The Carbon
Credit Market
And what went wrong
Ford & Eric
What are Carbon Credits?
• Representation of one ton CO2 or equivalent
emissions
• Tradable commodity
• The Global Market
o Cap and trade
• Specific emission limit
o Country to Country
• Certified Emissions reduction
o Instead of buying from another country
o Invest in a project
Private Trading
The Voluntary Market:
Buying credits without necessity
• 90% of voluntary offset volumes were contracted by the
private sector -- corporations
• Corporate Social Responsibility (CSR) or for Public
Relations/Branding
• primary motives for offset purchases
Did the market work
initially?
• Yes – very fast growing market through the late
2000s
• Major component of financial services in the City of
London
o About €30 billion industry in 2007
o Predicted by Barclays to become world’s biggest
commodity market
• Advantage over proposed ‘carbon tax’
o Investment goes directly to green energy development
o More flexibility in cost – self-regulating market
What happened to the market?
2011: €96bn
2012: €62bn
2013: €38.4bn
Why did it fail?
• Price of carbon needs to be above €20
o to give utilities incentive to make serious switches to lower carbon
energy generation
• Market was too easy to exploit
o Very little oversight on projects – largely self-verified
o Stockholm Environmental Institute recently found that up to 80% of
projects were of ‘low environmental quality’
• Oversupply of permits
o due in part to over-generous initial allocations following lobbying by
industry
What’s the issue now?
• The carbon credit market has failed to limit carbon emissions
• Most major banks have closed or scaled back carbon trading
divisions since 2009
• Too many credits in the market reduced price to the point
where it is not an obstacle (about €7 per ton today)
• CDM projects no longer have any funding
o Green energy infrastructure not being built into developing countries
How to fix the problem
• New compromise proposal: market reserve
o 1.6 billion excess credits will be taken off the EU market
o Starts at the end of 2018
• Floor prices for carbon credits
o £18 in the UK
o Goal of €30 in the EU
• Much more regulation is necessary to make market
viable
o Strict verification of projects granted carbon credits
o But is it possible to verify?
Sources
• http://www.ft.com/cms/s/0/cbb749ba-506b-11e3-9f0d00144feabdc0.html#axzz3r8cEl1nJ
• http://www.theguardian.com/environment/2015/aug/24/kyo
to-protocols-carbon-credit-scheme-increased-emissions-by600m-tonnes
• http://www.fca.org.uk/consumers/scams/investmentscams/carbon-credit-trading
• http://energetskaefikasnost.info/wpcontent/uploads/2012/02/carbon-prices600.jpg
• https://en.wikipedia.org/wiki/Carbon_credit