Carbon finance is a new branch of environmental finance. Carbon finance explores the financial implications of living in a carbon- constrained world, a world in which emissions of carbon dioxide and other GHG 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 greenhouse gas (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.
Carbon finance experts estimate that the global carbon market is now worth over $27 billion.
Clean Development Mechanism (CDM), is recognised through the Kyoto Protocol, allowing the offset of emissions in developed countries by the investment in emission reduction projects in developing countries like China, India or Latin America.
Joint Implementation (JI), is another mechanism, allowing investments in developed countries to generate emission credit for the same or another developed country.
Source: Nature Magazine
The market for the purchase of carbon has already grown exponentially since its conception in 1996. As of May 2004, the market for GHG emission reductions has now grown to 320 million tons of carbon dioxide equivalent and is expected to grow even further.
Expert Commentary by Michael Wara, Nature Feb 2007
The Clean Development Mechanism can be viewed not only as a market, but also as a subsidy and a political mechanism. Michael Wara argues that it has been most effective, so far, in achieving its political goals.
Introduction:
A perennial problem in international climate politics is how to engage developing nations in controlling greenhouse-gas emissions. These countries have more immediate priorities than climate change. Yet they must be part of any effective solution to global warming, for their emissions are high and rising (although not nearly as high, on a per capita basis, as those of the industrialized world). To encourage developing- country participation, the Kyoto Protocol established a global market for emissions reductions in 2003 called the Clean Development Mechanism (CDM). This market is now mature enough for analysis of its successes and shortcomings.
Clean Development Mechanisms (CDM) is one of the mechanisms under the Kyoto Protocol that allows the developing countries selling emission reduction from various projects to the developed countries.
The main emitter in energy sector, particularly from power generation sub-sector, is the coal power plants. Due to decreasing oil exploitation activities in the country, Indonesia has been a net oil importer for the past few years. Hence, through the revised energy policy, the government of Indonesia intends to adopt the energy mix scenario which may further increase the number of coal power plants, considering coal energy as the least-cost option. However, the policy also emphasizes the utilization of alternatives sources of energy, including renewable energy, and also encourages energy efficiency measures, especially from industry sector.
CDM scheme in Indonesia would play an important role to provide incentives in promoting and optimizing the utilization of the abundant Renewable Energy (RE) resources as well as energy efficiency (EE) measures in Indonesia, which give a more environmentally-friendly option compared to conventional fossil fuel such as coal and oil.
1. To develop and increase the knowledge of CDM by:
2. To facilitate the development of projects including:
In September 2006, the WorldBank conducted an comprehensive workshop on the topic of CDM in Indonesia. The workshop materials are available in Bahasa (Indonesian) and constitute an excellent set of resources for learning more on this complex and vital subject
Workshop Materials (Bahasa)
