What is Carbon Finance?

IFC is the largest multilateral source of loan and equity financing for private sector projects in the developing world. IFC is interested in the carbon market because under the Kyoto Protocol and the European Union emissions trading system (EU ETS), emission reduction credits generated by projects can be used for compliance. The Kyoto Protocol allows for Certified Emission Reductions (CERs) created by eligible projects under the Clean Development Mechanism and Emission Reductions Units (ERUs) created by eligible projects under the Joint Implementation mechanism to be used toward meeting national emission reduction targets.

Carbon Credits

CERs and ERUs (carbon credits) are greenhouse gas (GHG) emission reductions that are created when a project reduces or avoids the emissions of GHGs, such as carbon dioxide or methane, relative to what would have been emitted under a 'business as usual' scenario. For example, a new wind power plant that displaces existing or expected coal-fired power generation would create a significant amount of credits, as would a project at a landfill that captures and utilizes some or all of the methane that previously escaped into the air. In contrast, a wind power project that offsets hydropower would not generate credits as the baseline itself has no GHG emissions.