Climate Finance, Carbon Market Mechanisms and Finance "Blending" as Instruments to Support NDC Achievement under the Paris Agreement
This paper considers the impacts of "finance blending" whereby climate finance is added to international carbon markets for offset trading. The paper first discusses climate finance and the carbon market as free-standing finance solutions...
| Main Author: | |
|---|---|
| Language: | English |
| Published: |
World Bank, Washington, DC
2019
|
| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/536271561468762308/Climate-Finance-Carbon-Market-Mechanisms-and-Finance-Blending-as-Instruments-to-Support-NDC-Achievement-under-the-Paris-Agreement http://hdl.handle.net/10986/31979 |
| Summary: | This paper considers the impacts of
"finance blending" whereby climate finance is
added to international carbon markets for offset trading.
The paper first discusses climate finance and the carbon
market as free-standing finance solutions by high-income
countries to increase mitigation in low-income countries.
Climate finance solutions have advantages for high-income
countries due to their greater flexibility and general
efficiency. A favorable aspect of well-functioning offset
markets is that all participating countries face a similar
and robust carbon price. With finance blending and "all
attribution to the carbon market," the market
equilibrium is inefficient, as mitigation is excessive in
low-income countries and too low in high-income countries.
Instead, mitigation outcomes in the offset market should be
attributed to the two finance types in proportion to their
finance shares provided to the low-income countries through
this market. When climate finance is added to the carbon
market, the ambition level for emissions reductions for
donor countries should be raised equivalently; otherwise,
the added climate finance leads to no increase in global
mitigation. When low-income country market participants have
limited access to credit markets, climate finance can
increase mitigation by supplying the capital required to
implement efficient mitigation projects. |
|---|