The Rising Value of the Global Carbon Market


Recently only a pipe dream, the carbon market has exploded in recent years. With "cap and trade" schemes available in the EU and more recently British Columbia - Canada's most western province - plans are set to follow suit in Australia, New Zealand and the rest of Canada. Even the typically sluggish United States seems poised to adopt some form of emissions trading scheme, with all three presidential candidates stating their support for some permutation of a carbon trading initiative.

Whatever the time frame, it seems near inevitable that companies will face increasingly binding laws to account for the amount of carbon dioxide (and equivalent gases) they release into the atmosphere. And with the emergence of this trend, a new speculative market has evolved, offering an increasingly attractive area for earning a profit.
Inklings of the profitability of this market became even more evident last month when investment giant Merrill Lynch became the first Wall Street firm to make significant inroads into the carbon market. Securing $ 9 million worth of carbon credits in an avoided deforestation program near Aceh, Indonesia, Merrill Lynch's investment is a gamble that these credits will be worth significantly more in the not too distant future. In the month since this investment, momentum around the global carbon market has demonstrated signs of a significant boom, with increasing interest from high profile financial companies, and gaining page space in business publications across the globe.

Further evidence of the boom can be seen strictly in the numbers. The recently released "State of the Voluntary Carbon Markets", published by Ecosystem Marketplace and New Carbon Finance, presents reliable figures that echo other reports of a similar nature. The numbers demonstrate the steady upward trend of carbon markets in recent years, and suggest that they will only continue to grow. It shows a total of 65 million tonnes of carbon were traded on the voluntary market in 2007, worth a total of $ 331 million. This figure came in 240% higher than in 2006, resulting partially from a mean rise in the price of carbon emissions from $ 4.10 per tonne to $ 6.10 per tonne. However, an overall expansion of the global carbon market — largely through the creation of more carbon credits - also continues to pour money into a commodity that only five years ago had very nearly no value.

Regulated markets also made significant gains in the past year, rising in value by more than one third between 2006 and 2007, to a total value of slightly more than $ 66 billion. This number results largely from the massive EU-ETS (European Union Emissions Trading Scheme), and the similarly large CDM (Clean Development Mechanism), and will only continue grow as more countries add regulated emissions trading to their legislation.

With the appearance of these burgeoning markets, viewpoints have crept up, both decrying and lauding the developments. Supporters of placing a trading value on carbon tend to point to the power of financial incentives to enact meaningful changes. Objectors often claim unfair benefits are given to the worst polluters, and that trading schemes obfuscate from the real problem — the excess of greenhouse gas emissions that continue to perpetuate global warming.

Regardless of who may be right, projections for both the voluntary and regulated carbon markets are only headed in one direction: upwards. As the market values swell, carbon will become an increasingly valuable aspect of financial accounting and investment. However this process continues to unfold, it will be of utmost importance that we, as a global society, are monitoring the process to ensure meaningful steps are being taken to reduce the amount of carbon dioxide we emit into the atmosphere, and to limit the impact of anthropogenic global warming.

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