic dislocation, by harnessing market mechanisms with a skilful blend of policies and measures”. In that respect the objective of carbon finance is to find the lowest cost emissions reduction possibilities.
From this perspective Carbon Finance is the branch of Environmental Finance which studies and analyses the functioning of Carbon Markets: a market for the purchase and sale of emissions credits. Also known as Emissions trading (or emission trading) it is a market based approach used to control pollution through economic incentives for achieving reductions in the emissions of pollutants. It is sometimes called cap and trade. In effect the Carbon Market deals with the trading of credits for carbon dioxide emissions. By definition therefore the Carbon market refers to the buying and selling of emissions permits that have been either distributed by a regulatory organization or created by Green House Gasses (GHG) emission projects.
The source of the emissions permits provide the basis for the two different types of carbon markets operating throughout the world. In addition to the existing “compliance carbon markets” which is associated with countries that have ratified the Kyoto treaty, there is the ´Voluntary carbon market´ operating in countries that have not ratified the Kyoto treaty, such as the U.S. There are significant differences in these markets, both in terms of how they operate and the market prices for carbon credits.
Generally there are two (2) types of carbon transactions in Carbon Market . The first is the Allowance-based transaction: the carbon units traded offer a “right to pollute”, and are created and assigned by regulators under cap-and-trade schemes, such as the EU Emissions Trading Scheme (EU ETS). The second type of carbon transaction is the Project-based transaction. Under this scheme the carbon units are often referred to as offsets or carbon credits, which aim to negate or neutralize greenhouse gas emissions released in one place by avoiding the release of emissions elsewhere. The Kyoto Protocol Clean Development Mechanism (CDM) and Joint Implementation (JI) schemes allow for the development of projects which give rise to carbon credits known as CERs and ERUs respectively.
I am sure there is a lot to digest in this post and I am willing to further expand on a per need basis, and if requested in subsequent posts.
Comments
Post a Comment