Climate Finance & Carbon Markets

Carbon Markets (Cap & Trade)

The government sets a total cap on emissions and issues permits. Companies must hold one permit per ton of CO₂ emitted. Clean companies sell excess permits to dirty ones. The market discovers the price of carbon.

System	Region	Price per ton CO₂	Status
EU ETS	Europe	~$70-100	Mature, covers 40% of EU emissions
China ETS	China	~$10	Started 2021, power sector only, expanding slowly
RGGI	US Northeast	~$15	Power plants only, too small to matter

The Price Problem

$10/ton doesn't change behavior. A coal plant pays$ 10 — trivial. A meaningful price is $100+/ton. China keeps its price low to protect industry. The EU’s high price drives industry to relocate (carbon leakage), which is why the EU created CBAM (carbon border tax on imports).

Green Bonds & Transition Finance

Instrument	What it is	Problem
Green bonds	Borrow money specifically for climate projects (solar, EVs)	Greenwashing — labeling projects as green when they’re not
Transition finance	Funding for dirty companies to become cleaner (steel plant retrofit)	Controversial — helps polluters stay in business longer

The global green bond market is ~$600B/year and growing. But “green” definitions vary wildly by country.

Stranded Assets & the Carbon Bubble

If the world moves to net-zero by 2050, oil, gas, and coal reserves still in the ground become worthless — they can never be burned. Companies like Exxon, Shell, and Saudi Aramco are valued based on these reserves.

The problem: If those reserves become “unburnable,” these companies are overvalued by trillions of dollars. This is called the carbon bubble — the gap between what fossil fuel assets are worth today vs. what they’re worth in a climate-constrained world.

Who Gets Hurt

Investors: Pension funds, sovereign wealth funds holding oil/gas stocks
Oil-dependent countries: Saudi Arabia, Russia, Venezuela, Nigeria — their entire budgets rely on oil revenue
Banks: Lending to fossil fuel projects that may never be repaid

The North-South Tension

Developed countries created most historical emissions. Now they tell developing countries to skip coal and go straight to renewables. The developing countries’ response: “You got rich on coal, now you’re blocking us from doing the same.”

The Numbers

Country group	Share of historical emissions	Per capita emissions today
US + Europe	~50%	~15 tons/person
India + Africa	~5%	~2 tons/person

Promised vs. Delivered

Rich countries promised $100B/year in climate finance to poor countries. It has not been fully delivered. The main vehicles:

Vehicle	How it works	Status
Green Climate Fund	UN-managed grants for clean energy in poor countries	Underfunded
Loss & Damage Fund	Compensation for climate disasters (floods, droughts)	Created at COP28, no money yet
World Bank / IMF	Concessional loans with climate conditions	Controversial — adds debt burden

Energy Geopolitics — the energy transition driving carbon markets
Trade & Tariffs — CBAM as climate trade policy
Sovereign Debt & IMF — how climate disasters trigger debt crises

References

World Bank. State and Trends of Carbon Pricing Dashboard. Tracks carbon prices, coverage, and revenue across all major ETS and carbon tax systems globally.
Carbon Tracker Initiative. (2013). Unburnable Carbon: Wasted Capital and Stranded Assets. — The original analysis introducing the “carbon bubble” and “stranded assets” framework.
Climate Policy Initiative. (2023). Global Landscape of Climate Finance 2023. — Tracks public and private climate finance flows, including the gap between the $100B pledge and actual delivery.
IPCC. (2023). Sixth Assessment Report (AR6): Synthesis Report. — Historical and per-capita emissions data by country group.
UNFCCC. (2023). Global Stocktake. — First global assessment of progress under the Paris Agreement, including climate finance delivery.
European Commission. (2023). EU Emissions Trading System (EU ETS). — Rules, coverage, and price data for the EU carbon market.