Environmental finance
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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,
Prior to this in 1990, Sandor had been involved with the passing of the
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]
In 1999, the Dow Jones Sustainability Index was introduced to evaluate the ecological and social impact of stocks so shareholders could invest more sustainably. 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
The
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
The Republic of Korea's 2015
In 2017 the National Mitigation Plan was passed by the
The
Strategies
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]
In 2005, the
In 2013, the Québec Cap-and-trade scheme was established and is currently the primary mitigation strategy for the area.[20]
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
Impact
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.[26]
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.[27]
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.[28] 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.[29]
References
- ^ ISBN 978-3-662-48174-5.
- ^ ISBN 978-0-470-94973-3.[page needed]
- ^ .
- ^ "What is the Kyoto Protocol?". unfccc.int. Retrieved 2023-07-12.
- ^ "DJSI Index Family - Pure Play Asset Management". S&P Global. 2020.
- ^ a b "Green Business: Evolution of sustainable finance". Standard Chartered. Retrieved 2023-07-12.
- ^ a b c "The Evolution of Sustainable Finance". UNEP Finance Initiative. June 6, 2017.
- ^ "What is climate mainstreaming?". www.mainstreamingclimate.org. Retrieved 2023-07-12.
- ^ "Climate Change Act 2008". Retrieved 2023-07-12.
- ^ Pearce, Rosamund (2016-12-16). "UK Climate Change Act: Understanding the costs and benefits". Carbon Brief. Retrieved 2023-07-12.
- ISSN 0261-3077. Retrieved 2023-07-12.
- ^ a b Talberg, A.; Swoboda, K. (June 6, 2013). "Emissions trading schemes around the world". Parliament of Australia.
- ^ "The Carbon Tax in Australia". Centre For Public Impact (CPI). Retrieved 2023-07-12.
- ^ "The Australian National Registry of Emissions Units (ANREU) - Emissions-EUETS.com". emissions-euets.com. Retrieved 2023-07-12.
- ^ Kim, Ellie Jimin (2020-03-19). "East Asia's First Mandatory Emissions Trading System". Climate Scorecard. Retrieved 2023-07-12.
- ^ "National Mitigation Plan - Climate Change Laws of the World". climate-laws.org. Retrieved 2023-07-12.
- ^ ProQuest 1698743158.
- ^ S2CID 213576271.
- .
- ^ a b c "The cap-and-trade system in Québec". Centre For Public Impact (CPI). Retrieved 2023-07-12.
- ^ "The Clean Development Mechanism". unfccc.int. Retrieved 2023-07-12.
- ^ 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/
- ISSN 0264-9993.
- ^ "World Energy Investment 2023 / Overview and key findings". International Energy Agency (IEA). 25 May 2023. Archived from the original on 31 May 2023.
Global energy investment in clean energy and in fossil fuels, 2015-2023 (chart)
— From pages 8 and 12 of World Energy Investment 2023 (archive). - ^ Hewlett Foundation (2019). "Climate Finance Strategy 2018-2023".
- ^ Abdel-Ati, Ibrahim (2020-03-11). "The EU Emissions Trading System Seeking to Improve". Climate Scorecard. Retrieved 2023-07-12.
- ^ 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
- ^ Warnecke, C., Day T., Tewari, R. (2015), “Impact of the Clean Development Mechanism.” New Climate Institute.
- S2CID 198632560.