Carbon Finance: Definition, Policy Tool, and Global Importance

In a general sense, carbon finance encompasses financial instruments and strategies that address climate issues through market-based mechanisms in a carbon-constrained society [10]. More specifically, it is a collective term for the various cash flows generated by the sale of project-specific greenhouse gas emission reductions or the trade of carbon permits [11]. Additionally, it encompasses financial activities aimed at advancing carbon emissions reductions (CERs), such as investment and financing for CERs and carbon emissions trading (CET) [12]. While there may be slight variations in the definition of carbon finance among researchers, it fundamentally serves as a policy tool for reducing carbon emissions. Given the urgent need to tackle global climate change, promoting the development of carbon finance has become increasingly crucial. Consequently, many countries are engaging in emissions reduction initiatives.