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Environmental finance

January 15, 2023

Environmental finance is a field within finance that employs market-based environmental policy instruments to improve the ecological impact of investment strategies.[1] The primary objective of environmental finance is to regress the negative impacts of climate change through pricing and trading schemes.[2] The field of environmental finance was established in response to the poor management of economic crises by government bodies globally.[3] Environmental finance aims to reallocate a businesses resources to improve the sustainability of investments whilst also retaining profit margins.[2]

History

In 1992, Richard L. Sandor proposed a new course outlining emission markets at the University of Chicago Booth School of Business, that would later be known as the course, Environmental Finance. Sandor anticipated a social shift in perspectives on the effects of global warming and wanted to be on the frontier of new research.[2]

Prior to this in 1990, Sandor had been involved with the passing of the Clean Air Act Amendment for the Chicago Board of Trade, which aimed to reduce high sulfur dioxide levels following WW2. Inspired by the theory of social cost, Sandor focused on cap-and-trade strategies such as emission trading schemes and more flexible mechanisms including taxes and subsidies to manage environmental crises. The implementation of cap-and-trade mechanisms was a contributing factor to the success of the Clean Air Act Amendment.[2]

 
Dr Richard L. Sandor

Following the Clean Air Act in 1990, the United Nations Conference on Trade and Development approached the Chicago Board of Trade in 1991, to enquire about how the market-based instruments used to combat high atmospheric sulfur dioxide concentrations could be applied to the increasing levels of atmospheric carbon dioxide. Sandor created a framework consisting of four characteristics which could be used to describe the carbon market:[2]

  • Standardisation
  • Unit Trading
  • Price Basis
  • Delivery

In 1997 the Kyoto Protocol was enacted and later enforced in 2005 by the United Nations Framework Convention on Climate Change. Included nations agreed to focus on reducing global greenhouse gas emissions through the market-based mechanism of emissions trading. Reductions averaged approximately 5% by 2012 which equates to almost 30% in reduction of total emissions. Some nations made significant progress under the Kyoto protocol, however as it only became law in 2005, nations such as the United States and China reported increased emissions, substantially offsetting progress made by other regions.[4]

 
Nations involved in the 2005 Kyoto Protocol

In 1999, the Dow Jones Sustainability Index was introduced to evaluate the ecological and social impact of stocks so shareholders could invest more ethically. The index acts as an incentive for firms to improve their environmental footprint to attract more shareholders.[5]

Later in 2000, the United Nations introduced the Millennium Development Goal scheme which sought to promote a sustainable framework for large multinational corporations and countries to follow to improve the environmental impact of financial investments. This framework facilitated the development of the United Nations Sustainable Development Goal scheme in 2015, which aimed to increase funding environmentally responsible investments in developing nations.[6] Funding was targeted to improve areas such as primary education, gender equality, maternal health, and nutrition, with the overall goal of creating beneficial national relationships to decrease the ecological footprint of developing economies[7]. Implementation of these frameworks has promoted greater participation and accountability of corporate environmental sustainability, with over 230 of the largest global firms reporting their sustainability metrics to the United Nations.[6]

The United Nations Environment Program (UNEP) has had a detailed history in providing infrastructure to improve the environmental effects of financial investments. In 2004, the institute provided training on responsible environmental credit budgeting and management for Eastern European nations. Following the Global Financial Crisis beginning in 2007, the UNEP provided substantial support for future sustainable investment choices for economies such as Greece which were impacted severely.[7] The Portfolio Decarbonisation Coalition established in 2014 is a significantly notable initiative in the history of environmental finance as it aims to establish an economy that is not dependent on investments with large carbon footprints. This goal is achieved through large-scale stakeholder reinvestment and securing long-term, responsible, investment commitments.[8] Most recently, the UNEP has recommended OECD nations to align investment strategies alongside the objectives of the Paris Agreement, to improve long-term investments with significant ecological effects.[7]

In 2008 the Climate Change Act enacted by the UK Government established a framework to limit greenhouse gasses and carbon emissions through a budgeting scheme, which motivated firms and businesses to reduce their carbon output for a financial reward.[9] Specifically, by 2050 it seeks to reduce carbon emissions by 80% compared to levels in 1980. The Act seeks to achieve this goal by reviewing carbon budgeting schemes such emission trading credits, every 5 years to continually reassess and recalibrate relevant policies. The cost of reaching the 2050 goal has been estimated at approximately 1.5% of GDP, although the positive environmental impact of reducing carbon footprint and increased in investment into the renewable energy sector will offset this cost.[10] A further implicated cost in the pursuit of the Act is a predicted £100 increase in annual household energy costs, however this price increase is set to be outweighed by an improved energy efficiency which will decrease fuel costs.[11]    

The 2010 cap and trade scheme introduced in the metropolitan regions of Tokyo was mandatory for businesses heavily dependent on fuel and electricity, who accounted for almost 20% of total carbon emissions in the area.  The scheme aimed to reduce emissions by 17% by the end of 2019.[12]  

In 2011 the Clean Energy Act was enacted by the Australian Government. The act introduced the Carbon Tax which aimed to reduce greenhouse gas emission by charging large firms for their carbon tonnage. The Clean Energy Act facilitated the transition to an emissions trading scheme in 2014[13]. The scheme also aims to fulfill the Australian Government's obligations in respect to the Kyoto Protocol and the Climate Change Convention. Additionally, the Act seeks to reduce emissions in a manner that will foster economic growth through increased market competition and investment into renewable energy sources.[12] The Australian National Registry of Emissions Units regulates and monitors the use of emission credits utilised by the Act. Firms must enroll in the registry to buy and sell credits to compensate for their relevant reduction or over-consumption of carbon emissions.[14]

The Republic of Korea's 2015 emission trading scheme aims to reduce carbon emissions by 37% by 2030. It strives to achieve this through allocating a quota of carbon emission to the largest carbon emitting businesses, resetting at the beginning of the schemes 3 separate phases.[15]

In 2017 the National Mitigation Plan was passed by the Irish Government which aimed to regress climate change by decreasing emission levels through revised investment strategies and frameworks for power generation, agriculture, and transport The plan involves 106 separate guidelines for short and long term climate change mitigation.[16]

The European Union Emission Trading Scheme concluding at the end of 2020 is the longest single global carbon pricing scheme, which has been improved over its three 5-year phases.[17] Current improvements include a centralised emission credit trading system, auctioning of credits, addressing a broader range of green house gasses and the introduction of a European-wide credit cap instead of national caps.

Strategies

 
Renewable Energy Schematic

Societal shifts from fossil fuels to renewable energy caused by an increased awareness of climate change has made government bodies and firms re-evaluate investment strategies to avoid irreparable ecological damage.[18] Shifts away from fossil fuels also increase demand into alternate energy sources which requires revised investment strategies.[18]

The initial stage to mitigate climate change through financial tools involves ecological and economic forecasting to model future impacts of current investment methodologies on the environment.[19] This allows for an approximate estimation of future environments; however, the impacts of continued harmful business trends need to be observed under a non-linear perspective.[3]

Cap-and-trade mechanisms limit the total amount of emissions a particular region or country can emit. Firms are issued with tradeable permits which they can buy or sell. This acts as a financial incentive to reduce emissions and as a disincentive to exceed emission caps.[1]

In 2005, the European Union Emission Trading Scheme was established and is now the largest emission trading scheme globally.[1]

 
Solar Panel Infrastructure

In 2013, the Québec Cap-and-trade scheme was established and is currently the primary mitigation strategy for the area.[20]

Direct foreign investment into developing nations provide more efficient and sustainable energy sources.[1]

In 2006, the Clean Development Mechanism was formed under the Kyoto Protocol, providing solar power and new technologies to developing nations. Countries who invest into developing nations can receive emission reduction credits as a reward.[21]  

Removal of atmospheric carbon dioxide has been proposed as a solution to mitigate climate change, by increasing tree densities to absorb carbon dioxide. Other methods involve new technologies which are still in research development stages.[22]

Research in environmental finance has sought how to strategically invest in clean technologies. When paired with international legislation, such as the case of the Montreal Protocol on Substances that Deplete the Ozone Layer, environmentally based investments have stimulated emerging industries and reduced the consequences of climate change. The international collaboration would ultimately lead to the changes that repaired the hole in the ozone layer.[23]

Climate finance

This section is an excerpt from Climate finance.[edit]
 
Top 10 clean energy financing institutions 2014

Climate finance is "finance that aims at reducing emissions, and enhancing sinks of greenhouse gases and aims at reducing vulnerability of, and maintaining and increasing the resilience of, human and ecological systems to negative climate change impacts", as defined by the United Nations Framework Convention on Climate Change (UNFCCC) Standing Committee on Finance.[24] The term has been used in a narrow sense to refer to transfers of public resources from developed to developing countries, in light of their UN Climate Convention obligations to provide "new and additional financial resources", and in a wider sense to refer to all financial flows relating to climate change mitigation and adaptation.[25][26]

The 21st session of the Conference of Parties (COP) to the UNFCCC (Paris 2015) introduced a new era for climate finance, policies, and markets. The Paris Agreement adopted there defined a global action plan to put the world on track to avoid dangerous climate change by limiting global warming to well below 2 °C above preindustrial levels. It includes climate financing channeled by national, regional and international entities for climate change mitigation and adaptation projects and programs. They include climate specific support mechanisms and financial aid for mitigation and adaptation activities to spur and enable the transition towards low-carbon, climate-resilient growth and development through capacity building, R&D and economic development.[27]

 
This 2021 survey found that EU firms are more likely to make climate investments than US firms.

As of November 2020, development banks and private finance had not reached the US$100 billion per year investment stipulated in the UN climate negotiations for 2020.[28] However, in the face of the COVID-19 pandemic's economic downturn, 450 development banks pledged to fund a "Green recovery" in developing countries.[28]

During the COVID-19 pandemic, climate change was addressed by 43% of EU enterprises. Despite the pandemic's effect on businesses, the percentage of firms planning climate-related investment rose to 47%. This was a rise from 2020, when the percentage of climate related investment was at 41%.[29][30]

Impact

 
European Union Map

The European Union Emission Trading Scheme from 2008-2012 was responsible for a 7% reduction in emissions for the states within the scheme. In 2013, allowances were reviewed to accommodate for new emission reduction targets. The new annual recommended target was a reduction of 1.72%.[1] It is estimated that reducing the amount of quoted credits was restricted more tightly, emissions could have been reduced by a total of 25%.[17] Nations such as Romania, Poland and Sweden experienced significant revenue, benefiting from selling credits.  Despite successfully reducing emissions, the European Union Emission Trading Scheme has been critiqued for its lack of flexibility to accommodate to major shifts in the economic landscape and reassess currents contexts to provide a revised cap on trading credits, potentially undermining the original objective of the scheme[31].

The New Zealand Emissions Trading Scheme of 2008 was modelled to increase annual household energy expenditure to 0.8% and increase fuel prices by approximately 6%. The price of agricultural products such as beef and dairy were modelled to decrease by almost 1%. Price increases in carbon intensive sectors such as foresting and mining were also expected, incentivising a shift towards renewable energy system and improved investment strategies with a less harmful environmental impact.[32]

In 2016, the Québec Cap-and-trade scheme was responsible for an 11% reduction in emissions compared to 1990 emission levels[20]. Due to the associated increased energy costs, fuel prices rose 2-3 cents per litre over the duration of the cap and trade scheme.[20]

In 2014, the Clean Development Mechanism was responsible for a 1% reduction in global greenhouse gas emissions.[33]  The Clean Development Mechanism has been responsible for removing 7 billion tons of greenhouse gasses from the atmosphere through the efforts of almost 8000 individual projects. Despite this success, as the economies of developing nations participating in Clean Development Mechanisms improves, the financial payout to the country supplying such infrastructure increases at a greater rate than economic growth, thus leading to an unoptimised and counterproductive system.[34]

References

  1. ^ a b c d e Chesney, Marc; Gheyssens, Jonathan; Pana, Anca Claudia; Taschini, Luca (2016). Environmental Finance and Investments. Springer Texts in Business and Economics. doi:10.1007/978-3-662-48175-2. ISBN 978-3-662-48174-5.
  2. ^ a b c d e Sandor, Richard L. (2012). Sandor, Richard L (ed.). Good Derivatives: A Story of Financial and Environmental Innovation. John Wiley & Sons. doi:10.1002/9781119201069. ISBN 978-0-470-94973-3.[page needed]
  3. ^ a b Linnenluecke, Martina K.; Smith, Tom; McKnight, Brent (December 2016). "Environmental finance: A research agenda for interdisciplinary finance research". Economic Modelling. 59: 124–130. doi:10.1016/j.econmod.2016.07.010.
  4. ^ United Nations Climate Change. (b). “What is the Kyoto Protocol?” United Nations Framework Convention on Climate Change. https://unfccc.int/kyoto_protocol
  5. ^ S&P Global. (2020). “DJSI Index Family.” Pure Play Asset Management https://www.spglobal.com/esg/csa/indices/djsi-index-family#:%7E:text=The%20Dow%20Jones%20Sustainability%20Indices,convictions%20in%20their%20investment%20portfolios.
  6. ^ a b Cooper, S. (2019, February 5). “The Evolution of Sustainable Finance.” Standard Chartered. https://www.sc.com/en/feature/the-evolution-of-sustainable-finance/
  7. ^ a b c UNEP Finance Initiative. (2017, June 6). “The Evolution of Sustainable Finance.” https://www.unepfi.org/news/25th-anniversary/timeline/
  8. ^ Climate Action in Financial Institutions (2018, July). “Portfolio Decarbonisation Coalition (PDC).” https://www.mainstreamingclimate.org/pdc/
  9. ^ United Kingdom Public General Acts. (2008). “Climate Change Act 2008.” Legislation.Gov.Uk. https://www.legislation.gov.uk/ukpga/2008/27/introduction
  10. ^ Evans, S. (2016, December 16). “UK Climate Change Act: Understanding the costs and benefits”. Carbon Brief https://www.carbonbrief.org/uk-climate-change-act-costs-benefits
  11. ^ Henson, R. (2011, March 11). “What is the Kyoto protocol and has it made any difference?” The Guardian https://www.theguardian.com/environment/2011/mar/11/kyoto-protocol
  12. ^ a b Talberg, A., Swoboda, K. (2013, June 6) “Emissions trading schemes around the world”. Parliament of Australia https://www.aph.gov.au/About_Parliament/Parliamentary_Departments/Parliamentary_Library/pubs/BN/2012-2013/EmissionsTradingSchemes#_Toc358272227
  13. ^ Irigoyen, C. (2017). “The Carbon Tax in Australia.” Centre for Public Impact. https://www.centreforpublicimpact.org/case-study/carbon-tax-australia/
  14. ^ Glowacki Law Firm. (2013, March 7). “The Australian National Registry of Emissions Units (ANREU)”. https://www.emissions-euets.com/the-australian-national-registry-of-emissions-units-anreu
  15. ^ Kim, E.J. (2020, March 19). “East Asia's First Mandatory Emissions Trading System”. Climate Scorecard https://www.climatescorecard.org/2020/03/east-asias-first-mandatory-emissions-trading-system/
  16. ^ Department of Communications, Climate Action and Environment. (2017). “National Mitigation Plan.” Grantham Research Institute on Climate Change and the Environment. https://climate-laws.org/geographies/ireland/policies/national-mitigation-plan
  17. ^ a b Laing, Tim; Sato, Misato; Grubb, Michael; Comberti, Claudia (January 2013). Assessing the effectiveness of the EU Emissions Trading System (Report). CiteSeerX 10.1.1.365.6508. ProQuest 1698743158.
  18. ^ a b Ding, Ashley; Daugaard, Dan; Linnenluecke, Martina K. (March 2020). "The future trajectory for environmental finance: planetary boundaries and environmental, social and governance analysis". Accounting & Finance. 60 (1): 3–14. doi:10.1111/acfi.12599. S2CID 213576271.
  19. ^ White, Mark A. (1996). "Environmental Finance: Value and Risk in an Age of Ecology". Business Strategy and the Environment. 5 (3): 198–206. doi:10.1002/(SICI)1099-0836(199609)5:3<198::AID-BSE66>3.0.CO;2-4.
  20. ^ a b c Jordan, E. (2016). “The cap-and-trade system in Québec.” Centre for Public Impact (CPI). https://www.centreforpublicimpact.org/case-study/cap-and-trade-system/
  21. ^ United Nations Climate Change. (a.). “The Clean Development Mechanism.” United Nations Framework Convention on Climate Change. https://unfccc.int/process-and-meetings/the-kyoto-protocol/mechanisms-under-the-kyoto-protocol/the-clean-development-mechanism
  22. ^ Cho, R. (2019). “Can Removing Carbon from the Atmosphere Save Us from Climate Catastrophe?” State of the Planet. https://blogs.ei.columbia.edu/2018/11/27/carbon-dioxide-removal-climate-change/
  23. ^ Linnenluecke, Martina K.; Smith, Tom; McKnight, Brent (2016-12-01). "Environmental finance: A research agenda for interdisciplinary finance research". Economic Modelling. 59: 124–130. doi:10.1016/j.econmod.2016.07.010. ISSN 0264-9993.
  24. ^ "Documents | UNFCCC". unfccc.int. Retrieved 2018-09-08.
  25. ^ Oscar Reyes (2013), "A Glossary of Climate Finance Terms", Institute for Policy Studies, Washington DC, p. 10 and 11
  26. ^ "Search | Eldis".
  27. ^ Barbara Buchner, Angela Falconer, Morgan Hervé-Mignucci, Chiara Trabacchi and Marcel Brinkman (2011) "The Landscape of Climate Finance" A CPI Report, Climate Policy Initiative, Venice (Italy), p. 1 and 2.
  28. ^ a b "Banks around world in joint pledge on 'green recovery' after Covid". the Guardian. 2020-11-11. Retrieved 2020-11-12.
  29. ^ Bank, European Investment (2022-01-12). EIB Investment Report 2021/2022: Recovery as a springboard for change. European Investment Bank. ISBN 978-92-861-5155-2.
  30. ^ "Latest EIB survey: The state of EU business investment 2021". European Investment Bank. Retrieved 2022-01-31.
  31. ^ Abdel-Ati, I. (2020, March 11) “The EU Emissions Trading System Seeking to Improve”.  Climate Scorecard https://www.climatescorecard.org/2020/03/the-evolving-eu-emissions-trading-system/#:~:text=The%20EU%20ETS%20has%20been,failing%20to%20meet%20its%20goals
  32. ^ Ministry for the Environment New Zealand (MFENZ). (2008). “7 The Impacts of the Emissions Trading Scheme.” The framework for a New Zealand Emissions Trading Scheme. https://www.mfe.govt.nz/publications/climate-change/framework-new-zealand-emissions-trading-scheme/7-impacts-emissions
  33. ^ Warnecke, C., Day T., Tewari, R. (2015), “Impact of the Clean Development Mechanism.” New Climate Institute.
  34. ^ Stahlke, Theresa (January 2020). "The impact of the Clean Development Mechanism on developing countries' commitment to mitigate climate change and its implications for the future". Mitigation and Adaptation Strategies for Global Change. 25 (1): 107–125. doi:10.1007/s11027-019-09863-8. S2CID 198632560.

January 15, 2023
environmental, finance, field, within, finance, that, employs, market, based, environmental, policy, instruments, improve, ecological, impact, investment, strategies, primary, objective, environmental, finance, regress, negative, impacts, climate, change, thro. Environmental finance is a field within finance that employs market based environmental policy instruments to improve the ecological impact of investment strategies 1 The primary objective of environmental finance is to regress the negative impacts of climate change through pricing and trading schemes 2 The field of environmental finance was established in response to the poor management of economic crises by government bodies globally 3 Environmental finance aims to reallocate a businesses resources to improve the sustainability of investments whilst also retaining profit margins 2 Contents 1 History 2 Strategies 2 1 Climate finance 3 Impact 4 ReferencesHistory EditIn 1992 Richard L Sandor proposed a new course outlining emission markets at the University of Chicago Booth School of Business that would later be known as the course Environmental Finance Sandor anticipated a social shift in perspectives on the effects of global warming and wanted to be on the frontier of new research 2 Prior to this in 1990 Sandor had been involved with the passing of the Clean Air Act Amendment for the Chicago Board of Trade which aimed to reduce high sulfur dioxide levels following WW2 Inspired by the theory of social cost Sandor focused on cap and trade strategies such as emission trading schemes and more flexible mechanisms including taxes and subsidies to manage environmental crises The implementation of cap and trade mechanisms was a contributing factor to the success of the Clean Air Act Amendment 2 Dr Richard L Sandor Following the Clean Air Act in 1990 the United Nations Conference on Trade and Development approached the Chicago Board of Trade in 1991 to enquire about how the market based instruments used to combat high atmospheric sulfur dioxide concentrations could be applied to the increasing levels of atmospheric carbon dioxide Sandor created a framework consisting of four characteristics which could be used to describe the carbon market 2 Standardisation Unit Trading Price Basis DeliveryIn 1997 the Kyoto Protocol was enacted and later enforced in 2005 by the United Nations Framework Convention on Climate Change Included nations agreed to focus on reducing global greenhouse gas emissions through the market based mechanism of emissions trading Reductions averaged approximately 5 by 2012 which equates to almost 30 in reduction of total emissions Some nations made significant progress under the Kyoto protocol however as it only became law in 2005 nations such as the United States and China reported increased emissions substantially offsetting progress made by other regions 4 Nations involved in the 2005 Kyoto Protocol In 1999 the Dow Jones Sustainability Index was introduced to evaluate the ecological and social impact of stocks so shareholders could invest more ethically The index acts as an incentive for firms to improve their environmental footprint to attract more shareholders 5 Later in 2000 the United Nations introduced the Millennium Development Goal scheme which sought to promote a sustainable framework for large multinational corporations and countries to follow to improve the environmental impact of financial investments This framework facilitated the development of the United Nations Sustainable Development Goal scheme in 2015 which aimed to increase funding environmentally responsible investments in developing nations 6 Funding was targeted to improve areas such as primary education gender equality maternal health and nutrition with the overall goal of creating beneficial national relationships to decrease the ecological footprint of developing economies 7 Implementation of these frameworks has promoted greater participation and accountability of corporate environmental sustainability with over 230 of the largest global firms reporting their sustainability metrics to the United Nations 6 The United Nations Environment Program UNEP has had a detailed history in providing infrastructure to improve the environmental effects of financial investments In 2004 the institute provided training on responsible environmental credit budgeting and management for Eastern European nations Following the Global Financial Crisis beginning in 2007 the UNEP provided substantial support for future sustainable investment choices for economies such as Greece which were impacted severely 7 The Portfolio Decarbonisation Coalition established in 2014 is a significantly notable initiative in the history of environmental finance as it aims to establish an economy that is not dependent on investments with large carbon footprints This goal is achieved through large scale stakeholder reinvestment and securing long term responsible investment commitments 8 Most recently the UNEP has recommended OECD nations to align investment strategies alongside the objectives of the Paris Agreement to improve long term investments with significant ecological effects 7 In 2008 the Climate Change Act enacted by the UK Government established a framework to limit greenhouse gasses and carbon emissions through a budgeting scheme which motivated firms and businesses to reduce their carbon output for a financial reward 9 Specifically by 2050 it seeks to reduce carbon emissions by 80 compared to levels in 1980 The Act seeks to achieve this goal by reviewing carbon budgeting schemes such emission trading credits every 5 years to continually reassess and recalibrate relevant policies The cost of reaching the 2050 goal has been estimated at approximately 1 5 of GDP although the positive environmental impact of reducing carbon footprint and increased in investment into the renewable energy sector will offset this cost 10 A further implicated cost in the pursuit of the Act is a predicted 100 increase in annual household energy costs however this price increase is set to be outweighed by an improved energy efficiency which will decrease fuel costs 11 The 2010 cap and trade scheme introduced in the metropolitan regions of Tokyo was mandatory for businesses heavily dependent on fuel and electricity who accounted for almost 20 of total carbon emissions in the area The scheme aimed to reduce emissions by 17 by the end of 2019 12 In 2011 the Clean Energy Act was enacted by the Australian Government The act introduced the Carbon Tax which aimed to reduce greenhouse gas emission by charging large firms for their carbon tonnage The Clean Energy Act facilitated the transition to an emissions trading scheme in 2014 13 The scheme also aims to fulfill the Australian Government s obligations in respect to the Kyoto Protocol and the Climate Change Convention Additionally the Act seeks to reduce emissions in a manner that will foster economic growth through increased market competition and investment into renewable energy sources 12 The Australian National Registry of Emissions Units regulates and monitors the use of emission credits utilised by the Act Firms must enroll in the registry to buy and sell credits to compensate for their relevant reduction or over consumption of carbon emissions 14 The Republic of Korea s 2015 emission trading scheme aims to reduce carbon emissions by 37 by 2030 It strives to achieve this through allocating a quota of carbon emission to the largest carbon emitting businesses resetting at the beginning of the schemes 3 separate phases 15 In 2017 the National Mitigation Plan was passed by the Irish Government which aimed to regress climate change by decreasing emission levels through revised investment strategies and frameworks for power generation agriculture and transport The plan involves 106 separate guidelines for short and long term climate change mitigation 16 The European Union Emission Trading Scheme concluding at the end of 2020 is the longest single global carbon pricing scheme which has been improved over its three 5 year phases 17 Current improvements include a centralised emission credit trading system auctioning of credits addressing a broader range of green house gasses and the introduction of a European wide credit cap instead of national caps Strategies Edit Renewable Energy Schematic Societal shifts from fossil fuels to renewable energy caused by an increased awareness of climate change has made government bodies and firms re evaluate investment strategies to avoid irreparable ecological damage 18 Shifts away from fossil fuels also increase demand into alternate energy sources which requires revised investment strategies 18 The initial stage to mitigate climate change through financial tools involves ecological and economic forecasting to model future impacts of current investment methodologies on the environment 19 This allows for an approximate estimation of future environments however the impacts of continued harmful business trends need to be observed under a non linear perspective 3 Cap and trade mechanisms limit the total amount of emissions a particular region or country can emit Firms are issued with tradeable permits which they can buy or sell This acts as a financial incentive to reduce emissions and as a disincentive to exceed emission caps 1 In 2005 the European Union Emission Trading Scheme was established and is now the largest emission trading scheme globally 1 Solar Panel Infrastructure In 2013 the Quebec Cap and trade scheme was established and is currently the primary mitigation strategy for the area 20 Direct foreign investment into developing nations provide more efficient and sustainable energy sources 1 In 2006 the Clean Development Mechanism was formed under the Kyoto Protocol providing solar power and new technologies to developing nations Countries who invest into developing nations can receive emission reduction credits as a reward 21 Removal of atmospheric carbon dioxide has been proposed as a solution to mitigate climate change by increasing tree densities to absorb carbon dioxide Other methods involve new technologies which are still in research development stages 22 Research in environmental finance has sought how to strategically invest in clean technologies When paired with international legislation such as the case of the Montreal Protocol on Substances that Deplete the Ozone Layer environmentally based investments have stimulated emerging industries and reduced the consequences of climate change The international collaboration would ultimately lead to the changes that repaired the hole in the ozone layer 23 Climate finance Edit This section is an excerpt from Climate finance edit Top 10 clean energy financing institutions 2014 Climate finance is finance that aims at reducing emissions and enhancing sinks of greenhouse gases and aims at reducing vulnerability of and maintaining and increasing the resilience of human and ecological systems to negative climate change impacts as defined by the United Nations Framework Convention on Climate Change UNFCCC Standing Committee on Finance 24 The term has been used in a narrow sense to refer to transfers of public resources from developed to developing countries in light of their UN Climate Convention obligations to provide new and additional financial resources and in a wider sense to refer to all financial flows relating to climate change mitigation and adaptation 25 26 The 21st session of the Conference of Parties COP to the UNFCCC Paris 2015 introduced a new era for climate finance policies and markets The Paris Agreement adopted there defined a global action plan to put the world on track to avoid dangerous climate change by limiting global warming to well below 2 C above preindustrial levels It includes climate financing channeled by national regional and international entities for climate change mitigation and adaptation projects and programs They include climate specific support mechanisms and financial aid for mitigation and adaptation activities to spur and enable the transition towards low carbon climate resilient growth and development through capacity building R amp D and economic development 27 This 2021 survey found that EU firms are more likely to make climate investments than US firms As of November 2020 development banks and private finance had not reached the US 100 billion per year investment stipulated in the UN climate negotiations for 2020 28 However in the face of the COVID 19 pandemic s economic downturn 450 development banks pledged to fund a Green recovery in developing countries 28 During the COVID 19 pandemic climate change was addressed by 43 of EU enterprises Despite the pandemic s effect on businesses the percentage of firms planning climate related investment rose to 47 This was a rise from 2020 when the percentage of climate related investment was at 41 29 30 Impact Edit European Union Map The European Union Emission Trading Scheme from 2008 2012 was responsible for a 7 reduction in emissions for the states within the scheme In 2013 allowances were reviewed to accommodate for new emission reduction targets The new annual recommended target was a reduction of 1 72 1 It is estimated that reducing the amount of quoted credits was restricted more tightly emissions could have been reduced by a total of 25 17 Nations such as Romania Poland and Sweden experienced significant revenue benefiting from selling credits Despite successfully reducing emissions the European Union Emission Trading Scheme has been critiqued for its lack of flexibility to accommodate to major shifts in the economic landscape and reassess currents contexts to provide a revised cap on trading credits potentially undermining the original objective of the scheme 31 The New Zealand Emissions Trading Scheme of 2008 was modelled to increase annual household energy expenditure to 0 8 and increase fuel prices by approximately 6 The price of agricultural products such as beef and dairy were modelled to decrease by almost 1 Price increases in carbon intensive sectors such as foresting and mining were also expected incentivising a shift towards renewable energy system and improved investment strategies with a less harmful environmental impact 32 In 2016 the Quebec Cap and trade scheme was responsible for an 11 reduction in emissions compared to 1990 emission levels 20 Due to the associated increased energy costs fuel prices rose 2 3 cents per litre over the duration of the cap and trade scheme 20 In 2014 the Clean Development Mechanism was responsible for a 1 reduction in global greenhouse gas emissions 33 The Clean Development Mechanism has been responsible for removing 7 billion tons of greenhouse gasses from the atmosphere through the efforts of almost 8000 individual projects Despite this success as the economies of developing nations participating in Clean Development Mechanisms improves the financial payout to the country supplying such infrastructure increases at a greater rate than economic growth thus leading to an unoptimised and counterproductive system 34 References Edit a b c d e Chesney Marc Gheyssens Jonathan Pana Anca Claudia Taschini Luca 2016 Environmental Finance and Investments Springer Texts in Business and Economics doi 10 1007 978 3 662 48175 2 ISBN 978 3 662 48174 5 a b c d e Sandor Richard L 2012 Sandor Richard L ed Good Derivatives A Story of Financial and Environmental Innovation John Wiley amp Sons doi 10 1002 9781119201069 ISBN 978 0 470 94973 3 page needed a b Linnenluecke Martina K Smith Tom McKnight Brent December 2016 Environmental finance A research agenda for interdisciplinary finance research Economic Modelling 59 124 130 doi 10 1016 j econmod 2016 07 010 United Nations Climate Change b What is the Kyoto Protocol United Nations Framework Convention on Climate Change https unfccc int kyoto protocol S amp P Global 2020 DJSI Index Family Pure Play Asset Management https www spglobal com esg csa indices djsi index family 7E text The 20Dow 20Jones 20Sustainability 20Indices convictions 20in 20their 20investment 20portfolios a b Cooper S 2019 February 5 The Evolution of Sustainable Finance Standard Chartered https www sc com en feature the evolution of sustainable finance a b c UNEP Finance Initiative 2017 June 6 The Evolution of Sustainable Finance https www unepfi org news 25th anniversary timeline Climate Action in Financial Institutions 2018 July Portfolio Decarbonisation Coalition PDC https www mainstreamingclimate org pdc United Kingdom Public General Acts 2008 Climate Change Act 2008 Legislation Gov Uk https www legislation gov uk ukpga 2008 27 introduction Evans S 2016 December 16 UK Climate Change Act Understanding the costs and benefits Carbon Brief https www carbonbrief org uk climate change act costs benefits Henson R 2011 March 11 What is the Kyoto protocol and has it made any difference The Guardian https www theguardian com environment 2011 mar 11 kyoto protocol a b Talberg A Swoboda K 2013 June 6 Emissions trading schemes around the world Parliament of Australia https www aph gov au About Parliament Parliamentary Departments Parliamentary Library pubs BN 2012 2013 EmissionsTradingSchemes Toc358272227 Irigoyen C 2017 The Carbon Tax in Australia Centre for Public Impact https www centreforpublicimpact org case study carbon tax australia Glowacki Law Firm 2013 March 7 The Australian National Registry of Emissions Units ANREU https www emissions euets com the australian national registry of emissions units anreu Kim E J 2020 March 19 East Asia s First Mandatory Emissions Trading System Climate Scorecard https www climatescorecard org 2020 03 east asias first mandatory emissions trading system Department of Communications Climate Action and Environment 2017 National Mitigation Plan Grantham Research Institute on Climate Change and the Environment https climate laws org geographies ireland policies national mitigation plan a b Laing Tim Sato Misato Grubb Michael Comberti Claudia January 2013 Assessing the effectiveness of the EU Emissions Trading System Report CiteSeerX 10 1 1 365 6508 ProQuest 1698743158 a b Ding Ashley Daugaard Dan 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