Carbon finance is the investment in activities and projects that generate emission reduction or pull carbon dioxide from the atmosphere through biosequestration - activities that generate carbon credits that are sold into carbon markets.
It is also about the overall funding of permit purchases in a cap-and-trade scheme where polluters are obliged to pay for emissions.
So finance for carbon is about
In 2010 the World Bank reported the carbon market to be worth US$141.9 billion or roughly the GDP of New Zealand or Peru.
The bulk of this market is the European Union Emissions Trading Scheme, 30 countries using a market mechanism in an attempt to reduce total emissions by 21% in 2020 compared to 2005 levels.
This flow of money is sufficient to attract investors who engage with the market by
remote rural villages such as this one in Papua New Guinea stand to gain from financing of carbon projects
Clearly there are many aspects to financing carbon from how financial markets work to the due diligence required to understand the risk involved in a carbon project investment. And most of the skills come from financial sector.
However, there is sufficient specialism to see various higher education institutions offering courses and degree programs.
The syllabus of Masters degree in the topic from the University of Edinburgh Business School includes:
Carbon accounting is process used to measure carbon as a result of a given activity and ways to accurately record the net amount of carbon saved if that activity is changed to something else.
It is itself a niche business and unusual in that expertise in engineering, environment and financial auditing are combined. It is fun to watch practitioners in these disparate professions try to reach a consensus.
As soon as there was a price on carbon a market was an inevitable consequence. A market appeals to our entrepreneurial and risk taking instincts and a new market is especially attractive as it offers the chance of rich pickings for the nimble early movers.
And this is what we now have. A compliance market worth close to $150 billion a year and a somewhat smaller voluntary market doing similar things, trading carbon credits to make money.
Carbon finance is a catch all term for what happens to move this money around.
Is there something specific about carbon finance that remains confusing? Or is climate change still a conundrum for you?
Why not ask us a question.
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