Climate Finance, Carbon Market Mechanisms and Finance"Blending"as Instruments to Support NDC Achievement under the Paris Agreement

Jon Strand

No 8914, Policy Research Working Paper Series from The World Bank

Abstract: 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.

Keywords: Climate Change Economics; Energy Policies&Economics; Climate Change Mitigation and Green House Gases; Energy and Mining; Energy and Environment; Energy Demand (search for similar items in EconPapers)
Date: 2019-06-25
New Economics Papers: this item is included in nep-ene and nep-env
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Persistent link: https://EconPapers.repec.org/RePEc:wbk:wbrwps:8914

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