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A market for greenhouse gas emissions

The trading of securities linked to greenhouse gas emissions has begun to develop in the global financial market over the past few years and it could provide both needed revenue and environmental solutions for Latin America and the Caribbean, according to environmental finance specialists gathered recently at IDB headquarters in Washington, DC.

This arena for emissions trading, known as the carbon finance market, basically gives greenhouse gas producers flexibility to meet environmental goals at reasonable costs.

In order to mitigate global pollution, 38 industrialized countries signed the Kyoto Protocol of 1997, to reduce greenhouse gases below 1990 levels during the 2008-2012 period.

Through a financial mechanism in the carbon finance market, developing countries can create "certified emissions reductions" (CERs) by developing projects with low greenhouse gas emissions and then sell these CERs as carbon credits to industrialized countries that need to mitigate their pollution levels to meet their emissions targets.

Experts from the IDB, the World Bank and Econergy International Corporation, shared at an IDB seminar their knowledge and experience on implementing this financial mechanism that gives developing countries participation in the emerging global carbon market.

IDB specialist Michael Toman noted that a growing carbon finance market is good both for the environment and for sustainable development. A clear example of a win-win opportunity is management of methane emissions from landfills, which provides both attractively priced credits for greenhouse gas reduction and local community benefits. Other activities with shared potential benefits include energy efficiency projects, renewable energy projects, systemic urban transport efficiency improvements, and reforestation projects.

These kinds of projects are now more viable in the region because the funds can be guaranteed with the selling of carbon credits or CERs, for which there is an increasing demand. The Kyoto Protocol parties--governments as well as private entities--could assist in financing these projects and purchase the resulting credits as a means to achieve compliance with their own reduction commitments, once the treaty is in place.

Participants at the seminar suggested the IDB and the World Bank should join efforts in better developing these markets.

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