CONTEMPORARY ENVIRONMENTAL MATTERS: GREEN FINANCE AND CARBON PRICING

Arshma S

Govt law college Thiruvananthapuram

ABSTRACT

The International Environmental laws and their varying approaches are able to make great impacts to  the member nations, especially developing countries who are frequently seeking financial incentives to improve  compliance with historic treaties and their goals. The evolution of green financing since the Paris agreement  marked a new chapter. Along with this, the emergence of carbon markets interconnected global trading and environmental laws, creating a new trading environment grounded in environmental legal principles. Therefore,  it is imperative to explore the current global environmental developments and innovative approaches therein. 

INTRODUCTION

In today’s dynamic world , the importance of conserving the planet, our very source of existence, is often overlooked. However, in recent times , the international environmental agencies have embraced innovative, economically beneficial and pragmatic approaches that are gaining momentum.

The establishment of the United Nations Environmental Program (UNEP)  and Green Climate Fund (GCF)  marked a turning point  in the conservation of  environment by financially assisting the  developing countries which are prone to climate disasters and  thereby encouraging  them to comply  with the principle of paris agreement and sustainable development goals (SDGs).

Another innovative development  which accentuates the attention of  both national and international governance as well as  stakeholders, is the emergence  of  carbon markets and carbon credits. Carbon pricing has the potential to reduce emissions and enable smarter planning.

GREEN FINANCE

Article 9 of the Paris agreement states that  financial assistance shall be provided by  developed countries to developing countries to support climate action and the implementation of the agreement’s goals[1]. The UNEP defines green financing as the increase in financial flow levels from the private, public and non-profit sectors to sustainable development priorities that help in the management of social and environmental risks.

Green financing also helps countries to reduce greenhouse emissions  by funding renewable powers like wind or solar energies. The 2024 Emission Gap Report reveals that power generation is the largest contributor of greenhouse emission[2] (27%) especially due to the burning of fossil fuels. Increased deployment of solar photovoltaic technologies and wind energy could deliver 27 percent of the total emission reduction potential in 2030. It flags  that the technological developments, particularly in wind and solar energies continue to exceed expectations, lowering deployment costs and driving their market expansion.

Financial  assistance to developing countries like Nepal, Cambodia, Chile, Caribbean countries  is paving a way towards progress on  the goals set by the Paris agreement and recent summits. Among the  obnoxious climate impacted countries, the Caribbean countries are most vulnerable to the impacts of climate change including rising sea levels and an increased frequency of extreme weather events. Even though  they are among  the least contributors, accounting for less than 1% of global greenhouse gas emissions ,the government has set a strict mitigation agenda, reframing their Nationally Determined Contributions.[3]. 

LIMITATIONS  OF GREEN  FINANCING 

Although  green financing presents an  optimistic outlook, many member states are reluctant to share the financial obligation.[4] It is considered insufficient to meet the global climate targets and SDGs. The UN Report on  Synergy Solutions  for Climate and SDGs in 2024[5] stated that the climate finance under UNFCCC  is negotiated  whereas SDG financing is not. Furthermore added that there is a fragmentation between the Paris Agreement and Agenda 2030.

The report also highlights a lack of clear evidence for the economic benefits and trade offs as well as lack of understanding of the causal links  of pursuing combined efforts in climate change mitigation and adaptation.

The relevance of carbon markets in this context is indispensable and helps provide direction amid the existing ambiguity. 

CARBON MARKETS AND PRICING

According to the World bank, more than 57 carbon pricing initiatives are currently in  place worldwide. The establishment of  carbon markets ,carbon credits and carbon pricing was also facilitated by the article 6 of the historic Paris agreement. Carbon credits or carbon offsets function as permits that allow companies to emit a specific  amount of  carbon. By putting a price on GHG emissions, these marketplaces help integrate environmental costs into business decisions , facilitating a smoother  transition to a low carbon economy.[6] 

The carbon markets create funds for development finance and climate finance. These funds can be raised from the transactional revenues earned from carbon credit sales.[7]

Compliance carbon markets and the voluntary carbon markets are the two main  types of systems, which centralise  global trading of carbon. The  European Union Emissions Trading System (EU ETS), The Regional Greenhouse Gas Initiative, The  California Cap and Trade Program are some of the examples of compliance carbon markets. They are operated under strict regulatory frameworks. 

Whereas, voluntary carbon markets have no strict legal barriers ,they are voluntary in nature. Entities can engage voluntarily to meet sustainable goals or support  climate initiatives. The Verified Carbon Standard(VSC), the Climate Action Reserve , The Gold Standard ( initiated by a coalition of non-governmental organizations led by the World Wildlife Fund (WWF) are examples of voluntary carbon markets.[8] 

According to WEF’s report on agile governance, a key feature of international carbon markets, it stated that the shifting power away from the government towards companies and non-state actors.[9]  Thus the credibility of carbon markets is often questioned. The impression of carbon credits as limit the   greenhouse gas emission  is  displayed as equivocal and termed as greenwashing by the critics. 

CONCLUSION

Developments such as green financing, carbon markets, and carbon credits are deeply interconnected and contribute to the efficacy of  International environmental laws by enhancing compliance and adaptability. The investment flows, albeit increasing, remain inadequate   to tackle the potential challenges faced by the world. 

Notably,  the significant actions by developing countries like India and Chile represent milestones in combating climate change. India’s  Khavda renewable Energy Park, one of the world’s largest solar and wind energy hubs and its financial contribution to raise the capital of environmentally sustainable(2022) reflecting a shift towards green development. Similarly, Chile’s Green Tax Reform (2024)  introduces  pragmatic fiscal policies to combat greenhouse emissions. Thus, these developments are expected as game changes even if showing limitations. 

ENDNOTES 

[1]  Developed country parties (annex 11 parties) shall provide financial resources to assist developing countries. The Paris Agreement .United Nations. https://www.un.org/en/climatechange/paris-agreement 

[2], The  Emissions Gap Report 2024 focuses on total net GHG emissions across all major groups of anthropogenic sources and sinks reported under the United Nations Framework Convention on Climate Change (UNFCCC). This includes carbon dioxide (CO2) emissions from fossil fuels and industry (fossil CO2), CO2 emissions and removals from land use, land-use change and forestry (LULUCF CO2), methane (CH4) and nitrous oxide (N2O) emissions(from the report itself). UNEP.2024. https://www.unep.org/resources/emissions-gap-report-2024

[3]Our impact in Asia Pacific. UNEP. UN Environmental Programme.2024. https://www.unep.org/regions/asia-and-pacific/our-impact-asia-pacific 

[4] Financial support for international negotiations and implementation of MEAs  is increasingly becoming an important issue for international institutions.  1 B P SINGH SEHGAL, ISSUES AND CHALLENGES OF PUBLIC INTERNATIONAL LAW  pg.291 (Universal Law Publishing Co. Pvt.,1st ed. 2016).

[5] UN Synergy solutions for climate and SDG  Action : Bridging the Gap for the Future We Want .  Sustainable Development https://sdgs.un.org/sites/default/files/2024-07/UN%20Synergy%20Solutions%20for%20Climate%20and%20SDG%20Action-3.pdf 

[6]The ultimate guide to understanding carbon. carboncredits.com https://carboncredits.com/the-ultimate-guide-to-understanding-carbon-credits/

[7] How carbon markets can unlock green finance for global south countries. Green central banking. Written by Yuan Zheng. 2025.

https://greencentralbanking.com/2025/04/16/carbon-markets-unlocking-green-finance/

[8] Carbon markets: Basics of   Compliance  and Voluntary Trading. EOS. 2024  https://eos.com/blog/carbon-markets/ 

[9] Agile governance is to incorporate new technologies of carbon capture and storage and  to adapt scientific understanding of carbon emissions. Agile Governance:  Reimaging Policy Making in the Fourth Industrial Revolution.WEF. https://www3.weforum.org/docs/WEF_Agile_Governance_Reimagining_Policy-making_4IR_report.pdf 

REFERENCE

1. UNFCCC. (n.d.). Climate Finance in the negotiation . https://unfccc.int/topics/climate-finance/the-big-picture/climate-finance-in-the-negotiations

2.  United Nations. (n.d.). The Paris Agreement. https://www.un.org/en/climatechange/paris-agreement

3. UNEP. Climate Action . https://www.unep.org/topics/climate-action

4. WEF. (n.d.) Centre for Nature and Climate.  https://centres.weforum.org/centre-nature-and-climate/home

5. United Nations Environment Programme (UNEP). (2024). Emissions Gap Report 2024. https://www.unep.org/resources/emissions-gap-report-2024

6.  Sehgal, B. P. S. (2016). Issues and challenges of public international law (1st ed., p. 291). Universal Law Publishing Co.

7. WEF. Carbon Market Innovation initiative https://www.weforum.org/projects/carbon-market-innovation-initiative/

8. CarbonCredits.com. (n.d.). The ultimate guide to understanding carbon credits. https://carboncredits.com/the-ultimate-guide-to-understanding-carbon-credits

9.  World Economic Forum. (n.d.). Agile governance: Reimagining policy making in the Fourth Industrial Revolution. https://www3.weforum.org/docs/WEF_Agile_Governance_Reimagining_Policy-making_4IR_report.pdf

10.  Zhang, Y. (2025, April 16). How carbon markets can unlock green finance for global south countries. Green Central Banking. https://greencentralbanking.com/2025/04/16/carbon-markets-unlocking-green-finance

11. EOS Data Analytics. (2024). Carbon markets: Basics of compliance and voluntary trading. https://eos.com/blog/carbon-markets

12. Framework for Sovereign Green Bonds (2022)https://dea.gov.in/sites/default/files/Framework%20for%20Sovereign%20Green%20Bonds.pdf