What Role Can Carbon Markets Play for Climate Finance?

June 2014 - Financial support for developing countries is a core issue under the United Nations Framework Convention on Climate Change (UNFCCC). Industrialised countries strongly emphasise the potential role of carbon markets in mobilising needed finance. The research project “Analysis of the Role Carbon Markets Can Play for Global Climate Finance from Today to 2020 and Beyond“ aimed at providing an analysis of and recommendations for how carbon markets can contribute to financing emission reductions in developing countries.

The research surveyed the available literature on financial requirements for mitigation, adaptation and reducing emissions from Deforestation and forest degradation (REDD+) in developing countries. The study also examines the contribution the Clean Development Mechanism (CDM) has so far made in financing emission reductions. In addition, the study analyses how the various existing and emerging market-based instruments overlap and how they are linked with national climate policies in developing countries and with non-market-based international approaches such as nationally appropriate mitigation actions (NAMAs).

Additionally to the analysis of different mechanisms to support mitigation, it is of relevance to evaluate which countries the mechanisms could be applied to, and which of those would serve as a host country or a donor country. The report approaches the question of differentiation by defining two dimensions - “Own contribution” and “carbon market readiness” -, lists various quantitative indicators for those and applies them to the UNFCCC parties.

Based on the preceding conceptual discussion the study analyses future prospects for international cooperation and in particular use of carbon markets in 15 country/sector combinations. The selection of cases aimed to cover a broad spread of sectors and countries, including all continents and a range from advanced to least developed countries. The countries are Brazil, China, Costa Rica, Ethiopia, India, Kenya, Morocco, Peru, South Africa and Thailand.

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