Role of Public Development Banks in Supporting Domestic Carbon Markets
Emerging markets and developing economies (EMDEs) face a significant climate financing gap—estimated by CPI to require over USD 2 trillion per year by 2030 to meet their climate targets and transition to cleaner energy systems.
Carbon markets offer a potential means of bridging this financing gap. Carbon markets facilitate the trade of carbon credits, effectively providing a mechanism for financing carbon reduction projects by accurately pricing the negative externalities of CO2 emissions.
Public development banks (PDBs) are uniquely positioned to play a pivotal role in enabling the transition to low-carbon development through carbon markets. This brief explores how PDBs—international/regional multi-lateral development banks in coordination with country-specific national development banks—can leverage their financial and technical capabilities to help address the challenges that EMDEs face in developing domestic carbon markets.
NDBs, in particular, possess deep knowledge of their respective countries’ regulatory frameworks, national development strategies, and economic priorities. This positions them as key intermediaries, capable of bridging the gap between domestic governments, private-sector actors, and international investors to identify carbon market best practices, support implementation, and mobilize private capital. Moreover, PDBs play a crucial role in ensuring the integrity of carbon markets by supporting robust monitoring, reporting, and verification (MRV) systems and aligning market practices with internationally recognized standards.
This paper begins by exploring the benefits of domestic carbon markets. It then examines barriers to the adoption of domestic carbon markets and also barriers faced by PDBs in supporting the deployment of domestic carbon markets, but provides practical guidance on the potential role of PDBs in facilitating the development of domestic carbon markets.
Ultimately, this paper seeks to provide actionable insights for stakeholders aiming to harness the potential of domestic carbon markets to drive sustainable development and mitigate climate change.
