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GlobalData, the leading business intelligence provider, has released its latest research study “Global Carbon Policy Handbook, 2010: Policies Driving the Growth of Carbon Trading Markets”, which is an offering from the company’s Energy Research Group. The report provides an in-depth analysis on the carbon policy initiatives by the European Union, the US, Canada, Australia and other developed and developing economies. It details the regional climate change initiatives, the Kyoto Protocol and its mechanisms. It also provides an analysis on Clean Development Mechanism (CDM) and Joint Implementation (JI) projects. The report provides an overview on various carbon registries, carbon exchanges and the major companies participating in the carbon trade. The report provides the latest information on the value, volume and price of the emissions traded in project-based mechanisms, such as CDM, JI and Secondary CDM, and allowance markets such as the European Union’s (EU) Emission Trading Scheme (ETS), New South Wales, Chicago Climate, Regional Greenhouse Gas Initiative (RGGI) and Assigned Amount Units (AAUs). The report discusses some of the reasons for the growth of carbon markets and provides carbon market forecasts until 2020.

Scope

The report provides a detailed analysis on the global carbon policy initiatives driving the carbon trading markets. Its scope is as follows.
– Impact assessment of the carbon policies in the United States (US), the European Union (EU), Canada, Australia and Asia Pacific regions on the world carbon trading markets.
– Carbon trading value from 2010-2020, which help in identifying a market potential.
– Key carbon regulations and policies at regional level in the US and unified carbon regulatory framework in the EU and their impact on the growth of global carbon trading market.
– Analyzes the probable regional policy instruments in the US and Asia Pacific regions, which will drive the global carbon trading markets beyond 2012.
– Key carbon regulations and policies at regional level in the US and unified carbon regulatory framework in the EU and their impact on the growth of global carbon trading market.
– Analyzes the regional policy instruments in the US and Asia Pacific regions, which will drive the global carbon trading markets.
– Review of Clean Development Mechanism (CDM) projects in the Asia Pacific and Sub-Saharan regions in 2009
– Details on various Kyoto mechanisms and helps in identifying potential markets by navigating the policy landscape worldwide from 2005-2012.
– Key data and information on the volume and market value of carbon allowances, covering both project-based transactions and allowance-based transactions from 2004-09.
– Historic pricing trends for carbon in various exchanges and project-based transactions from 2004-09.
– Analyzes market-based instruments such as certifications and standards used in carbon trading in 2009.
– Overview on investment firms, infrastructure and energy service providers, advisory companies, financial firms, brokerage firms, carbon solution providers and other auditing firms participating in carbon trade.

Reasons to buy

- The report will enhance your decision making capabilities in a rapid and time sensitive manner.
– Develop business strategies with the help of specific insights into policy decisions being taken on the carbon credits trade by EU 27, the US, Australia and other developed and emerging countries worldwide.
– Identify opportunities and challenges in exploiting carbon emission reduction projects worldwide.
– Understand the market positioning of carbon credits in correlation with carbon policies.
– Increase future revenue and profitability with the help of insights on the opportunities and critical success factors of the EU ETS in the carbon trading market.
– Benchmark your investments against the major players in the carbon trading markets.
– Be ahead of the competition by keeping yourself abreast with all of the latest policy changes on carbon mitigation globally.
– Plan your investments to minimize the impact of carbon taxes due to changing carbon policies.
– Plan your project locations and project types in order to capitalize on the growing carbon allowance market.
– Identify the most suitable geography to invest in emission reduction projects.
– Target the most suitable geography for emission reduction projects based on the policies to gain incentives.
– Develop custom strategies for different geographies based on the stringency of the carbon policy in the respective area.
– Navigate the carbon policies through detailed analysis of existing carbon allowance market dynamics and potential changes.
– Identify the most promising geography to invest in energy efficiency and renewable energy projects, in order to minimize carbon taxes.

1 Table of contents 4
1.1 List of Tables 6
1.2 List of Figures 7

2 Introduction 8
2.1 Overview 8
2.2 GlobalData Report Guidance 9

3 Greenhouse Gas Emissions and its Impact on Global Carbon Policies 10
3.1 Impact of GHGs on Ecology 10
3.1.1 Introduction to Global Warming 10
3.1.2 Illustrations of Ecological Imbalance due to Excess Carbon 10
3.2 Global Initiatives to Reduce Carbon Footprint 11
3.2.1 The Kyoto Protocol and its Implementation Challenges 11
3.2.2 Development of Natural and Artificial Carbon Sequestration Techniques, Energy Efficiency Projects and Renewables 11
3.2.3 Evolution of Carbon Trading Market 12

4 Global Carbon Policy Frameworks Boosting Emissions Trading Markets 13
4.1 Overview of Regulatory Framework for Emission Trading Systems 13
4.1.1 American Clean Energy and Security Act and its Implications 13
4.1.2 European Union’s Climate Change Policy 14
4.1.3 Climate Change Initiatives in Canada and Prospects for Emissions Trading 18
4.1.4 Australia’s Climate Change Initiatives will Aid the Emission Trading Mechanism 18
4.2 United Nations Framework Convention on Climate Change 18
4.3 Kyoto Protocol, a Precursor of Emissions Trading Systems 18
4.3.1 Overview of Kyoto Protocol, Participating Nations 18
4.3.2 Clean Development Mechanisms (CDM) 21
4.3.3 Joint Implementation and Assigned Amount Units 40
4.3.4 Emission Trading 47
4.4 Increasing Role of International Emissions Trading and International Emissions Trading Association in Boosting the Market 48
4.4.1 Objectives of IETA 48
4.4.2 Program by IETA 48
4.5 Various Regulatory Frameworks and Regional Initiatives in the US 49
4.5.1 American Clean Energy and Security Act of 2009 50
4.5.2 Regional Greenhouse Gas Initiative in the US 52
4.5.3 California Global Warming Solutions Act of 2006 AB 32 53
4.5.4 Western Climate Initiative 54
4.5.5 Midwestern Regional GHG Reduction Accord (MGGRA) 55
4.5.6 EPA Climate Leaders 55
4.5.7 Hawaii Global Warming Solutions Act of 2007 55
4.6 European Union Emissions Trading System Promotes Emissions Trading Market 55
4.6.1 EU ETS 56
4.6.2 Revised EU ETS 56
4.7 Japan’s Keidanren Voluntary Action Plan and Other Voluntary Markets 57
4.8 Emission Reduction Schemes of Australia 59
4.8.1 New South Wales Greenhouse Gas Abatement Scheme 59
4.8.2 Greenhouse Challenge Plus 59
4.8.3 Carbon Pollution Reduction Scheme 59
4.9 Canadian Government’s Measures and Initiatives Drive Carbon Trading 60
4.10 Policies and Market Instruments Driving Carbon Trading Programs in Other Countries 61
4.10.1 Policy and Market Mechanisms in China 61
4.10.2 Policy and Market Mechanisms in South Korea 62
4.10.3 Policy and Market Mechanisms in New Zealand 62
4.10.4 Policy and Market Mechanisms in Russia 63
4.10.5 Policy and Market Mechanisms in Sub-Saharan 63
4.11 Impact of COP 15 on Carbon Policies and Emission Trading 64

5 Regional and Global Carbon Exchanges and Carbon Trading Markets 65
5.1 Increasing Role off Standard-Specific and Existing Registries 66
5.1.1 North American Markets 68
5.1.2 The Chicago Climate Exchange 69
5.1.3 European Union Emissions Trading System Market 71
5.1.4 The Australian Carbon Market 72
5.2 Project-Based Transactions by Region and Project Type 72
5.2.1 CDM and JI Buyers, Sellers and Over-the-Counter (OTC) Markets 73

6 Development of Certifications, Standards and Other Initiatives Facilitating Emissions Trading 76
6.1 American Carbon Registry Standard 77
6.2 The Climate Action Reserve Protocols 77
6.3 The CarbonFix Standard 77
6.4 Chicago Climate Exchange Offsets Program 78
6.5 Climate, Community, and Biodiversity Standards 78
6.6 EPA Climate Leaders Offset Guidance 78
6.7 Greenhouse Gas Services Standard 78
6.8 The Gold Standard 78
6.9 Greenhouse Friendly 79
6.10 ISO 14064 Standards 79
6.11 Plan Vivo 79
6.12 Social Carbon Standard 79
6.13 TUV NORD Climate Change Standard and VER+ Standard 79
6.14 Voluntary Carbon Standard 80

7 Competitive Landscape of Emission Trading Companies 81
7.1 3Degrees Incorporated 81
7.2 APX Incorporated 81
7.3 Baker & McKenzie 81
7.4 Blue Source 81
7.5 CantorCO2e 81
7.6 Climate Focus 82
7.7 Credit Suisse 82
7.8 EcoSecurities Group 82
7.9 Equator LLC 82
7.10 MGM International 82
7.11 Natsource 83
7.12 RNK Capital LLC 83
7.13 Sterling Planet, Incorporated 83
7.14 Tradition Financial Services/TFS Energy/TFS Green 83
7.15 TUV SUD America 83

8 Appendix 84
8.1 Abbreviations 84
8.2 Methodology 85
8.2.1 Coverage 86
8.2.2 Secondary Research 86
8.2.3 Primary Research 87
8.2.4 Expert Panel Validation 87
8.3 Contact Us 87
8.4 Disclaimer 87

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• Global Carbon Policy Handbook 2010 - Policies Driving the Growth of Carbon Trading Markets

You can’t trade in something unless you own it. When governments and companies “trade” in carbon, they establish de facto property rights over the atmosphere; a commonly held global commons. At no point have these atmospheric property rights been discussed or negotiated – their ownership is established by stealth with every carbon trade.

Market shares in the new carbon market will be allocated on the basis of who is already the largest polluter and who is fastest to exploit the market. The new “carbocrats” will therefore be the global oil, chemical, and car corporations, and the richest nations; the very groups that created the problem of climate change in the first place. What is more, with the current absence of “supplementarity”, the richest nations and corporations will be able to further increase their global share of emissions by outbidding poorer interests for carbon credits.

Many of the projects proposed within the CDM, in particular tree planting and dams, are subject to the same criticisms as other large scale development projects- they assert foreign ownership of local resources, they consolidate the power of undemocratic elites, they oust people from their land, they undermine local self sufficient economies and low carbon cultures.

Carbon absorbed by forests is only removed from the carbon cycle for as long as the tree is standing and alive. Industrial forestry will not sequester carbon. Permanent reforestation is a once only removal of carbon from the cycle and cannot offset sustained overproduction.

Because we cannot know the future, we can have no certainty that any project selling carbon credits has really reduced its emissions further than it would have done without the intervention. Profit competition and technical innovation ensures that industry consistently reduces its energy costs. A carbon market can provide an automatic cash subsidy for any investment in low energy technology. If such incentives exist they should be explicit, targeted and accountable.

Russia’s economic collapse since 1990 has reduced its emissions by 30%. Russia is intending to sell this incidental windfall (often call “hot air”) as international carbon credits- potentially swamping the market. If countries subsidise their emissions with these Russian credits, the final global emissions will end up being exactly the same as they would have been without a carbon market or a Kyoto protocol.

There are strong incentives for cheating and creating bogus credits that do not represent any real reduction in emissions. The vendor gets the cash without having to change anything and the buyer gets cheap credits. There are similar incentives for misdeclaration, and “leakage”- transferring polluting activities to areas that are not accounted.

The temptation for all parties to cheat requires that every transaction to be scrutinised and every sale to be certified. There is no global institution or accounting system that can manage the complexity of this market.

International legal frameworks are usually very weak. Countries that want to use carbon credits to subsidise their emissions are already arguing for penalties so weak that they will not discourage cheating. Many of the Annex 1 (Russia, Turkey, Ukraine), Romania- these are some of the most corrupt and lawless countries are corrupt or desperate for foreign currency and will happily endorse doctored carbon credits.

The main model for carbon trading is Sulphur Dioxide (SO2) emissions trading under the US 1990 Clean Air Act. This programme faced none of the problems listed above- it was small (a few hundred companies), easy to monitor (one pollutant from one source-power generation), had permanent targets, and, above all, was conducted within one country with strong enforcement mechanisms.

The only international emissions trading has been in CFCs under the Montreal Protocol. Once again, the programme was small (only 17 producer companies), easy to monitor (one pollutant from one industrial process), and within a strong legal framework.

The market assumes that carbon credits from different sources will be fully interchangeable (“fungible” in carbospeak). However, carbon sequestered in sinks is a completely different product from the carbon “saved” by a technical innovation, which is different again from the carbon “saved” by a social or lifestyle change. Add to this the complexity of trading in different greenhouse gases. Each source requires different monitoring rules, different criteria and different agencies. Forcing them to be interchangeable in one market is a recipe for corruption and fraud.

Supporters of carbon trading will argue that these are not problems- they are challenges. “Just because it is hard, does not mean that we should not take action”, they say. Let’s be clear that carbon trading is not being supported because it will solve climate change. In fact it will undermine even the pathetic emissions reductions already proposed. The real reasons for carbon trading are:

1. Governments want to be assured of a cheap way to buy off their failure to meet their Kyoto targets which will keep public and corporations quiescent.

2. Brokers, accountants, and financial institutions are extremely excited at the thought of the size of their cut in a new $2.3 trillion speculative market.

3. Corporations and other major polluters want pliant governments who don’t punish them for their emissions and hand over public money to pay for any emissions they are forced to make.

4. Oil companies support carbon trading as a way to avoid making any cuts in oil production.

5. Academics and financial consultants see rich pickings from becoming “experts” in the new market.

Forex trading does not exist in a vacuum; instead it’s a worldwide system that relies on tracking supply and demand across the globe. When thinking of forex trading, you have to think of globalisation and the way that this has resulted in regional economies becoming integrated through a network of trade and communication – and therefore allowing the possibility of trading. Forex prices are determined by the supply and demand for currencies, goods and services across the world – and therefore need a world view to be traded on with any degree of success.

Forex trading means evaluating currencies and their behaviours, and the values of currency are driven by capital and trade flow. All movement in the forex market is caused by supply and demand and the simplest economic indicators for evaluating this are capital and trade flows.

When measuring capital flow you need to look at the money that is flowing in and out of an economy for investments purposes, for example looking at how much is being used to buy stocks and bonds or how much is being spent on merging with or acquiring new companies. Due to globalisation, money is constantly crossing borders these days and the amount of money flowing between countries is also increasing. The way that technology has made the world smaller in recent years makes it easier for investors to choose from economies from all over the globe no matter where they are based.

This also means that global investors can have an impact on the currencies they invest in. The flow of capital between one economy and another also affects the currencies of both economies involved in the exchange, therefore showing the symbiotic relationship that can be formed between countries due to globalisation.

Trade flows can be evaluated by examining the amount of money that is moving in and out of an economy for tangible goods and services such as electronics and vehicles or even professional services. Cross-border trade is a massive part of many economies now. Globalisation means that goods can be exported all around the world and this trade flow between economies can have an effect on currency values. Every time goods are imported money changes hands and impact supply and demand and its supply and demand that drives currency prices.

Globalisation and the free exchange of goods and services across borders and around the world drives the currency fluctuations that underpin forex trading.

This article has been written for information and interest purposes only. The information contained within this article is the opinion of the author only, and should not be construed as advice or used to make financial decisions. Expert financial advice should always be sought and any links contained within this article are included for information purposes only.

Carbon credit Trading

Introduction:

Carbon dioxide, the most important greenhouse gas produced by combustion of fuels, has become a cause of global panic as its concentration in the Earth’s atmosphere has been rising alarmingly.

This devil, however, is now turning into a product that helps people, countries, consultants, traders, corporations and even farmers earn billions of rupees. This was an unimaginable trading opportunity not more than a decade ago.

What is carbon credit?

GROWING concern about the biosphere and increasing awareness of the need for pollution control have given rise to the concept of `carbon credit’. Carbon credits are a part of international emission trading norms. They incentivise companies or countries that emit less carbon. The total annual emissions are capped and the market allocates a monetary value to any shortfall through trading. Businesses can exchange, buy or sell carbon credits in international markets at the prevailing market price.

In Simpler words Companies that are involved in any activity which helps reduce the carbon content of air, such as industries manufacturing energy-saving devices or setting up waste-processing systems, are given `credits’. These can be used by other companies which emit carbon beyond a certain extent to avoid being penalised for the damage they cause to the atmosphere.

Historical Background:

Though the concept was suggested by the US in 1997, at the Kyoto Conference, it has only just started gaining momentum in India, especially in the light of large number of windmills functioning in the country. However, the UK and Denmark are far ahead in implementing the trade and are closely followed by Australia, Netherlands and New Zealand.

The `Kyoto Protocol’ was drafted in November 1997 to give a full and final shape to the scheme and to draft a policy framework based on it. The ICC (International Carbon Credit Committee) is now working on this with various governments, businesses, investors and members of the public in Australia, Japan and other countries to investigate the proposed schemes, quantify them and assess their `credibility’.

While the volume of carbon-dioxide emissions by the units can be measured fairly easily, discussions are now going on at different levels with various experts on how to determine the extent of their contribution in reducing or absorbing the carbon content in the atmosphere.

Certainly, once the Kyoto Conference proposals are finalised and given effect, strict obligations on businesses and countries for reduction of carbon dioxide emissions will be enforced and will also result in the establishment of a global carbon-trading market. Once brought into force it will undoubtedly have a direct impact on a country’s forex rates as also its wealth.

Who are the key players?

Last year global carbon credit trading was estimated at $5 billion, with India’s contribution at around $1 billion. India is one of the countries that have ‘credits’ for emitting less carbon. India and China have surplus credit to offer to countries that have a deficit.

India has generated some 30 million carbon credits and has roughly another 140 million to push into the world market. Waste disposal units, plantation companies, chemical plants and municipal corporations can sell the carbon credits and make money.

The Kyoto Protocol has created a mechanism under which countries that have been emitting more carbon and other gases (greenhouse gases include ozone, carbon dioxide, methane, nitrous oxide and even water vapour) have voluntarily decided that they will bring down the level of carbon they are emitting to the levels of early 1990s.

Developed countries, mostly European, had said that they will bring down the level in the period from 2008 to 2012. In 2008, these developed countries have decided on different norms to bring down the level of emission fixed for their companies and factories.

A company has two ways to reduce emissions. One, it can reduce the GHG (greenhouse gases) by adopting new technology or improving upon the existing technology to attain the new norms for emission of gases. Or it can tie up with developing nations and help them set up new technology that is eco-friendly, thereby helping developing country or its companies ‘earn’ credits.

India, China and some other Asian countries have the advantage because they are developing countries. Any company, factories or farm owner in India can get linked to United Nations Framework Convention on Climate Change and know the ‘standard’ level of carbon emission allowed for its outfit or activity. The extent to which I am emitting less carbon (as per standard fixed by UNFCCC) I get credited in a developing country. This is called carbon credit.

These credits are bought over by the companies of developed countries — mostly Europeans — because the United States has not signed the Kyoto Protocol.

How does it work in real life?

Assume that British Petroleum is running a plant in the United Kingdom. Say, that it is emitting more gases than the accepted norms of the UNFCCC. It can tie up with its own subsidiary in, say, India or China under the Clean Development Mechanism. It can buy the ‘carbon credit’ by making Indian or Chinese plant more eco-savvy with the help of technology transfer. It can tie up with any other company like Indian Oil, or anybody else, in the open market.

In December 2008, an audit will be done of their efforts to reduce gases and their actual level of emission. China and India are ensuring that new technologies for energy savings are adopted so that they become entitled for more carbon credits. They are selling their credits to their counterparts in Europe. This is how a market for carbon credit is created.

Every year European companies are required to meet certain norms, beginning 2008. By 2012, they will achieve the required standard of carbon emission. So, in the coming five years there will be a lot of carbon credit deals.

What is Clean Development Mechanism?

Under the CDM you can cut the deal for carbon credit. Under the UNFCCC, charter any company from the developed world can tie up with a company in the developing country that is a signatory to the Kyoto Protocol. These companies in developing countries must adopt newer technologies, emitting lesser gases, and save energy.

Only a portion of the total earnings of carbon credits of the company can be transferred to the company of the developed countries under CDM. There is a fixed quota on buying of credit by companies in Europe.

How does the trade take place ?

This entire process was not understood well by many. Those who knew about the possibility of earning profits, adopted new technologies, saved credits and sold it to improve their bottomline.

Many companies did not apply to get credit even though they had new technologies. Some companies used management consultancies to make their plan greener to emit less GHG. These management consultancies then scouted for buyers to sell carbon credits. It was a bilateral deal.

However, the price to sell carbon credits at was not available on a public platform. The price range people were getting used to was about Euro 15 or maybe less per tonne of carbon. Today, one tonne of carbon credit fetches around Euro 22. It is traded on the European Climate Exchange. Therefore, you emit one tonne less and you get Euro 22. Emit less and increase/add to your profit.

The Indian government has not fixed any norms nor has it made it compulsory to reduce carbon emissions to a certain level. Therefore, if the Indian buyer thinks that the current price is low for him he will wait before selling his credits. So, people who are coming to buy from Indians are actually financial investors. They are thinking that if the Europeans are unable to meet their target of reducing the emission levels by 2009 or 2010 or 2012, then the demand for the carbon will increase and then they may make more money.

So investors are willing to buy now to sell later. There is a huge requirement of carbon credits in Europe before 2012. Only those Indian companies that meet the UNFCCC norms and take up new technologies will be entitled to sell carbon credits.

There are parameters set and detailed audit is done before you get the entitlement to sell the credit. In India, already 300 to 400 companies have carbon credits after meeting UNFCCC norms. Till recent years these companies were not getting best-suited price. Some were getting Euro 15 and some were getting Euro 18 through bilateral agreements. When the contract expires in December, it is expected that prices will be firm up then.

Is this market also good for the small investors?

These carbon credits are with the large manufacturing companies who are adopting UNFCCC norms. Retail investors can come in the market and buy the contract if they think the market of carbon is going to firm up. Like any other asset they can buy these too. It is kept in the form of an electronic certificate.

In the short-term, large investors are likely to come and later we expect banks to get into the market too. This business is a function of money, and someone will have to hold on to these big transactions to sell at the appropriate time.

Isn’t it bit dubious to allow polluters in Europe to buy carbon credit and get away with it?

It is incorrect to say that because under UNFCCC the polluters cannot buy 100 per cent of the carbon credits they are required to reduce. Say, out of 100 per cent they have to induce 75 per cent locally by various means in their own country. They can buy only 25 per cent of carbon credits from developing countries.

The flip side of the business?

Like in the case of any other asset, its price is determined by a function of demand and supply. Now, norms are known and on that basis European companies will meet the target between December 2008 and 2012. People are wondering how much credit will be available in market at that time. To what extent would norms be met by European companies. . .

As December gets closer, it is possible that some government might tinker with these norms a little if the targets could not be met. If these norms are changed, prices can go through a correction. But, as of now, there is a very transparent mechanism in which the norms for the next five years have been fixed.

Governments have become signatories to the Kyoto Protocol and they have set the norms to reduce the level of carbon emission. Already companies are on way to meeting their target.Other than this, it’s a question of having correct information. How much will be the demand for carbon credit some years from now? How much will the supply be? It is a safe market because it is a matter of having more information on the extent of demand and supply of carbon credit market.

Conclusion:

Despite all the research, carbon credit cannot be a standardised system as it is basically a policy-created commodity. But it would allow for a great deal of policy and project level experimentation over the next few years until the various systems converge on some accepted modalities.

It is expected that it will be the electricity companies, on the one (selling) side, and the cement companies, on the other (purchasing) side, to first explore the market. Some of the companies or projects that could benefit from carbon credits are: Renewable energy; biomass; hydropower; geothermal; wind and solar energy; co-generation; fuel switch; waste processing; landfill gas extraction; biogas applications; afforestation/reforestation, and so on. Carbon credit is thus expected to redefine global trade and may bring about a drastic change in the ratings of various countries in the global market in the near future.

India and China are likely to emerge as the biggest sellers and Europe is going to be the biggest buyers of carbon credits.