YALE SAYS EMISSIONS MARKETS WILL BE BIG

Putting a price on greenhouse gas emissions (GhGs) is widely acknowledged to be the necessary first step in reaching practical solutions in the fight against global climate change.

Putting a price on GhGs would almost instantly make New Energy (i.e., GhG-free energy) price competitive with fossil fuels.

Carbon Finance – Environmental Market Solutions To Climate Change, from Yale University, is a newly published thorough cataloguing and analysis of world emissions markets and the high finance associated with them.

The 2 ways to price GhGs are a tax or a cap-and-trade system that creates an emissions market. Both would have complexities and drawbacks. The tax is generally assumed to be politically unachievable.

The European Union (EU) Emissions Trading Scheme (ETS) is a cap-and-trade system. Trading has been ongoing since 2005. There were troubles early on because, to draw business in, the EU gave away a large proportion of the trading credits rather than auctioning them. The last 1-to-2 years have been smoother but prices have not yet been high enough and caps have not been widespread or hard enough to significantly reduce GhGs.

Better impacts are expected when the ETS enacts new rules and caps, generating higher prices on emissions, after 2012. The ETS will also be auctioning a progressively larger portion of the trading credits, driving the price for emissions to a more effective level.

The United Nations (UN) operates the Clean Development Mechanism (CDM). The CDM certifies projects that sell Certified Emissions Reductions (CERs) to EU companies seeking to offset levels of GhGs beyond their allotted ETS caps.

Some CERs are also purchased in voluntary emissions markets like the Chicago Climate Exchange (CCX) by companies that have voluntarily recognized their responsibility to reduce or offset the GhGs they generate.

In the U.S., the Regional Greenhouse Gas Initiative (RGGI), a voluntary emissions market engaged in by 10 New England states, began selling offsets in September. Another, the Western Climate Change Initiative (WCCI) involving western states and Canadian provinces, is being developed.

World emissions markets saw $64 billion in trades in 2007, are expected to see $100 billion+ in 2008 and are forecast to reach $1 trillion by 2020 if the U.S. enacts – as it is expected to do – a mandatory cap-and-trade system.

The financial crisis and attendant recession could postpone Congressional action on a U.S. system but nothing is likely to prevent it. President-elect Obama and former Republican standard-bearer John McCain both favor doing so.

In a cap-and-trade system, each industry and business is allotted a specific level of allowed GhGs. Most systems begin with power producers and utilities and then slowly take in other emissions-intensive businesses and industries like cement and steel manufacturers and airlines.

If an entity takes steps to cut its emissions below its cap (like building New Energy), it can sell its excess allotted GhGs (by the tonne) on a trading market. If an entity must generate more GhGs, it can buy them on the market. A tonne of emissions is currently selling on the EU ETS for around 15-to-16 euros ($19-to-$20) per tonne.

Carbon Finance – Environmental Market Solutions To Climate Change, the outgrowth of a series of lectures at Yale University, is timely.

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Yale report cites emerging carbon finance market
7 November 2008 (EurekAlert)

WHO
Bryan Garcia, program director, Yale Center for Business and the Environment and report co-editor; Eric Roberts, researcher, Yale Center for Business and the Environment and report co-editor


WHAT
Carbon Finance – Environmental Market Solutions To Climate Change is a thorough cataloguing and analysis of world emissions markets and the high finance associated with them.

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WHEN
- A cap-and-trade system for the U.S. was debated by a Senate committee in Spring 2008.
- A system was widely anticipated to be enacted by the next Congress after January 20, 2009, though the current financial crisis and resulting recession have left the matter in doubt.

WHERE
- The book is the material from a carbon finance speaker series sponsored by the Emily Hall Tremaine Foundation and organized by the Center for Business and the Environment at Yale in 2007 and 2008.
- Corporate leaders and investors from around the world discussed how emissions markets and finance are affecting environmental problems.
- The book is published by the Yale School of Forestry & Environmental Studies.

WHY
- The carbon finance speaker series was sponsored by the Emily Hall Tremaine Foundation.
- The lectures resulted in a series of book chapter topics:
1. The History of Financial Innovation (Goetzmann and Rouwenhorst)
2. Investing in Climate Change (Neuger)
3. A Pot of Gold for Renewable Energy: Funding Renewable Energy with Carbon Finance (Sweatman)
4. Investment Banks Jump Onboard: Mining the Opportunities in the Global Carbon Markets (Karmali)
5. Climate Change Investment Strategies: How a Universal Bank is Leading Investments in a Low Carbon Economy (Fulton)
6. Environmental Market Solutions for Global Warming (Anda)
7. Funding Solutions to Climate Change: A Philanthropy Panel (Philanthropy Panel)
8. Investing in Climate Change: A Panel on Hedge Funds (A Panel on Hedge Funds)
9. Investing in Clean Energy and Climate Change: A Private Equity Panel (Private Equity Panel)
10. Investing in Cleantech: A Conversation between a Venture Capitalist & an Entrepreneur (Venture Capital Panel)
11. Insuring the Future in a Changing World: The Impact of Climate Change on Insurance and Financial Products and Services (Mucerino)
12. Winners and Losers in a Low Carbon Economy: A Look at Innovest's Carbon Beta (Lopez-Alcala and Minami)
13. For the Love of Timber: A Different Look at a Natural Resource (Aulisi)
14. From Understanding to Action: Advancing Solutions to Climate Change on Campus, in Our Community, and Beyond (Conclusion)
- Dangers of government interventions in emissions trading markets:
1. Acting too late.
2. Acting unilaterally.
3. Acting too meekly.
4. Acting with too little scope.
- Steps government can take to facilitate the effectiveness of emissions markets to counteract global climate change:
1. Serve as neutral parties.
2. Disseminate scientific and technological information.
3. Make and enforce rules.
4. Create and deploy incentives.
5. Reduce obstacles to development.
6. Monitor effectiveness in the private sector.
7. Be consistent.
8. Balance policy intervention and market freedom.

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QUOTES
- Brad Gentry, director, Yale Center for Business and the Environment: "This publication represents a major advance in our understanding of the interrelationships of government policy, private markets and technology in the climate arena…"
- Gus Speth, dean, Yale environment school: "This publication is a timely resource, especially as the northeastern United States embarks on a major carbon market program through the Regional Greenhouse Gas Initiative…Since carbon now has a price, RGGI can be effective in reducing greenhouse gas emissions."