3.1 Emissions trading market mechanism

Establishing emissions trading market should meet three premises: first, the total amount of emissions trading in the region; second, the initial allocation of tradable permits amount; third, sufficient market information shared among emissions trading parties. In addition, the establishment of an emissions trading market includes the transaction subject, transaction procedure and how to manage and regulate the market, etc.

One of the famous cases that environmental regulators use financial market mechanism to solve the problem of air pollution, water pollution and the problem of biopersity is that Slovak government and Japan's Sumitomo corporation signed the deal of emissions trading of 200000 tons in 2002; the deal is regarded as the start of global emissions trading market.

3.2 Types of green financial products

Environmental Environmental funds and biopersity funds offer financial support directly to the projects of

Funds and conserving biopersity or indirectly to business activities of protecting the area of biopersity.

Biopersity Funds According to the practice activities, the environmental funds and biopersity funds promote the

organic agriculture, ecological tourism and sustainable development of forest and fishery.

Debt-for- Creditor country and less developed country reach an agreement that the debt of less developed

environment country can be exempted on the premise that less developed country should provide sources of funds to

Swaps environmental fund that is often important to protect biopersity. At present, the United States,

Sweden and Germany are the most active countries to develop debt-for-environment swaps projects,

benefiting more than 30 countries; one of the most influential debt-for-environment swaps project is

the one between the government of the United States and Poland that achieved the value of about $370

million.

Forestry The enterprises of forestry exploitation which set up securities transfer all of the business profits to a

Securitizations new legal subjects which then will obtain funds from the investors by issuing securities in the capital

market and will loan the revenues to the enterprises of forestry exploitation, for instance, the system of

mitigation banking of wetland and endangered species in the United States and the system of tradable

native vegetation obligations in Brazil.

Weather This new financial products can handle the negative financial losses caused by changes in climate

Derivatives condition. If the level of climate change exceeds the prescribed standard, the enterprise signing

weather derivative contract may require a certain amount of compensation. Weather derivatives

derived from energy sector in the middle of 1990s, according to date from CME, the transactions of

weather derivatives since 2002 have been up to billions of dollars.

Nature-linked Nature-linked Securities can transfer the risk of natural disasters and climate change to investors in

Securities global capital market. The sponsors of the natural disaster securities generally set up a special purpose

vehicle (SPV) and then issue debt securities. SPV and the sponsors follow that SPV agrees to pay

compensation to sponsors in the event of natural disasters on condition that the sponsors must pay a

certain amount of insurance fee to SPV regularly.

Green investment Investment companies and trust funds invest in accordance with the "environmentally friendly",

funds "moral", "green", "social responsibility" or "sustainable" standards, for instance, many investment

companies decline investment in securities of companies which produce pollution. Equator principles

of green finance promoted more and more fund managers to use environmentally friendly investment

strategies.

3.3 A summary of green finance market mechanism

A lot of studies are concerned with green finance market’s effect and influence on environment. First of all, green finance market is credit intermediary of environmental protection’s capital movement; it adopts the way of serving to gather and allocate funds, and mandates the capital shortage of businesses and residents. In addition, green finance market can improve productivity. Through financial institutions handling monetary funds, currency funds movement promotes commodities trading according to the market demands, bonds various factors of production rapidly and forms new productivity. Finally, green finance market is one of the most important levers regarding to macroeconomic regulation and control. Capital supply can adjust social total demand. Through the financial leverage effect, green finance market can adjust the size, speed and structure of economic development.