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Carbon -The Largest Commodity Market?

| Monday June 30th, 2008 | 2 Comments

carbon.jpg Carbon may become the world’s largest commodity market, according to recent investigations. The Financial Times reported late last week reported that the carbon market could “outstrip the conventional commodities markets” and other estimates of more than $3 trillion in 2020 have been cast, by Point Carbon for example, dependent on US participation. Bart Chilton, commissioner of the Commodities Futures Trading Commission has estimated that

“even with conservative assumptions, this could be a $2 trillion futures market in relatively short order.”

The carbon market emerged after the UNFCCC conference in Kyoto 1997, where over 30 nations adopted GHG reduction schedules. The Kyoto Protocol introduced emissions reduction trading using free market economic mechanisms which allowed the commencement of international carbon reduction transfers. Hence the emergence of a commodities market that is now rapidly escalating in value.

Last year the World Bank estimated a record value of $64 billion in carbon trading, with only a fraction being attributed to the US. China had the highest cut, a total of a 73% share in total, while India was listed by the World Bank as the second largest seller of carbon credits in the world, having a 6% share in 2007. Depending on future commitments to lower GHG emissions as well as increased interest in carbon trading, we may see even further activity in this market.
The US will impact the value of this market greatly, depending on future policy changes regarding GHG regulations. A new international agreement that will succeed the Kyoto treaty, for example, could see the implementation of the cap-and-trade system to limit GHG emissions in the US. Now it appears that there is greater support to introduce GHG regulation from both presidential candidates of the US. Bill Chilton suggests that

“the potential size and scope of a structured carbon emissions market in the US is unequivocally vast. It is certainly possible that the emissions markets could overtake all other commodity markets.”

Much analysis has been conducted estimating the impacts of growth and regulation in the commodity market. For example research from the Carnegie Mellon University’s Tepper School of Business has focused upon the possible positive short-term effects of determining a mandatory price for CO2 emissions. Regarding the sheer scale of growth in this industry, many companies have needed to adapt their business approaches to respond to increasing regulation as well as consumer pressure. We have even seen the start-up of companies such as Carbon Planet, which assists businesses to manage their contribution to global warming.
The wholesale movement of carbon has become an accepted part of business practice and governmental policy. However, many criticisms exist of this relatively new development; on one side it is viewed as an inherently flawed and ineffective model, but also carbon trading is viewed by many as a further unjust and exploitative method of economic growth. One that will see prolonged dependence on the world’s finite resources, less investment in alternative energy methods and the dispossession of Majority World peoples (for example, read Carbon Trading: “Bad for the South, Bad for the North, Bad for the Climate” by well known author Ross Gelbspan).
Well-integrated carbon trading within broader reduction schemes has also been widely praised. It is an accepted component to address climate change that, for many, embodies a realistic emissions program that responds well to our global economic structure. The wide-spread and exponentially growing nature of this market is testament to this.
For further information, check out
Financial Times
Environmental Leader
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  • Susan

    This is an excellent post, thanks – great short overview of the carbon market combining new info with basics for readers new to the topic…

  • BillyC69

    To quote P/T. Barnum ; “There is a sucker born everyday and two more to take his money away.
    I’m not sure if he would dance a jig in his grave if he heard about this scam!