CARBON EMISSIONS TRADING
How was it invented? Louis Redshaw– a former electricity trader q Proposed in 2004 when he met with five investment bankers q Currently worth 30 million and within a decade worth 1 trillion q § Ex: Goldman Sachs, Morgan Stanley
Why London? Role: World’s Carbon Trading Capital q Handles a great deal of projects tied to reducing emissions q Banks and brokers are becoming heavily involved q More carbon has been traded here than any other city q
What is Carbon Trading? Goal: To reduce emissions! Cap– Is lowered over time and is usually set by political process– economic incentives q If individual companies reduce emissions they are able to use them as they see fit q Since the beginning of 2005… q q § Allowances that can be sold are ‘carbon credits’ Companies may purchase from other firms or may be forced to buy from the market q Industries included in the Emissions Trading Scheme q § Power Generation, iron, steel, glass, cement
Why is it needed? Under the UN Kyoto Protocol, industrialized nations are obliged to reduce the amount of CO 2 being released into the atmosphere. q The EU is required to cut its emissions by 8% by 2012 q By reducing permits given out, we should see a decrease in CO 2 levels being emitted q
q Example using MACs for two different countries. § Sweden higher slope/Germany lower slope § Sweden profits from using less CO 2 versus Germany profits from using more emissions than required
Has it been successful? The idea behind Europe's trading scheme has been hailed as a positive step in the effort to tackle humaninduced climate change. q Problem? q § Cheaper to buy credits from other firms than pay the fine and buy from the market Germany has expressed concern to the European Commissions q § q The biggest emitter of greenhouse gases Trying to convince Australia and the US, that carbon trading schemes work!
Bound to become the worlds biggest market According to the NY times article, companies are scrambling to get a slice of it q Humans generate 38 billion tons of CO 2 annually q q At its current price $3. 50/ton and consumers use 38 billion/year § Potential Carbon Market = $3. 50 x 38 billion = $133 billion q With the arrival of 2008 just occurring bring about a reduced amount of credits § Carbon credits will skyrocket and so will the price!
Jumping into the carbon market As the demand for carbon credits increases, so does amount of new firms q Bull Market– Great to invest q Expensive to break into trading CERs q Alternatives: invest in companies that reduce CE or dirty companies who want to reduce their CE so they can sell carbon credits q (certificate in emissions reductions)
What happens next? Second phase of the ETS is about to begin 2008 -2012 q Commission is expected to announce a 30% reduction from 1990 levels by 2020 q Australia's Prime Minister accepted to look further into carbon trading. q § But, they did refuse to sign the Kyoto protocol, fearing it would damage their economies
Quiz Time! Do you think the United States should start capping emissions and trade carbon credits? 2) Explain in your own words how you think the carbon trading can be improved for both parties? 1)
Thanks! Any further questions?
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