Study on aligning carbon finance and development finance and its impact on developing countries

Abstract

Carbon Finance mechanisms established under the Kyoto protocol, provide financial compensations for projects that either reduce or slow down the emission of greenhouse gases. Many developed countries that ratified the protocol have been implementing policy measures and regulations that will require emitters to reduce green house gases. But the experience shows that the cost of reducing one ton of carbon dioxide can cost from $15 to $100. In contrast to that the cost of reducing a ton of carbon dioxide is $1 to $4 in developing countries (World Bank, 2007). So emission reduction at a lower cost will definitely have a value to a public or private entity in developed nation. Climate change threatens to disrupt the weakest economies and disadvantage the poorest people in the developing countries who will be he hardest hit. Countries with significant low lying areas will be affected in case of severe climatic disruptions. One way to mitigate the problems arising out of climatic changes would be to reduce carbon emissions and other GHG emissions. Considering the economic logic explained above it would be beneficial for the developed countries to contribute resources to invest in new technology, infrastructure and other disaster mitigation projects in developed countries. By providing resources to a project in developing country, an entity in a developed nation can purchase GHG emission reductions resulting in a win-win situation for both developing and developed countries.