Billion-dollar potential seen in carbon trading

April 9th, 2008 - 7:50 pm ICT by admin  

Washington, April 9 (IANS) Carbon credits earned by companies for adopting clean technologies can emerge as a $1 billion regional market in the future, as more trades take place under a unique UN initiative, says a new report. Called the futuristic regional greenhouse gas initiative (RGGI), the market for the same is a potential money-spinner as more firms trade in emissions of carbon dioxide, says Point Carbon, an independent consultancy in the area.

The consultancy, which also advises governments, gave an assessment in its first “Regional Greenhouse Gas Initiative RGGI Market Brief”, analysing the current state of play in this impending market.

Emissions are warming the earth’s atmosphere, leading to climate change, and a new initiative allows firms that adopt clean technologies to trade the credits earned for that with others unable to bring down their discharges.

Point Carbon’s report focuses on the recent execution of the first two compliance trades and the release of 2007 emissions numbers to provide an outlook for the RGGI market in 2008.

The first two trades of RGGI allowances were announced last month, establishing the first ever US regional carbon compliance trades - both in the range of $5-10 per tonne, which is much higher than the official price estimate of $2.32.

The initial signals point to the creation of a regional carbon market of more than a billion dollars, the report says.

“Investors seem to be rather bullish on a market that has yet to take shape as RGGI authorities have thus far not issued allowances, set up a registry or put out standardised contracts.”

By engaging in trading now, companies are also gaining exposure to the market and establishing themselves as market makers, the report says.

Setting the prices of these recent trades involved some guesswork and was “more art than science”, according to a source close to the trades and that might well hold true throughout the beginnings of RGGI.

“The early trades are helpful to everyone in establishing value to the market,” says Point Carbon Managing Director Veronique Bugnion. “The market fundamentals can be analysed to point to bullish or bearish signals depending on one’s point of view.”

Emission data certainly sends a bearish signal. According to 2007 emission data released recently, emissions had increased by 6.5 percent, which is still well below the cap set for the year.

This over-allocation forecast carries over into 2008 as well. But recent RGGI decisions have confirmed that there will be no re-assessment of the cap before 2012, so high supply of allowances will continue to mean little constraint on the market.

US regulatory developments also create a bullish signal for the RGGI market.

If investors feel that a federal programme will pre-empt a RGGI reassessment in 2012, prices could also be driven up or down significantly, depending on how the RGGI allowances are merged into a federal programme.

“It’s important that federal regulators monitor the regional RGGI market as they shape the federal cap-and-trade system,” said Point Carbon Senior Analyst Emilie Mazzacurati.

“Their decisions are going to be a driving factor in pricing RGGI allowances.”

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