Kazunari Kainou, 16 March 2022

The Clean Development Mechanism under the Kyoto Protocol is the world’s first international carbon finance scheme. Companies can acquire tradeable certified emission reduction credits by investing in energy conservation and new energy projects in developing countries. Despite its early success, the scheme collapsed following a ‘carbon panic’ in 2012. This column reviews the collapse of the mechanism and its spillovers on Paris Agreement negotiations. While the scheme was unexpectedly revived thanks to interest from the US and developing countries, carbon financing remains structurally prone to panic.

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