Introduction to Carbon Credits

The carbon credit scheme was set up to allow EU countries or companies that fail to meet designated emission reduction targets to avoid paying penalties by purchasing carbon credits. Carbon credits are issued on projects around the world that result in reductions in the emissions of greenhouse gases. They are also a traded by brokers to facilitate exchange. For example the Multi Commodity Exchange of India (MCX) has become first exchange in Asia to trade carbon credits. India has apparently generated some 30 million carbon credits and has roughly another 140 million to push into the world market.

Trading

A ‘trade’ occurs when carbon credits are secured and then surrendered or acquitted through an accredited carbon broker, carbon exchange or carbon registry. For people that want to reduce their carbon footprint, carbon credits can be purchased and (sometimes) exchanged with other environmental organizations. I have noticed a slew of websites appearing on the net that sell carbon credits to people that want to offset the carbon emissions produced as a by-product of the goods and services they consume. But what do you really get for your carbon credits? Origin Energy for $17.50 sells a gift certificate and a promise to offset 1 tonne of carbon in recognized carbon reduction activities such as energy efficiency projects, renewable energy or low-emission generation, carbon sequestration and industrial abatement like fuel substitution.

Credits

Credits can be exchanged between businesses or bought and sold in international markets at the prevailing market price. For example Origin’s Carbon Reduction Scheme can be used to finance carbon reduction schemes between trading partners and around the world. Credits are awarded to countries or groups that have reduced their green house gases below their emission quota. The quality of the credits is based in part on the validation process and sophistication of the fund or development company that acted as the sponsor to the carbon project. Once purchasing an allowance of credits, each unit gives the owner the right to emit one metric tonne of carbon dioxide or other equivalent greenhouse gas.

Price

Prices change and exchange rates fluctuate. Carbon prices are normally quoted in Euros per tonne of carbon dioxide or its equivalent (CO2e). The price range people were getting used to was about Euro 15 or maybe less per tonne of carbon. Unfortunately, there’s a hitch in this scheme that threatens to totally derail it: carbon prices are plummeting due to an excess supply. This time last year credits fell to less than 9 cents. Never mind, the UN will restore confidence in its beleaguered Clean Development Mechanism (CDM) carbon offsetting scheme and drive up the cost of carbon credits, according to a new report released on 24 June 2008.

Science

What happens if the science of the IPCC is flawed, as we often find here on this site? The idea that modern “science” is somehow pure and immune from bias is simply not realistic. There is a tendency to believe what suits one politically regardless of the science and I for one am no different. So bias is unsurprising since the member countries Australia, Canada, China, Russia, and Saudi Arabia, all of which have had a hand in editing the science and the political statement, are whittling away anything contrary. If only the climate science community was as as conscious of human bias as the medical community and adopted the standards of Evidence Based Practice in reviews of the evidence supporting their claims. If the science turns out to be flawed I expect carbon credits will continue to be a commodity, only you can’t eat them like hog’s bellies.

Selling

If you want to make money on carbon credits you need to be a seller. You can become a seller by investing in new low-emission machinery and apply for an allowance. The cost of the seller’s new machinery would be subsidized by the sale of allowances. Another seller might be a company that will offer to offset emissions through a project in the developing world, such as recovering methane from a swine farm to feed a power station that previously would use fossil fuel. Waste disposal units, plantation companies, chemical plants and municipal corporations can sell the carbon credits and make money, even selling them on eBay! Then again, you could become a management consultant and scout for buyers to sell carbon credits to.

Then again, with an alternative energy bubble in play, we could be looking at the start of the next major bull market. Good Luck!

Article with links to more information.

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33 thoughts on “Introduction to Carbon Credits

  1. Lying, cheating, misleading, run the economy into the ground by debt, Tax, by inflation, those trying to save, by hoarding cash. When did it start ?

    Al Gore going to add up all his caloric consumption (plane trips, energy efficient light bulbs included) — and equalize, subsidize, a person living on 900 calories a day ? The bureaucrats will get their share for administering, while endlessly floating on bubbles borrowed money. Sorry, less than nothing left, and the 900 calorie person had to borrow more, to avoid starvation.

  2. Lying, cheating, misleading, run the economy into the ground by debt, Tax, by inflation, those trying to save, by hoarding cash. When did it start ?

    Al Gore going to add up all his caloric consumption (plane trips, energy efficient light bulbs included) — and equalize, subsidize, a person living on 900 calories a day ? The bureaucrats will get their share for administering, while endlessly floating on bubbles borrowed money. Sorry, less than nothing left, and the 900 calorie person had to borrow more, to avoid starvation.

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