The boom of carbon trade
Money managers have found a way to milk even the most noble of causes – the Green movement – for hard, cold cash.
A case in point is the Green Exchange, a joint venture between the New York Mercantile Exchange, the world’s largest commodity futures market and brokerage firm Evolution Markets.
Trading in the first carbon derivative contracts began on March 17, a move many analysts say is an indication of just how important carbon trading has become in a few short years. In fact there is a perceived increase in competition among financial players.
The setting up of the Green Exchange is one of the boldest steps the US has taken to enter the carbon-trading league, and move is expected to lead to an explosion of activity in the market.
Bart Chilton, commissioner of the US Commodity Futures Trading Commission, said last month: “I can certainly see carbon becoming the biggest of any derivatives product in the next four to five years.”
Most analysts agree with Chilton’s forecast, especially since there are indications that Australia and the United States are setting up national emissions trading schemes.
For companies, this acts as an impetus to convert what is essentially a burden into a profitable transaction.
Governments will set caps on emissions and those that pollute less than expected will be able to sell their left-over credits to others to make profits.
Carbon-market consultants New Carbon Finance estimates that the global market already moves more than $60 billion, and a future U.S. market could be worth as much as $1 trillion.
At present, Europe leads emissions trading worldwide. Because most of Europe has signed up to the Kyoto protocol on climate change, up to 80 per cent of credits traded last year changed hands on European Markets.
But the US’s decision to create a carbon market is expected to push other countries to sign up for carbon trading.
A global emissions trading scheme is one of core issues under discussion as part of a new international agreement to fight global warming. Negotiations began in Bali last December.
Theodore Roosevelt, chairman of the Lehman Council on Climate Change chairman recently said he was “fairly confident that no later than 2010 there will be a passage of substantial climate change legislation in the United States.”
He added: “When the US comes out of the gate, and its not an if but a when, that opens the possibility of a serious dialogue between the US and China and Japan and other countries on how we’re going to do this.”
Businesses and labour ask for protection
Plans to set up and widen carbon markets in America and Europe are feeding demands for protectionism measures.
American companies and labour groups are lobbying the Congress to add an import tax to federal plans of setting up a carbon emissions’ market.
Such a provision would equalize market conditions and protect national industries, they argue.
In Europe, environmentalists have joined the EU’s parliamentarians to call for a “Kyoto carbon tax” to be imposed on imports from countries who refused to join the international emissions protocol.
John Hontelez, secretary general of the European Environmental Bureau, said: “Making international co-operation a requirement [to fight global warming] gives cynical governments more ammunition.”
“Border Tax Adjustments might be the answer. They will allow the EU to develop responsible climate policies without having to wait for other countries [to climb on board],” he added.
Environmental groups also claim that taxation would encourage developing countries to cut the carbon intensity of their economies for fear of losing lucrative export markets.
The European Commission refused to add a direct border tax to the Environmental Strategy for 2020, make known last January.
Brussels wants to pursue international cooperation rather than enforce tariffs.
The taxes will be imposed if other negotiations on climate change fail.
One EU official told the Financial Times that for now the carbon border tax or its equivalent would only be used as a threat.
“From the negotiation point of view, it is useful to have this in our pocket as one of the bargaining chips,” he added.
