ClimatePULSE: The Government Can Still Help the Carbon Market

lightglobe.jpg In wake of yesterday’s disapproval of the financial rescue package, ClimatePULSE will take a look at the status of the carbon market and how it is affected by the financial services sector. Although carbon and stock trading do not occur side-by-side, they certainly interact and influence one another through various connections. In many ways, the carbon market relies heavily on the financial status of both the country and individual companies. A sliding financial market may affect the allocation of money and credit and slow the development of the national carbon market. Recent and future milestones in the carbon industry, however, are more than capable of powering the carbon market to a very successful future.

A recent article from ClimateWire (subscription required) suggests that the recent distress in the economic sector will not result in a major hit to the carbon market. The article puts forward that “the youth of carbon credit trading and the relative detachment it enjoys from the larger markets should ensure its survival in any wider economic slump”. While carbon markets are held at a distance from the financial market, the economic status of the country is capable of playing a major role in carbon offsetting. Currently, the majority of GHG emission reduction projects and offset trading takes place on a voluntary basis. While companies are capable of receiving financial benefits through selling offsets and branding themselves as a “green” company through generating or purchasing, financial stability and appropriate funds are required for organizations to both purchase offset credits and to invest in emission reduction projects themselves. While some organizations may lack additional finances to implement GHG reduction projects, emerging companies who develop new, environmentally friendly technologies may encounter difficulty in securing adequate funding. Along with the development of new technology, emission reduction projects in developing nations are also expected to take a hit. The ClimateWire article notes that credit availability for CDM [Clean Development Mechanism] and other GHG reduction projects will tighten as a result of the economic crunch.
The success of the carbon market may come from Washington. Although the current financial rescue plan was not passed, government could very well be the driving force behind a flourishing carbon market. While the current administration will continue its work to aid the economy, the environment and GHG management are key points for both major parties in the upcoming election. Should the carbon market switch from voluntary to mandatory with the new administration, doubts about the stability and future of carbon markets would diminish. Companies who may have previously opted to conserve cash rather than investing in GHG reduction projects will no longer see this approach as an option.
This past week, the Regional Greenhouse Gas Initiative (RGGI) held its first credit auction (the first GHG auction ever in the U.S.) and was more than successful. The entire supply of 12.5 million allowances was sold as demand for the credits was much higher at 50 million. RGGI presents a mandatory cap-and-trade system primarily for power producers in the Northeast and its operation can be viewed as a scale model of a possible national cap-and-trade. While a mandatory system would require companies to invest in GHG reduction, the financial sector can surely benefit from the success of the carbon market as this RGGI auction brought in roughly $38.5 million (which will be distributed to the participating states).
The financial sector and carbon market surely affect one another, but the recent problems facing the economy will not necessarily bring the same result to the carbon industry. Financial tightening may slow the development of GHG reduction projects and voluntary emissions trading, but just as the government plans to rescue the economy, government mandated GHG reductions will help the carbon market really take off.
About ClimateCHECK
ClimateCHECK is a greenhouse gas (GHG) management services and solutions company. The firm’s solutions support all facets of the carbon commodities market, including the verification, validation and consultation of GHG inventories and program portfolios, as well as quantification protocols for emissions reduction projects and clean technologies. ClimateCHECK is a sponsor and co-founded, with World Resources Institute and Carbon Disclosure Project, the Greenhouse Gas Management Institute ( Founded in March 2007, the company has locations throughout North America. For more information visit

3 responses

  1. Interesting take on the issue. However, it seems like looking at carbon markets as separate from the financial sector is missing the point. Carbon markets are in fact a type of financial sector asset class – carbon commodities. There is even one large player in the market called “EcoSecurities” – albeit one whose investments don’t seem all that “secure” (pun intended). Given that the Kyoto Protocol is set to expire in 2012 and not likely to be renewed, and that carbon reduction projects typically require outside capital to get going, and that capital won’t be available to anything even remotely risky – all of that combined and it looks like carbon markets may hit a detour on their fast paced trajectory to world domination.

  2. Or – you could simplify this a lot – if companies are trading carbon and they do things to make their operation a lot more efficient, they’re going to make money – that’s very good in a bad economy.

  3. The carbon market certainly has very important ties to the financial sector and GHG reduction projects, especially those with greater risk, will most definitely find it increasingly difficult to secure financing. Regardless of what happens when the Kyoto Protocol expires (keep in mind that the U.S. never ratified Kyoto), if the next administration follows through and creates a mandatory GHG reduction program, the carbon market will be forced to experience a boom. There is no doubt that such a boom in the carbon market will affect the financial sector – it’s just a matter of how. Some companies may find themselves in a position where they are unable to deal with the additional cost of either reducing their emissions or purchasing offsets, but in such a system must also be another company selling the offsets and making money. The economy may also thrive as GHG reduction technologies and practices are in high demand, creating jobs and building the industry. It will be quite interesting, we’ll just have to wait and see how it all plays out.

Leave a Reply