Each country in the EU has an annual emission allocation in order to reduce and control harmful emissions. As part of this carbon scheme, this allocation is then divided between the companies that are responsible for the largest emissions, and then legally obliged to comply with these targets. The company has the opportunity to sell “carbon credits,” which they acquire if they come under their target, or to buy credits if they go over their targets. Trading carbon has only been around for a few years, but in the future it could become a multi-trillion dollar business.
Currently this carbon scheme is fairly new, and carbon credits are in abundance, so their price is quite low. However, the 2008-2012 program is now in its second phase, which means that regulations are more stringent and that there are a smaller amount of credits available. After this phase, the carbon emission level will continue to get stricter, and there will be fewer easy sources of carbon credits. This could raise the price of the carbon credits.
All that is left is for the United States to sign the Kyoto agreement or a similar agreement, become part of the carbon credit system, and most likely the price of carbon credits would soar.
The principal marketplace for the global trading of carbon credits is the European Climate Exchange, or ECX for short. At the present moment, two types of carbon credits are traded at the ECX. The first is Certified Emission Reductions, and the second is EU allowances. The ECX has been running since April 2005, and is the industry leader in carbon trading.
More than 100 leading global businesses are members of the ECX and are able to trade carbon. Also, several thousand traders across the globe can access the ECX emissions market.
There is a global momentum towards national and regional carbon trading schemes. Already, carbon credits are making a wide range of green projects feasible, such as renewable energy and carbon capture projects.
The principal problem that investors will have in the carbon market is that it is a very complex market, and its future is currently not completely certain as the Kyoto Protocol lasts only until 2012. However, work is underway to develop a successor. This will possibly involve one protocol for ratified nations, and one for other countries including the US.
It all comes down to political will. The US has a history of anti-environmental policies, and a populace generally less concerned about environmental issues that in Europe. The EU has consistently demonstrated a strong commitment to reducing its carbon emissions, and even intends to reduce it by 20-30% by 2020. How strongly the US gets involved in this scheme in the next few years is yet uncertain, but what is certain is that carbon trading is here to stay.
To find out more, go to:
cnbc.com
wikipedia.org
More than 100 leading global businesses are members of the ECX and are able to trade carbon. Also, several thousand traders across the globe can access the ECX emissions market.
There is a global momentum towards national and regional carbon trading schemes. Already, carbon credits are making a wide range of green projects feasible, such as renewable energy and carbon capture projects.
The principal problem that investors will have in the carbon market is that it is a very complex market, and its future is currently not completely certain as the Kyoto Protocol lasts only until 2012. However, work is underway to develop a successor. This will possibly involve one protocol for ratified nations, and one for other countries including the US.
It all comes down to political will. The US has a history of anti-environmental policies, and a populace generally less concerned about environmental issues that in Europe. The EU has consistently demonstrated a strong commitment to reducing its carbon emissions, and even intends to reduce it by 20-30% by 2020. How strongly the US gets involved in this scheme in the next few years is yet uncertain, but what is certain is that carbon trading is here to stay.
To find out more, go to:
cnbc.com
wikipedia.org