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.
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. . .
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.
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
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.
corporate behemoths like General Electric, DuPont, Johnson &
Johnson, and others have come together to form the United States
Climate Action Partnership.
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
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
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
"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
If you doubt
that assertion, consider this: Every year, humans generate about
38 billion tons of carbon dioxide.
number will continue to grow, as developing nations demand more
energy that will likely be produced by coal and other carbon
heavy sources of fuel.
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
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.
Carbon Trading: an Introduction
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
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.
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.
States has a version of a carbon market as well. . .
in 2003, the Chicago Climate Exchange (CCX) is one of North
America's only voluntary and legally binding greenhouse gas (GHG)
reduction and trading systems.
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.
reductions are independently verified and count for about 4% of
total U.S. GHG emissions — leaving plenty of room for growth.
Investing in Carbon
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.
could invest directly in the company that owns the carbon
exchange Climate Exchange Plc. (LSE: CLE).
cornered the market early. They even own the Chicago Climate
But if those
shares are too pricey, there's still hope for getting into the
than One Way to Profit
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.
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
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 party.
Recent Carbon Headlines
Committee Passes Bill to Force EPA Action on CA Waiver
Ramp Up Venture Behind Green Credit Card
Voluntary Carbon Market Grows by 200 Percent in 2006
Develop Carbon Emission Credits ETFs
Source Moving into Carbon Trade Standards
Unveil Industry-Backed Climate Bill
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.
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.
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.
companies are not only getting premium consulting fees, but a
portion of the carbon credit proceeds, as well.
take a look at Ecology & Environment Inc. (AMEX: EEI), which
offers a range of environmental consulting services, including
environmental planning, management, and regulatory compliance.
This is just
one example of such a company, and there's yet another way to
tap into this industry.
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.
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%),
Green Chip Stocks now.
You can download the PDF version here:
Carbon Trading: The World's Next Biggest