Carbon Trading: The World's
Next Biggest Market
If you haven't been following the debate
surrounding capping and trading emissions, you're
missing out. Not only does it have implications for
how our nation — and the world — produces energy; it
has the potential to offer a myriad of opportunities
for well-informed investors.
You see, California has been asking for permission
to regulate greenhouse gas emissions since 2004, but
the philistines at the Environmental Protection Agency
(EPA) have yet to grant it permission to do so.
For quite some time the EPA's excuse was that they
didn't have the power to regulate emissions. That's
funny. . .greenhouse gases harm the environment and
the EPA is supposed to protect the environment. Maybe
their organization should consider a name change. . .
Back in April, the Supreme Court ruled that the EPA
did in fact have the authority to regulate greenhouse
gas emissions. Like we didn't see that one coming.
After that decision, you'd expect everything to
come up roses. But this administration doesn't make
anything easy, even obeying Supreme Court decisions.
So here we are, a substantial time since that
decision, and the EPA still hasn't given California
(or the eleven other states that would do so),
permission to regulate emissions.
And while it would be nice to have the federal
government's support, it looks like the rest of
America is ready to move on without it.
Already, corporate behemoths like General Electric,
DuPont, Johnson & Johnson, and others have come
together to form the United States Climate Action
Even oil juggernauts like Shell, BP, and
ConocoPhillips have joined this coalition, which calls
itself "an expanding alliance of major businesses and
leading climate and environmental groups that have
come together to call on the federal government to
enact legislation requiring significant reductions of
greenhouse gas emissions."
Now you can be certain the environmental groups
that are a part of this alliance are there with pure
intentions, but I'm willing to bet some of those
companies are looking for a way to make a buck from
the capping of emissions.
Carbon Market Potential
According to a recent New York Times
article, carbon trading is one of the "fastest-growing
specialties in financial services." And companies are
scrambling to get a slice of a market now worth well
over 100 billion and that could grow to $1 trillion
within a decade.
The article, "In London's Financial World, Carbon
Trading Is the New Big Thing," goes on: "Carbon will
be the world's biggest commodity market, and it could
become the world's biggest market over all."
If you doubt that assertion, consider this: Every
year, humans generate about 38 billion tons of carbon
And that number will continue to grow, as
developing nations demand more energy that will likely
be produced by coal and other carbon heavy sources of
As more international governments start to regulate
their country's emissions, and as more companies start
to voluntarily limit their emissions (as we're seeing
in the U.S.), the demand for available carbon credits
will skyrocket. And so will their price!
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
Carbon Trading: an Introduction
Europe has had a carbon market (surprise,
surprise), for quite some time now. Each member state
of the EU gets an annual emission allocation, which is
then divvied up among its worst emissions-producing
The companies are then legally obliged to produce
no more emissions than they are allowed. If a company
comes in under target, it can sell its excess
allowance as "carbon credits" to other firms that have
overshot their targets. But if it exceeds its target,
it has to pay a penalty and then go to the market to
buy credits to make up the difference.
Right now, with an abundance of carbon credits
available, their price is relatively low. But with the
second phase of the program (2008-2012), starting to
rev up— bringing with it a reduced amount of credits
and more stringent targets — the price of carbon
credits is set to explode.
The United States has a version of a carbon market
as well. . .
Established in 2003, the Chicago Climate Exchange (CCX)
is one of North America's only voluntary and legally
binding greenhouse gas (GHG) reduction and trading
The companies that join the exchange commit to
reducing their aggregate emissions from the same
baseline used by the EU: 6% by 2010. Currently, the
exchange has more than 200 members, ranging from
corporations like Ford and Motorola; to municipalities
such as Oakland and Chicago; to educational
institutions such as Tufts University and the
University of Minnesota; to farmers and their
organizations such as the National Farmers Union and
the Iowa Farm Bureau.
Emissions reductions are independently verified and
count for about 4% of total U.S. GHG emissions —
leaving plenty of room for growth.
Investing in Carbon
The only pure play is to buy Certificates in
Emission Reductions (CERs). However, the sole way to
currently do so is through an established carbon fund
set up by huge capital firms. The most well-known firm
that does this, Climate Change Capital, requires a
minimum investment of $33.3 million — leaving little
opportunity for small investors.
Or, you could invest directly in the company that
owns the carbon exchange Climate Exchange Plc. (LSE:
These guys cornered the market early. They even own
the Chicago Climate Exchange (CCX).
But if those shares are too pricey, there's still
hope for getting into the carbon market.
More than One Way to Profit
Carbon isn't just a one trick pony. There are a few
ways to make sure you get your share of this
opportunity. . .
You see, as this industry grows and matures,
companies are going to be looking to make money from
it in any way possible.
So if you don't have the $33 million and change
needed to break into trading CERs, there's still hope.
For starters, you could invest in companies that
reduce emissions simply by the nature of their
business. Companies that produce clean energy will
soon be profiting on two fronts; they'll be selling
their power and the carbon credits they acquired while
For example, a company that produces electricity
via a clean renewable resource may not only sell the
electricity, but also the carbon credits earned from
not burning fossil fuels. . . so long as the emission
reductions are certified by an independent third
Recent Carbon Headlines
Senate Committee Passes Bill to Force EPA Action
on CA Waiver
GE, AES Ramp Up Venture Behind Green Credit Card
Global Voluntary Carbon Market Grows by 200
Percent in 2006
XShares to Develop Carbon Emission Credits ETFs
Blue Source Moving into Carbon Trade Standards
Lawmakers Unveil Industry-Backed Climate Bill
Of course, this arrangement would be much easier to
understand and keep track of if a cap and trade system
were implemented by the federal government. In fact,
just capping the amount of emissions would do wonders.
Today, only 3% of our electricity is renewably
produced. A 12% increase in the next twelve years
would not only send renewables through the roof, but
would create a pretty sweet carbon market as well.
As the demand increases for carbon credits, many
companies are coming on the scene that specialize in
reducing emissions. These are companies that help
reduce the overall emissions of a variety of
businesses, like farms, factories, and utilities.
These companies are not only getting premium
consulting fees, but a portion of the carbon credit
proceeds, as well.
You should take a look at Ecology & Environment
Inc. (AMEX: EEI), which offers a range of
environmental consulting services, including
environmental planning, management, and regulatory
This is just one example of such a company, and
there's yet another way to tap into this industry.
As more governments begin to cap carbon emissions
and initiate trading schemes, there will need to be
regulatory bodies that measure and confirm reduced
emissions. And those agencies will need new
instruments and technologies to measure and record.
The bottom line is, the savvy investors that stay
on top of this nascent industry will witness the birth
of an entire new generation of dominant companies -
and the making of legendary profits.
For more on opportunities in carbon markets, as
well as the booming alternative energy market (our
current portfolio is up 66%), join
Green Chip Stocks now.
You can download the PDF version here:
Carbon Trading: The World's Next Biggest Market
CARBON EXPO 2010
Carbon Markets - developing solutions
on the road to Cancún
Around 3,000 participants from 110
countries and 240 exhibitors
attended the carbon market's leading
global trade fair and conference for
emission trading, carbon abatement
solutions and new mitigation
technologies in Cologne, organised
by the World Bank, the International
Emissions Trading Association (IETA)
For three days, international
emissions trading was the focal
point at the Cologne exhibition
centre, where leading greenhouse gas
(GHG) market representatives met at
the seventh CARBON EXPO to discuss
current trends and developments in
the carbon markets as well as
emissions trading, project finance
and barriers to carbon mitigation.
The format of CARBON EXPO - a trade
fair with an accompanying conference
covering all aspects of emissions
trading - is tailored to the needs
of the carbon market, and this year
it was once again an ideal platform
for serious discussions at the trade