CARBON FINANCE

• Background

• Carbon Funds & Facilities (World Bank)

• Investors

• Renewable Portfolio Standards

• The CDM Clean Development Mechanism

• The UN High-Level Advisory Group on Climate Change Financing

     

• Emissions Trading Carbon Markets: Cap & Trade (Environmental Derivatives, RGGI, European Trading )

• Cap & Trade vs Fee & Dividend

• Carbon Finance Links

• Carbon Finance RSS Feed

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Carbon Finance Background

(Wikipedia): Carbon finance explores the financial implications of living in a carbon-constrained world, a world in which emissions of carbon dioxide and other greenhouse gases (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 that are tradeable on the carbon market.

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Carbon Funds & Facilities

The World Bank Carbon Finance Unit (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).

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INVESTORS

Investors are becoming increasingly interested in projects involving non-fossil fuel energies (solar, wind, geothermal, fusion, advanced biofuels, advanced fission). HERE are descriptions of these energies with links.

For non-fossil fuel energies to take off in the US, policies must be in place. HERE is an investor statement by 190 investors with more than US$ 13 trillion of assets: "On 14 January 2010 the world’s largest investors released a statement calling on the U.S. and other governments to quickly adopt strong national climate policies that will establish a stable investment climate and thus spur low-carbon investments to reduce emissions causing climate change.

HERE is a report by Bloomberg and UNEP (United Nations Environment Programme) entitled: Global trends in sustainable energy investment 2010; Analysis of Trends and Issues in the Financing of Renewable Energy and Energy Efficiency

• Global investment in clean energy was $162 billion in 2009, down 6% from a revised $173 billion in 2008. The setback reflected the impact of the financial crisis and world recession.
• The highlight of the 2009 figure was a spectacular performance from China, which saw a 53% rise in financial investment in clean energy, helping to offset weaker numbers from Europe and particularly North America.

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Renewable Portfolio Standards

One policy example is the Renewable Portfolio Standard, see HERE for background. Wikipedia says: "A Renewable Portfolio Standard (RPS) is a regulation that requires the increased production of energy from renewable energy sources. Other common names for the same concept: Renewable Electricity Standard (RES) at the United States federal level and Renewables Obligation in the UK. The RPS mechanism generally places an obligation on electricity supply companies to produce a specified fraction of their electricity from renewable energy sources."

HERE is a list of US states with RPS. There is no US national RPS.

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The Clean Development Mechanism

HERE is a description of the Clean Development Mechanism CDM.

The CDM allows emission-reduction (or emission removal) projects in developing countries to earn certified emission reduction (CER) credits, each equivalent to one tonne of CO2. These CERs can be traded and sold, and used by industrialized countries to a meet a part of their emission reduction targets under the Kyoto Protocol.

Connie Hedegaard, Europe's climate chief, said that U.N. talks in Cancun, Mexico, later this year should agree to reassure carbon markets that the current CDM mechanism would continue beyond 2012, when the first period of the U.N.'s Kyoto Protocol climate treaty expires.

"We want the CDM mechanism to be modernised, refined," she told reporters in Geneva at the end of 46-nation talks focused on raising new funds to help developing countries curb global warming. "It must be more streamlined, more simple."

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The UN High-Level Advisory Group on Climate Change Financing

The Secretary-General established a High-Level Advisory Group on Climate Change Financing on 12 February 2010 for the duration of 10 months. The Group will study potential sources of revenue that will enable achievement of the level of climate change financing that was promised during the United Nations Climate Change Conference in Copenhagen in December 2009. The Group is co-chaired by His Excellency Mr. Jens Stoltenberg, Prime Minister of Norway, and His Excellency Mr. Meles Zenawi, Prime Minister of the Federal Democratic Republic of Ethiopia. As part of its work, the Group will develop practical proposals on how to significantly scale-up long-term financing for mitigation and adaptation strategies in developing countries from various public as well as private sources.

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Emissions Trading

From Wikipedia: Emissions trading (also known as cap and trade) is a market-based approach used to control pollution by providing economic incentives for achieving reductions in the emissions of pollutants.

HERE is a glossary for Emissions Trading from Allianz.

Details:

A central authority (usually a governmental body) sets a limit or cap on the amount of a pollutant that can be emitted. The limit or cap is allocated or sold to firms in the form of emissions permits which represent the right to emit or discharge a specific volume of the specified pollutant. Firms are required to hold a number of permits (or credits) equivalent to their emissions. The total number of permits cannot exceed the cap, limiting total emissions to that level. Firms that need to increase their emission permits must buy permits from those who require fewer permits (Stavins 2001, p 4.) The transfer of permits is referred to as a trade. In effect, the buyer is paying a charge for polluting, while the seller is being rewarded for having reduced emissions. Thus, in theory, those who can reduce emissions most cheaply will do so, achieving the pollution reduction at the lowest cost to society.

There are active trading programs in several air pollutants. For greenhouse gases the largest is the European Union Emission Trading Scheme. In the United States there is a national market to reduce acid rain and several regional markets in nitrogen oxides. Markets for other pollutants tend to be smaller and more localized.

Environmental Derivatives

HERE is an overview of the Chicago Climate Futures Exchange® (CCFE®), which says the CCFE "operates the leading U.S. marketplace for environmental derivatives, financial instruments whose underlying values are tradable environmental assets.  CCFE's suite of environmental products provides market participants with the ability to hedge exposure to risk and make informed investment decisions in emissions markets, renewable energy certificate markets, sustainable equity index markets and insurance markets linked to catastrophic weather events."

Here are other CCFE carbon futures and options products links: CCAR-CRT Futures and Options, CER Futures, CFI Futures and Options, CFI-EA Futures, CFI-US Futures and Options, CFI-US-O Futures.

RGGI

RGGI (the Regional Greenhouse Gas Initiative) is a cap-and-trade program now comprised of nine participating New England and Mid-Altlantic States. There are physically deliverable futures contract on RGGI Allowances. There are also options on RGGI Futures. See HERE for details. A document clearly explaining all this is HERE.

A report released in February 2011 shows that, overall, the states that participated in the first RGGI control period are investing 80 percent of CO₂ allowance proceeds, which now total more than $952 million, in strategic energy programs. See HERE for more information.

Gov. Christie (NJ) in an executive order, withdrew New Jersey from RGGI at the end of 2011. The reason given was that the price of carbon traded on RGGI was too low to be effective. However pressure from right-wing politics played a dominant role. 

See also:

• RGGI News 

• RGGI Documents

European Emissions Trading

Most emissions trading is done in Europe. HERE is a carbon market report from the French bank CDC:

Tendances Carbone Cdc Climat Research No59 Eng

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Cap and Trade vs. Fee and Dividend

HERE is a discussion with eight contributors from Environment 360 at Yale U.

Any law that places a price on carbon must achieve two basic and interrelated goals: discouraging — with increasingly painful economic consequences — the use of oil, coal, and natural gas, and encouraging the development of renewable sources of energy. Two paths to this end have been proposed. The first is a cap-and-trade system, which would place progressively stricter limits on fossil fuel use; require power plants, industries, and other major sources of greenhouse gases, to purchase permits to discharge carbon dioxide; and establish a market in those permits. The second is an outright tax on fossil fuels. Proponents of both methods say the economic hardship created by higher energy prices could be offset by rebates to taxpayers.

Jim Hansen on Energy, Carbon Fee and Dividend. This is a video of Jim Hansen on energy. He also explaines his idea of putting a fee on carbon with dividend back to the people in order to cut back our dependence on fossil fuels.

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• Apollo Alliance

• Asian Development Bank

• Bloomberg white papers on climate finance

• BNA Climate - Finance

• Carbon Credits

• Carbon Offsets

• Carbonfund

• Carbonfund.org

• CCFE Chicago Climate Futures Exchange

• Ceres Investor Network

• Chicago Climate Futures Exchange

• Emissions Trading

• Environmental Finance

• Feed-In Tariff (Renewable Energy Payment)

• JPMorgan - Climate Care

• Personal Carbon Trading

• Point Carbon (carbon markets)

• Reforestation

• Renewable Energy World

• World Bank Climate Finance

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What's the picture? It's the World Bank's Environment Carbon Finance logo.

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