The Kyoto Protocol to the United Nations Framework Convention on Climate Change (UNFCCC) provides the backdrop for carbon finance activities. Carbon finance is the generic name for the revenue streams generated by projects from the sale of their greenhouse gas emission reductions (see Figure 1) or from trading in carbon permits. It sets the basis for an innovative scheme to meet the GHG emissions objetives from industrialized countries through a global carbon market.

Indeed, the Kyoto Protocol provides that the industrialized countries (referred to as Annex I countries under the UNFCCC) can meet their quantified emissions obligations through (i) domestic actions (e.g., standards, taxes, subsidies, domestic emissions trading); and partially through one of the Protocol’s three market-based mechanisms, i.e., International Emission Trading, Joint Implementation (JI), and the Clean Development Mechanism
(CDM).

Marking the 10th anniversary of the establishment of the World Bank Prototype Carbon Fund (PCF)—the world’s first global carbon fund—this report seeks to take stock of the World Bank’s experience of working with these market-based mechanisms over the past decade. It shares insights and recommendations from the perspectives of a practitioner, a carbon market player, a manager of carbon fund portfolios, and an active contributor to the regulatory process in terms of developing methodologies as well as providing assessments, analysis, and recommendations in response to the regulators’ call for inputs.