The Montréal Exchange and the Chicago Climate Exchange opened Canada’s first emissions-trading market Friday (see Earth2Tech post).
The Montréal Climate Exchange is the latest in a series of exchanges that have popped up as countries aim to lower emissions.
For example, the Asian Carbon Trade Exchange launched in April and World Energy Solutions – which launched the World Green Exchange, an online auction for renewable energy, renewable-energy certificates and greenhouse-gas-emission credits in February – plans to host the first auction for the Regional Greenhouse Gas Initiative in September.
The initiative is a coalition of several Northeastern and Mid-Atlantic states working to reduce carbon-dioxide emissions with a cap-and-trade system, among other strategies. The auction will be the nation’s first carbon-dioxide-allowance auction for a mandatory emissions-reduction program, according to World Energy Solutions.
The New York Merchantile Exchange plans to offer futures contracts for the RGGI auction, allowing investors to bet on the performance of the government carbon cap-and-trade program starting in the third quarter.
The exchange also opened the New Green Exchange in March, offering futures and options contracts tied to carbon and other emission allowances and reductions in Europe.
Products traded on the exchange include the European Union carbon-allowances futures, certified-emissions reductions and sulfur-oxide allowances.
Still, the European Climate Exchange accounts for 85 percent of the trades today. That’s not surprising considering that – aside from Europe, which has capped the amount of carbon-dioxide that companies can emit – buying other emissions credits is voluntary.
That means companies aren’t required to buy credits to offset their emissions, which has kept prices low.
Industry watchers expect that to change, as all three U.S. presidential candidates (Sen. Hilary Clinton, D-N.Y, Sen. Barack Obama, D-Ill., and Sen. John McCain, R-Ariz.) support a carbon cap-and-trade program which would limit emissions and set up an auction where heavy polluters can buy credits from companies that don’t use all of their allotted emissions.
Congress is considering a cap-and-trade program, introduced by Sens. Joseph Lieberman, I-Conn., and John Warner, R-Va., in October. The bill aims to reduce the country's greenhouse emissions by nearly one-fifth by 2020 (see New Climate Bill Could Boost Greentech).
Others favor a carbon tax instead of a cap-and-trade system (see Al Gore Backs Carbon Tax and Schwarzenegger: Federal Government 'Asleep at the Wheel').
This week, the San Francisco Bay area became the first region in the United States to pass a tax on carbon emissions. The tax is scheduled to take effect in July (see New Climate Bill Could Boost Greentech and Green Light post).
The tax would charge 4.4 cents for every metric ton of carbon that businesses emit, a tiny amount compared to the price of €26.15 (about $40.88) per ton in Europe that Point Carbon listed Friday for delivery this year. British Columbia also said in February that it would introduce a carbon tax.
Greentech companies hope that putting a price on carbon – and on avoiding its emission – could help make nonpolluting technologies more valuable. Such programs could be key to the success of green technologies that can’t compete with traditional energy on price alone.
In an interview last month, Environmental Defense Fund President Fred Krupp said a carbon cap-and-trade system would make a much wider set of ideas competitive and profitable (see Predicting an Energy Revolution).
“We will be the last industrial country to set a price on carbon,” he said. “This will send a signal in the investment community that will create a gigantic waterfall of money. This explosion of capital is about to arrive.”
In a report in March, the research firm Point Carbon found that the carbon market was worth €40 billion in 2007, up 80 percent from 2006.
New exchanges, such as the Montréal Climate Exchange, are opening in the hope that the market will soon be much larger. A number of countries are setting up programs as they try to meet the emissions-reduction targets in the Kyoto Protocol.
“More and more, people are getting the message that [exchanges] can effect our environment and can help make projects happen,” Kenneth Ivanic, vice president for North American environmental markets at World Energy said. “The more [the carbon market] moves from voluntary to mandatory, you’re going to see more exchanges taking advantage of that. When you see places like Alberta, Canada, opening up a climate regime, it isn’t hard to see there’s probably going to be a market here.”
But while the news from Canada is good because it shows market penetration is accelerating, he said he’s concerned that all the different exchanges can be confusing for buyers.
“Sitting in front of the computer for the first time, some people are so scared they are going to do the wrong thing,” he said. “They fear they’re going to end up on the front page of the newspaper if they buy the wrong credits. It is difficult to be sure they are doing the right thing and it’s increasingly difficult to understand how to purchase these types of products. We have some concern this might slow things down.”