Carbon Market is stabilising.
One of my favourite papers, the UK’s Financial Times is reporting Carbon trading shakes off early troubles
Carbon trading has always been one of the key planks of the global strategy to arrest the amount of greenhouse gases we pump into the atmosphere.
And in spite of some teething troubles as we approach 2008 and the next phase of the Kyoto Protocol, which set out targets for the reduction of greenhouse gas emissions, the carbon trading market is showing signs of a new maturity.
The troubles they cite are the, now legendary, over-allocation of carbon trading permits under the European Trading Scheme that caused the price of carbon to jitter around €30, then drop to a few cents, then climb back up to around €8. We saw turbulence down-under too with the oversupply of demand-side abatement credits into the market by a couple of operators who flooded the market with their so-called “light-bulb” credits. But, as in Europe, the price of carbon down-under has recovered and looks to climb as the new political regime comes into force and Australia puts ink to paper on the Kyoto Protocol.
So a new asset class has effectively been created but, as with any emerging market, carbon trading has had teething troubles. Last year the price of carbon slumped when it emerged that the EU member states had been too lenient in their allocation plans and several actually enjoyed a surplus of carbon, sending the price of carbon credits tumbling below €10. But, national allocation plans have been tightened up for the 2008-2012 period, making a repeat unlikely, and forward carbon prices are healthier than for a long time.
Carbon Planet, along with many of the Australian carbon industry players, has lodged a position paper with the Prime Minister’s office in Canberra, responding to a host of questions posed by the previous regime regarding abatement incentives prior to the commencement of the Australian Emissions Trading Scheme. The former government was opting for a national emissions trading scheme to stand as an alternative to the Kyoto scheme, and had the somewhat naive hope that the world might embrace it. Many of us saw it simply as a stalling tactic designed more to destabilise the Kyoto proposals than as a positive move. This is all a moot point of course now as ratification of Kyoto was a core-promise of the Rudd campaign. But the details of the response are still valid. The government wanted to know how we, the industry, and the public at large, thought credits should be allocated under a national scheme; how a national carbon registry should work, and most importantly how industries should be encouraged to begin, or continue carbon emission reduction work before the start of a more universal trading scheme. Given the urgency of the climate problem it is crucial that there be no disadvantages to starting down the emissions reduction path immediately.
Carbon Planet’s submission highlighted the importance of forestry, both reforestation and avoided deforestation, as a primary means of removing atmospheric CO2. Forests physically remove CO2 from the air. While some kinds of forests are more efficient at doing this than others, the basic facts of photosynthesis are primary-school biology. Trees, indeed most plants, are mostly made up of carbon removed from the air. Existing forestry projects in Australia must be valued in a national, or international scheme and it’s our sincere hope that Forestry NGACs, for example, will be uplifted into any new scheme.
It’s critical that any national scheme be compatible with the wider Kyoto schemes and that Australian credits be tradable in international markets like the Chicago Climate Exchange and European Climate Exchange. We’ve seen a huge increase in demand for Australian credits from both the USA and EU and believe this will accelerate as Australia, and presumably later the USA, join the international community. There are plenty of projects already underway in Australia that meet the strict requirements set by international standards and it is vital that these projects have the widest possible market available to them. We also want to see a strong Australian market for international credits such as Clean Development Mechanism (CDM) and Joint Implementation (JI) credits. Kyoto ratification opens a two-way street.
A key point we raised in our response related to the design of a national carbon registry. There are many registries around at the moment, and none of them really do the job very well. A carbon registry is simply and on-line database of carbon credits, keyed by a serial number, that records who owns each particular credit and that allows registry users to transfer ownership of those credits from one party to another. When you buy an NGAC from Carbon Planet we create an account for you in the NSW Greenhouse Gas Registry and transfer a credit to that account. In this way you get to see that we can not have possibly sold the same credit twice. A registry also allows for the retirement of credits, that is the credit is marked as no longer being tradable. Once retired the credit is considered to have reached its end-user and the carbon abatement is considered complete. Credits, once retired can not be un-retired.
But many registries charge onerous fees to perform these transactions. The Bank of New York’s registry for example, last time I looked, was charging US$70 per transaction. It makes no sense for someone to pay US$20 or so for a carbon credit, say to offset a flight, and then have to pay over three times that amount to actually own that credit. One of the core advantages of the NSW GGas Registry is that it is close to frictionless, that is the transfer fees are negligible. Any proposed national registry, if it wants to encourage individual and small-business carbon abatement needs to be as close to frictionless as is possible. Another problem we have had with various registries is one of automatic access. When you checkout from Carbon Planet’s web store a series of back-end scripts on a server actually interacts with the registries. But the registries themselves do not provide a common programmers’ interface (API), so this scripting is harder than in needs to be. It is our sincere hope that a national registry will publish an open API to stimulate all manner of third-party interaction. All of this will stimulate the sorts of small-volume carbon credit trades that we see as essential to the robustness of the carbon credit market. — DS
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