A Proposal for Index-Linked Carbon Bonds

The Long Finance and London Accord community (over 48 financial institutions, thousands of people in finance and some 250 reports since 2005) has developed a simple, almost subversive, proposal for on climate change finance – index-linked carbon bonds. An indexlinked carbon bond is a government issued bond where interest payments are linked levels to a carbon target - levels of feed-in tariffs for renewable energy, emission certificate prices or actual greenhouse gas emissions of the issuing country. An investor in an index linked carbon bond receives an excess return if the issuing country’s targets are not met, e.g. an extra percentage point of interest for each €1 that CO2 emission certificate prices are below target