Markets

OVERVIEW OF US CARBON MARKET INDUSTRY

The United States does not have a national carbon market, like it does for the stock market. Instead the US has a group of regional compliance markets that are in different stages of design, with the Northeast Regional Greenhouse Gas Initiative being the only one up and running. The United States also has a voluntary cap-and-trade carbon market where participants voluntarily agree to reduce emissions.

With the election of Barack Obama, many industry followers believe that the United States will finally implement a national carbon cap-and-trade scheme. There are two issues worth keeping an eye on when this cap-and-trade topic eventually becomes headline news. First, will carbon permits be auctioned off or given to the emitters? Obama has stated that he would prefer to auction the permits off, which would create a large upfront expense for the emitters and most likely cause utility bills to rise. However, with the United States in a recession, Obama may choose to take a more pragmatic approach and give the permits to the participants. A second less headline grabbing issue but one of importance to this site is what would would happen to the current US carbon markets?

The idea of a carbon tax, rather than a cap and trade system, appears to be gaining some momentum.  This is something to keep an eye on.

COMPLIANCE VS. VOLUNTARY CARBON MARKETS

Compliance Markets - A compliance market regulates the amount of carbon emissions by putting a “cap” on the amount of carbon an entity is permitted to emit. The regulating body can either auction off or give out a set amount of these “allowances”, leaving it up to the carbon emitters to operate their business within this limit.

The following are the current United States carbon markets. Remember, the RGGI is the only one currently operational.

Voluntary Markets - In a voluntary market, the carbon emitter chooses to take part of a carbon reduction plan by purchasing carbon allowances from a third party. The third party then invests this money into a project that is supposed to reduce carbon emissions in the environment. In the US, the Chicago Climate Exchange (CCX) is the main voluntary market, and has been operational for a number of years.