The World Bank released its annual State and Trends of the Carbon Market report at Carbon Expo in Cologne, Germany, on 26 May. The report indicates that the value of the global carbon market grew six percent, to US$144 billion, in 2009 despite being its most challenging year to date.

Through a range of examples, this Issues Brief illustrates how public finance can catalyze climate action by piloting innovative

The carbon market doubled to $126bn, but the value of transactions financing project-based emission reductions fell 12% to $6.5bn in 2008. Difficulties in getting financing for projects during the financial crisis, regulatory delays and the market's uncertain future caused the drop. World Bank is working to deepen the reach of the carbon market with two new facilities.

Although still accounting for a small segment of the global carbon market, the voluntary carbon market is a place for innovation where original solutions are proposed to deal with some challenges faced by the regulatory market, including efforts to value the occasional ancillary benefits of climate action, to simplify methodologies, or to guarantee the permanence of forestry assets.

The scale of investment needed to slow greenhouse gas emissions is larger than governments can manage through transfers. Therefore, climate change policies rely heavily on markets and private capital. This is especially true in the case of the Kyoto Protocol with its provisions for trade and investment in joint projects.

The global carbon market grew to a whopping US$64 billion (

The objective of this article is to review how this remarkable turn of events unfolded, to examine whether and to what extent the CDM has overcome the structural difficulties highlighted above, and to discuss the future of the CDM in the context of global climate mitigation in the medium and long run. The article is structured as follows. It first reviews the history of the CDMfrom Kyoto to the present day. Then it describes the current status of the CDM. Next it assesses the relationship between the CDM and sustainable development.