How was it invented? Louis Redshaw– a former electricity trader Proposed in 2004 when he met with five

investment bankers Currently worth 30 million and within a

decade worth 1 trillion

Ex: Goldman Sachs, Morgan Stanley

Why London? Role: World’s Carbon Trading Capital Handles a great deal of projects tied to reducing

emissions Banks and brokers are becoming heavily involved More carbon has been traded here than any

other city

What is Carbon Trading? Goal: To reduce emissions! Cap– Is lowered over time and is usually set by political

process– economic incentives If individual companies reduce emissions they are able

to use them as they see fit Since the beginning of 2005…

Allowances that can be sold are ‘carbon credits’ Companies may purchase from other firms or may be

forced to buy from the market Industries included in the Emissions Trading Scheme

Power Generation, iron, steel, glass, cement

Why is it needed? Under the UN Kyoto Protocol, industrialized

nations are obliged to reduce the amount of CO2 being released into the atmosphere.

The EU is required to cut its emissions by 8% by 2012

By reducing permits given out, we should see a decrease in CO2 levels being emitted

Example using MACs for two different countries. Sweden higher slope/Germany lower slope Sweden profits from using less CO2 versus Germany

profits from using more emissions than required

Has it been successful? The idea behind Europe's trading scheme has been

hailed as a positive step in the effort to tackle human-induced climate change.

Problem? Cheaper to buy credits from other firms than pay

the fine and buy from the market Germany has expressed concern to the European

Commissions The biggest emitter of greenhouse gases

Trying to convince Australia and the US, that carbon trading schemes work!

Bound to become the worlds biggest market According to the NY times article, companies are scrambling to get a slice

of it Humans generate 38 billion tons of CO2 annually

At its current price $3.50/ton and consumers use 38 billion/year Potential Carbon Market = $3.50 x 38 billion = $133 billion

With the arrival of 2008 just occurring bring about a reduced amount of credits Carbon credits will skyrocket and so will the price!

Jumping into the carbon market

As the demand for carbon credits increases, so does amount of new firms

Bull Market– Great to invest Expensive to break into trading CERs(certificate in emissions reductions)

Alternatives: invest in companies that reduce CE or dirty companies who want to reduce their CE so they can sell carbon credits

What happens next? Second phase of the ETS is about to begin

2008-2012 Commission is expected to announce a 30%

reduction from 1990 levels by 2020 Australia's Prime Minister accepted to look

further into carbon trading. But, they did refuse to sign the Kyoto protocol, fearing

it would damage their economies

Quiz Time!

1) Do you think the United States should start capping emissions and trade carbon credits?

2) Explain in your own words how you think the carbon trading can be improved for both parties?

Thanks!

Any further questions?