Trade Carbon Credits:

The Worlds Largest Commodity Market

Buffet invests $44 billion in Carbon Credits
Unless you’ve had your head buried in the financial sand over last few months you could not have failed to miss the implementation by Barack Obama of ‘Cap and Trade’ on emissions in the US which is set to be the biggest growth market the financial world has ever seen.

Wall Street: Trading in Carbon Credits of Carbon Dioxide, along with other Greenhouse gases such as chlorofluorocarbons (CFCs) is indeed becoming the Worlds Biggest Commodity Market worth trillions of dollars.

Carbon Credits have been trading in Europe for the last 2 years under the Emissions Trading Scheme and prices have risen from $4 to $15 in that time. This is not bad going considering that critics have stated the emissions limits were set too high. In addition we have had the global crisis to contend with. The reason this market is going to be an investor’s paradise is simple - The market has been created to artificially push the prices of carbon offsets up every year in order reduce emissions.

"Carbon will be the world's biggest commodity market, and it could become the world's biggest market over all."... "Barclays Capital" (New York Times)

Put simply, governments are telling all companies to lower their emissions. Companies can use the government imposed limits every year. If they exceed these limits they have to purchase Carbon Offsets or pay a huge fine. Prices will increase annually because once a company buys a Carbon Offset Certificate (equal to1 metric tonne of CO2) that amount of carbon is retired and can never be traded again, taking it out of circulation. It’s not ‘if companies want to’ purchase carbon offsets it’s ‘when’ and ‘at what price’?

In the US Carbon Offsets are available at the current European rate of $15. The US is looking to implement ‘Cap and Trade’ in 2012. According Reuters and Barclays Capital, credits will trade at $30 plus as anything less will not be enough to force companies to go green. The European Union and the US have both agreed to reduce the annual limits for carbon emissions up to 2050.

There is no FSA regulation of Carbon Credits because the European market is closed to investors. In the US the exchange is fully regulated by FINRA, who also regulate the NASDAQ.

Investors can purchase Carbon Offsets through a registered US liquidity provider such as Coolpass. You will be issued a Carbon Offset Certificate which you can trade through the Chicago Climate Exchange - The world’s first environmental derivatives exchange and owned by the London-based Climate Exchange PLC which also owns the European Climate Exchange, however 10% is currently owned by Goldman Sachs.

So here we have a market that is set to go only one way – which is up. It’s regulated by FINRA and is being lead by the Barack Obama Administration who put the wheels in motion in May 2010.

With industrial global emissions accounting for about 33 gigatonnes, a $30-per-tonne carbon price would pay the whole bill. (Source - BBC News)

Buffet invests $44 billion in Carbon Credits (Source -Telegraph UK)

President Barack Obama has said he wants the country to cut emissions of greenhouse gases to 17 percent below 2005 levels by 2020. (Source – Reuters)

“I believe the best way to control greenhouse gasses is through legislation that places a market-based cap on emissions. By setting a market-based cap you create a commodity which places a value on a limited resource”. (Source – Barack Obama)

“Over time, as the cap on greenhouse gasses gets lowered and the commodity becomes scarcer the price goes up – The price of the status quo will become more expensive” (Source - Barack Obama)

One need only revert to the simple law of supply and demand to see that this industry is going to be huge. If increased demand dictates an increase in price, getting in now could be one of the wisest investment moves you make in the first half of this century.

Australia has recorded its largest transaction in carbon emissions, with 20,000 tonnes of carbon sold forward at A$21.50 ($19.51) a tonne, a carbon broker said on Friday, as the nation prepares to curb greenhouse gases.

Australia, the rich world's largest per-capita emitter of greenhouse gases, plans to cap emissions from 2010 and introduce a carbon-trading system where businesses that pollute less can sell emission credits to those firms that pollute more.

"I believe it to be the biggest deal that's been done," said Gary Cox, head of environmental derivatives for Newedge Group in Australia. He declined to give details on the buyer or seller.

An over-the-counter market in carbon emissions has emerged this year as businesses such as coal-fired power generators look to hedge uncertainty surrounding the eventual price of carbon when Australia's proposed cap-and-trade system kicks off.

Speculators are also looking to make money by providing badly needed liquidity to the emerging market in carbon dioxide.

The latest deal is for delivery in February 2012 and was finalized last week, Cox said.

Though it was the largest deal to date, he added, at 20,000 tonnes it was still tiny compared with the few millions of tonnes of carbon emitted each week by Australia's power industry alone.

"It's a drop in the ocean," Cox said, adding that buyers and sellers were still feeling their way, starting with small deals and gradually expanding them as confidence and liquidity grew.

Carbon is trading in Australia at around half the level of prices in the more mature markets of Europe where carbon credits -- permits to pollute -- for December 2008 delivery have been trading at around 26 euros ($39.83) a tonne.

Australia's Westpac bank and utility AGL Energy are credited with Australia's first carbon deal in May this year.
($1=.6528 euro)
($1=A$1.102)

Designing, implementing and operating a carbon offset project requires the involvement of a large number of parties, stakeholders and authorities. Although the parties involved differ from project to project, some general categories and types of market players can
be defined:

* Project Owner - The operator and owner of the physical project installation where the emission reduction project takes place. This can be any private person, company or other organization.
* Project Developer - A person or organization with the intention to develop an emission reduction project. This could be the project owner, a consultant or specialized services provider.
* Project Funders - Banks, private equity firms, private investors, non-profit organizations and other organizations may lend or invest equity to fund a project. Some of the standards have rules as to what kind of funding, aside from offset revenue, is acceptable for an offset project.
* Stakeholders - Individuals and organizations that are directly or indirectly affected by the emission reduction project. Stakeholders include the parties interested in developing a specific project (e.g. owner, developer, funder), parties affected by the project (e.g. local population, host community, environmental and human rights advocates) and national and international authorities.
* Third Party Auditors Validators and Verifiers - The CDM and many of the voluntary offset standards require a third-party auditor to validate and verify a project's baseline and its projected and achieved emission reductions. Under CDM, the auditors are called Designated Operational Entities (DOEs). To minimize conflicts of interest, the CDM does not allow the validating DOE to also conduct project verification.
* Standards Organization - In the absence of national and international legislation, standard organizations define a set of rules and criteria for voluntary emission reduction credits.
* Brokers and Exchanges - In the wholesale market, emission offset buyers and sellers can have transactions facilitated by brokers or exchanges. Exchanges are usually preferred for frequent trades or large volumes of products with standardized contracts or products, while brokers typically arrange transactions for non-standardized products, occasional trades, and often small volumes.
* Trader - Professional emission reduction traders purchase and sell emission reductions by taking advantage of market price distortions and arbitrage possibilities.
* Offset Providers - Offset providers act as aggregators and retailers between project developers and buyers. They provide a convenient way for consumers and businesses to access a portfolio of project offsets.
* Final buyers - Individuals and organizations purchase carbon offsets to counterbalance GHG emissions. Therefore, the final buyer has no interest in reselling the offset but will prompt the retirement of the carbon offset.

It is a must-read book for: Business:
because your understanding of emissions trading could make or break your career and company.

Investors: because there is money to be made from clever investments in renewable technologies.

Carbon trading will never be as sexy as chocolate or caviar.

However, it will dominate headlines as the effects of climate change and global warming continue to impact on the planet.

So how does carbon trading fit into this picture? What is emissions trading in Australia all about? And what action do we need to take?
Carbon crunch answers these questions ... and many more.

It is a must-read book for: Business:
because your understanding of emissions trading could make or break your career and company.

Investors: because there is money to be made from clever investments in renewable technologies.

Environmentalists: because the green movement needs an intimate knowledge of carbon trading as it responds to actions of big business.

You: because you must be capable of identifying the issues around carbon trading to empower your decision-making process.
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* Investing in renewable energy technologies - carbon offsets commonly involve investing in wind power, solar power, hydroelectric power and biofuel.
* Renewable energy credits (REC) - In comparison to a carbon offset which represents a reduction in greenhouse gas emissions, a REC represents a quantity of energy produced from renewable sources. RECs can be seen as offsets in that they represent carbon reductions by assuming that the clean energy is displacing an equivalent amount of conventionally provided electricity.

Methane abatement
Some offset projects involve the combustion or containment of methane generated by:

* Livestock -Certain types of animals release methane, either directly through gaseous exchange or from manure. A new form of offset product has arisen where these emissions can be reduced or collected, particularly where manure is stored in lagoons for future use as fertilizer. These products are not widely available in the Australian market at this time.
* Landfill - Decomposting matter emits a range of greenhouse gases including methane. Methane emitted from landfills can be captured and then flared into the atmosphere, or burnt to generate energy. These offset products are often cheap and the technology is well-developed, however there are questions about whether they are 'additional' to business as usual, and as such considered true carbon offsets.
* Coal - Methane emitted from coal mines can also be captured and then flared into the atmosphere, or burnt to generate energy.

Energy efficiency
Energy conservation projects seek to reduce the overall demand for energy. Carbon offsets in this category fund projects such as:

* Cogeneration - A system in place which captures and utilises the heat which is emitted from generating energy.
* Fuel efficiency projects - involve replacing a combustion device with one which uses less fuel per unit of energy provided. Assuming energy demand does not change, this reduces the amount of carbon dioxide emitted.
* Energy-efficient buildings - reduce the amount of energy wasted in buildings through efficient cooling, heating or lighting systems. New buildings can also be constructed using less carbon-intensive input materials.

Land use, land-use change and forestry
Land use, land-use change and forestry projects focus on natural carbon sinks such as forests and soil. Projects include:

* Afforestation - is the process of creating new forests on land that was previously un-forested, typically for longer than a generation.
* Reforestation - is the process of restoring forests on land that was once forested.
* Avoided deforestation - is the protection of existing forests.
* Soil management projects - aim to preserve or increase the amount of carbon sequestered in soil e.g. chemical versus mechanical tillage.

Destruction of industrial pollutants
Offset products may target greenhouse gases other than carbon dioxide, which are associated with industrial processes, such as Hydroflurocarbons (HFCs) and Nitrous oxide (N2O). Because these pollutants are easily captured and destroyed at their source, they present a large and low-cost source of carbon offsets.
Purchase of carbon allowances from emissions trading schemes
Purchasers can offset their carbon emissions by purchasing carbon allowances from legally mandated cap-and-trade programs such as the Regional Greenhouse Gas Initiative or the European Emissions Trading Scheme.
Carbon capture and storage (CCS)
CCS refers to projects that capture CO2 emissions from emissions sources and store them by injecting them into an underground geologic formation such as active and abandoned oil and gas reservoirs, saline aquifers, or unminable coal seams. Although CCS is not currently commercially viable, it is likely to become an important medium-term option for climate mitigation.
Mixed
Some offset products represent a mixture of offset credits from various projects. These are often cheaper than other offset products, however it is often difficult to ascertain where and what kinds of offsets are being purchased.