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How to profit from
trading carbon credits
Carbon credits are being traded all around the world by
companies to meet environmental emissions targets, individuals looking to
decrease their personal emissions, and investors looking to profit from the
carbon market boom whilst helping the environment.
This is now big business. According to the latest report
from the World Bank, the global carbon trading market is now worth a phenomenal
US$144 billion.
So what are carbon credits and how
can they help? Each carbon credit represents one tonne of CO2; creating a way
of monetising greenhouse gases. Each carbon credit bought puts money into a
project that is verified to reduce gr
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eenhouse gas emissions, and can then be
sold to companies who need to reduce emissions to comply with global targets,
or to individuals who want to reduce their emissions.
The opportunity to trade carbon credits was created by the
United Nations’ Kyoto Protocol, a legally binding document committing countries
to efforts for the reduction of greenhouse gases (GHGs). The treaty created a
number of emission reduction targets that nations needed to meet to safeguard
the environment. Collectively, industrial nations agreed to reduce their GHGs
by 5.2% from 1990 levels. On an individual country basis, this ranges from an
8% reduction in the European Union to 6% for Japan, 0% for Russia, and an
increase permitted of 8% for Australia and 10% for Iceland. These countries are
now responsible for ensuring that companies, and the governments themselves,
are reducing GHGs.
To facilitate this, the Kyoto Protocol gave GHGs a value,
known as a carbon credit. Each carbon credit is equivalent to one tonne of CO2.
If a company has emissions over its allowance, then this entails a cost.
Private investors, through a carbon credit broker, can get access to
these credits on exchanges, and trade rising demand for credits to make a profit and to channel funds into these
projects, helping them grow.
This boom has meant increasing interest from investors, who
usually trade stocks and shares. Is it worth these investors diversifying their
portfolio to trade carbon credits? What are the upsides and downsides to
either?
To continue reading
download the full report here |
