Emissions Trading
Believe it or not but emissions trading is the most promising of all financial services. This is one opportunity to be a part of the green revolution by contributing to the reduction of carbon emissions and making money doing it too. Emissions trading, also known as carbon credit trading is something that has most people confused. Perhaps most people just do not have the time or the inclination to understand the potential of this fast emerging market that was not even a concept just a decade ago.
If one takes the time to understand how money can be made from emissions trading they will forget the old stock underlying futures and options trading. Carbon credit trading is the commodity of the future and is selling faster than gold on international climate exchanges set up for the purpose of trading carbon credits. The liquidity offered by carbon credit trading is only second to foreign exchange trading with the added advantage of a regulating authority for each trade that foreign exchange trading lacks.
What are Carbon Credits?
One carbon credit is the equivalent of one metric ton of carbon dioxide or its equivalent of any other green house gas. The Kyoto Protocol signed by one hundred and seventy countries in 1997 established that each country will be allotted a certain quota of carbon dioxide that they can freely release into the atmospheres through their automobiles, household appliances, and industries. The countries, thought their own internal registries, divide off this quota among their industries and allot them an ‘allowance’, which they must keep to or get fined.
The industries can choose to implement more eco-friendly processes to reduce their carbon emissions or they can buy emissions from industries in developing countries and offset their emissions. Developing countries usually have industries that do not come anywhere near to using up their entire quota of carbon credits. These industries thus can contemplate collaborations with industries that are exceeding their emission quota. This is how emission trading is carried out between industries and countries.
What’s In It For The Small Investor?
However, why should the local investor be left out? Emission trading is no different from any other commodity trading opportunity. If one can buy and sell oil why not buy and sell the by-product of oil – carbon? As mentioned earlier climate exchanges have been set up to facilitate emission trading or carbon credit trading on an international level through spot markets. Futures and options trading has also been set up in an effort to support the deciding factor of the prices of carbon credits for emissions trading. Since it is possible to buy carbon credits investors can buy a number or a lot of credits in the hope to sell them at a future date to people needing them like the industries falling short of carbon credits.
Carbon credit trading has grown by leaps and bounds over the past three years from a five billion dollar industry to a 30 billion dollar industry and given that power consumption is only going to increase and emissions showing no signs of reducing before 2012. Investors are going to have a field day trading carbon credits. The cost of carbon credits has increased by as much as 25 percent in the past one and a half years from 12 Euros to 15 Euros. The future of trading is here or should we say ‘futures’ trading is here?
Tags: carbon, carbon credit trading, carbon credits, carbon dioxide, carbon emissions, climate exchanges, cost of carbon credits, emerging market, emissions trading, financial services, Kyoto Protocol, metric ton of carbon dioxide, quota of carbon dioxide, trading carbon credits, What Are Carbon Credits
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