The long gestating Carbon Credit market is having trouble finding its feet. The European Union is due to release data concerning the effects of carbon credit trading. There doesn’t seem to be much progress in trading efficiency due to excess credits being provided meaning there was no incentive for firms to buy credits, creating an illiquid market. Other concerns involve aligning United Nations issued credits and European Union credits.
Credits are mostly traded over the counter but also through the European Climate Exchange, based in London. There’s a lack of investor confidence and to understand why one need look no further than the crisis faced by carbon trading firm EcoSecurities, who made a £33 million loss in 2007 and whose chief executive said “It will continue to be difficult for a while. There is no immediate-term panacea to these problems.” in an interview with the FT.
Things look up now that NYMEX has started trading credits, challenging London’s monopoly and offering increased choice to investors. Ask Kyoto approaches termination the United Nations is stepping its search for a successor, and events like the Climate Change Conference in Bali last November should provide a better formal structure for the integration between European and UN credits.
However, the entire premise of carbon credit trading has been called in to doubt. The best concise guide to such an argument was made on the Becker-Posner blog and is reccommended reading for anyone interested in the sector.
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