Tuesday, September 30, 2008

One Market Goes Sour - Another One Soars

The first U.S. greenhouse cap-and-trade market opened on September 25th. Folks...this is a huge move where today's market of regulating greenhouse gases (GHG), carbon dioxide and methane are all on a voluntary basis. U.S. companies don't have to reduce carbon dioxide production or implement methane capture programs, but they are in some regions of the U.S.

Why? Profits, corporate social responsibility programs and more profits.

This is much different compared to the European Trading Scheme (ETS) which is mandatory for businesses to follow within Europe where strict standards, thresholds and rigorous reporting are necessary. That is an important distinction, because if you are large beer manufacturer, for example, and have to follow guidelines set in Europe that your competitors in the U.S. don't have to... that ultimatley creates a unique selling proposition, a financial constrant, and implications of how to work with vendors for distribution.

Now back to the U.S. cap-and-trade opportunity. Essentially, some environmentalists are smiling while other businesses are worried about how certain states will spend the funding. We can thank (maybe) ten states who formed the Regional Greenhouse Gas Intiative (RGGI) who are releasing 188 million permits annually for three years. 1 permit equals about 1 tons of carbon dioxide. So one company can implement a carbon reduction program and trade those "points" or "permits" with other companies who need to meet certain thresholds. It is not as simple as trading baseball cards and these permits are subjected to major evaluations by approved, accredited third parties.

The application of flexible, market-based mechanisms for reducing greenhouse gas emissions is achieving widespread intellectual and political support. This broad acceptance of emissions trading was originated and is reflected in the Kyoto Protocol, which established several emissions trading mechanisms. As this topic becomes more understood, more profitable and gains more awareness...you can be prepared by reviewing the Chicago Climate Exchange (CCX). It is North America's only and the world's first global marketplace for integrating voluntary legally binding emissions reductions with emissions trading and offsets for all six greenhouse gases.

Happy Trading!

Source: World Business for Sustainable Development, CCX, Reuters

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