Canada begins trading carbon emission credits on the MCeX:
The Montreal Climate Exchange (MCeX) began trading carbon emission credits on Friday (May 30 2008). The MCeX is a joint venture between the Montreal Exchange (MX) and the Chicago Climate Exchange (CCX). The Montreal Climate Exchange is the first in Canada, and aims be the leading market for publicly traded environmental products in Canada. It will trade the Canadian carbon dioxide equivalent units. The CCX established in 2003 is the world’s first emissions credit trading system. The NYSE Euronext, Nasdaq OMX Group Inc, and Nymex Holdings Inc, all offer carbon emission credits trading already.
Climate exchanges allow trading in futures and options contracts based on emission credits of global-warming/greenhouse gases. The exchanges allow industries that do not yet have the technology or capability to cut emissions, to buy credits in order to meet government-mandated targets. The companies buying the credits are essentially reducing emissions, “on paper”. Companies that can meet emission targets will receive credits. For carbon emissions, these credits are Certificates in Emission Reductions (CERs), or in Europe they are European Reduction Units (ERUs). These credits can be traded at market price on the climate exchanges.
Governments across the globe are continuing to legislate how much industries must cut their carbon emissions by, and also when they must do this. By 2010, industries must start reducing their emissions. They will have a decade to reduce emissions by 20 per cent. However, many industries fear they may not be able to achieve such reductions. All three US presidential candidates have made promises towards capping trade and legislating carbon emissions. There is no doubt that the newly elected president’s policies and legislations regarding emissions will have an impact as well. The European Union is continuing their phased program which stretches from 2008-2012 for Phase II. Phase II includes Clean Development Mechanism (CDM), Joint Instrument (JI) credits, aviation emissions, and the addition of non-EU countries (Norway, Iceland, Switzerland, Liechtenstein) into the program. Currently, The European Union Emission Trading System (EU ETS) is the largest multi-national, emissions trading scheme in the world.
The world carbon-credit market has reached US$64-billion.
Its also important to note that there are many other emissions trading schemes that are in development. These other emission trading schemes cover green house gases (other than carbon) or are based on renewable energy etc. Carbon emissions trading deals specifically with carbon dioxide emissions, and makes up the majority of emissions trading.
Noted This Week :
– The creation of MCeX reinforces the notion that the trading of carbon emission credits is moving more towards the mainstream.
– The global trend is still strong. More participants and traders will join progressively. Volume will be low at the beginning, but there is interest from industry. MCeX now caters to the interest in the Canadian market. Buyers of the carbon credits will be a bit cautious until prices are set.
– There is money to be made. Millions of dollars were invested to set up climate exchanges. Certainly the primary goal of the company is not for the betterment of mankind. Like all businesses its in the business of making money, with their product being the service. They won’t invest millions to create the exchange if they believed it will be unsustainable.
– AS WITH ANY NEW SYSTEM, INVESTORS MUST TREAD CAREFULLY! Trading carbon emission credits is still in its infancy, many issues and complexities in the carbon emission credit system still need to be ironed out! Patience and due diligence will be even more important in this type of investment.
This topic definitely deserves a future follow up article! I’ll explain in more detail the carbon emission credit trading market and its developments, and how I believe individual investors may be able to profit from it.
I’m often asked how did you know what the next best investments are going to be? Working knowledge of history, economics, and finance all helped. But also just by continually looking at the world around you and taking notice. This is something everyone can do. It is the the string of events that you have noticed, which together will form a picture of what is to come. That picture has your answers!
….Information Technology, Metals, Real Estate/Finance, Oil & Energy, Agriculture, …….Environmental!
Thanks & Happy Investing!
The Investment Blogger