Carbon trading market requires improved infrastructure to curb greenhouse gas emissions
Bank of New York Mellon report suggests linking global cap and trade programs and continuing the use of international offsets to reduce greenhouse gas emissions faster.
By Control Engineering Staff -- Control Engineering, 1/20/2009
New York – The development of a successful global carbon trading market that delivers real and cost-efficient greenhouse gas emission reductions will require an improved market infrastructure, according to a report issued by The Bank of New York Mellon entitled, "Towards a Common Carbon Currency: Exploring the Prospects for Integrated Global Carbon Markets."
The report–prepared in conjunction with Point Carbon, a provider of market intelligence, forecasting, and advisory services for the energy and environmental markets–finds that for a global carbon trading market to allocate capital to the lowest cost carbon reduction projects worldwide it must be based on standardization, liquidity, transparency and predictability.
Other key findings of the report include:
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Reliable information on market prices, volumes, and transactional behavior will add greater transparency, which will provide companies, investors and regulators with critical benchmarks to assess carbon exposure.
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A high level of risk surrounding the future value of carbon prices, due to political uncertainty, would impede the functioning of the market as a way of reducing emissions at the lowest cost.
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A plethora of mandatory and voluntary programs has created a fragmented approach to addressing the global environmental challenge.
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Consolidation is needed for the market to be more effective at reducing greenhouse gas emissions.
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Linking existing and planned programs and creating a framework for efficient global trading would allow the global carbon market to grow from $63 billion (year-end 2007) to $3 trillion by 2020.
The paper recognizes the political and practical challenges of reconciling differing worldviews of what constitutes real, permanent and verifiable emissions reductions.
"Creating a more efficient global carbon market by linking global cap and trade programs and continuing the use of international offsets will reduce more greenhouse gas emissions at a faster rate and at a lower cost than would be possible through national or regional programs alone. This recognition, originally embedded in the Kyoto Protocol, needs to remain at the core of a new international framework on climate change," said Kjell Olav Kristiansen, director of advisory services at Point Carbon.
The paper advocates the development of a linked "cap and trade" market model, in which emitters are offered the widest set of options to reach their emission reduction targets, including the use of imported allowances or offsets.
The paper is available at The Bank of New York Mellon's website at
www.bnymellon.com/carboncurrency and Point Carbon's website
www.pointcarbon.com/advisory/newreports.
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