The Carbon Credit Market

And what went wrongFord & 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 countryo Invest in a project

Private TradingThe 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 Londono About €30 billion industry in 2007o Predicted by Barclays to become world’s biggest

commodity market• Advantage over proposed ‘carbon tax’

o Investment goes directly to green energy developmento 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 exploito Very little oversight on projects – largely self-verifiedo Stockholm Environmental Institute recently found that up to 80% of

projects were of ‘low environmental quality’

• Oversupply of permitso 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 marketo Starts at the end of 2018

• Floor prices for carbon creditso £18 in the UKo Goal of €30 in the EU

• Much more regulation is necessary to make market viableo Strict verification of projects granted carbon creditso But is it possible to verify?

Sources• http://www.ft.com/cms/s/0/cbb749ba-506b-11e3-9f0d-0014

4feabdc0.html#axzz3r8cEl1nJ• http://www.theguardian.com/environment/2015/aug/24/kyo

to-protocols-carbon-credit-scheme-increased-emissions-by-600m-tonnes

• http://www.fca.org.uk/consumers/scams/investment-scams/carbon-credit-trading

• http://energetskaefikasnost.info/wp-content/uploads/2012/02/carbon-prices600.jpg

• https://en.wikipedia.org/wiki/Carbon_credit