School of the Environment-University of Toronto

ECF 401- Carbon Finance


This course examines the options open to countries, like Canada, which are signatories to the Kyoto Protocol but which have not yet established a carbon trading system. Among other topics, we compare the relative merits of cap-and-trade, intensity targets and carbon taxes – all of which have been proposed (and some implemented) in Canada. Students examine the interplay between compliance markets (such as the EU ETS), where GHG targets are in place, and project markets for the Clean Development Mechanism and Joint Implementation.

Climate change and regulations that are emerging to combat it are driving an fundamental transition towards a carbon constrained economy. Carbon finance in its narrowest sense is a stream of revenues from the creation and transaction of a carbon asset. The practice of carbon finance however is a much broader topic requiring fundamental understanding of climate change policies, risks, market mechanisms to achieve GHG reductions, Cap and Trade, carbon trading, corporate strategy and more. This course is designed to provide students with an understanding of these topics and through this the field of carbon finance.

The objectives of this course are to:

  • Provide the nomenclature of carbon finance and a broad understanding of the regulatory, financial and competitive risks of a carbon constrained economy
  • Develop a complete understanding of the various facets of carbon finance, their role and implications
  • Introduce and analyse cap and trade and carbon tax as mechanisms to limit and reduce GHGs in the atmosphere and asses real-world application of cap and trade in the EU Emissions Trading Scheme
  • Provide the information necessary to assess financial investments in carbon

By the end of this course, the student should be able to:

  • Identify the financial, regulatory and competitive impacts of climate change regulation
  • Discuss a variety of risk factors that may impact financial performance and shareholder value
  • Contrast a cap and trade and carbon tax for reducing GHGs
  • Understand the carbon market and drivers of carbon prices
  • Identify the basics of a carbon strategy
  • Describe the role of carbon in financing an emissions offset project


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