Analysis of Carbon Market - Term Paper Example

CARBON MARKET Table of Contents Introduction 3 Carbon Offset & Carbon Market 4 International Carbon Market ands the Intervention 5 Role of Internet 6 Growing Carbon Markets & the Workers 8 Key Issues 9 The Future: Gold or Sub-prime Mortgage 11 Conclusion 12 References 13 Bibliography 14 Introduction Carbon has been one of the most crucial chemical elements in the evolution and development of the human civilization. Carbon bears the symbol ‘C’ and has the number 6 in the atomic table. Carbon, being one of the most abundant elements in the universe, belongs to the group 14 of the periodic table. The major forms of the carbon include that of diamonds and graphite in solid form and carbon dioxide in the gaseous state. Also, carbon is extensively available in the water bodies. Carbon is also found in stars, comets and atmosphere of other planets in abundance. Carbon dioxide, carbon monoxide, chloroform, ethylene, acetylene, acetic acid and benzene are some of the important components of carbon (Los Angles National Labs, “Carbon”). Carbon Offset & Carbon Market Carbon offset has been a recent concept that has been in wide use in the present world. The major disadvantage of having carbon or carbon related source as the source of fuel is that it is non-renewable source of energy and is also a major source to pollution as it is a greenhouse gas. To encourage the use of non – renewable source of energies and to save the world from the grip of global warming, various authorities and governments are encouraging carbon offsetting. Carbon offsetting comprises providing funds towards the development and usage of renewable source of energy by the companies, governments or individuals who uses carbon as the fuel. By providing for adequate price because of their carbon usage, they can become carbon neutral and also assist in the noble idea of renewable source of energy. For the purpose, price of the carbon has to be fixed at the outset. All these steps contributed towards the development of carbon market. International Carbon Market ands the State Intervention It is a matter of serious debate of the present day that whether state intervention is required to meet the necessity of the carbon offset projects or will the international market itself can take good care of such projects. Many of the experts feel that the entire process should not be left to the private players and if not always, the governments of different nation should intervene as and when necessary. The prime reason behind such thought is that if the carbon offset projects are left to the purview of the private players only, the sole thing that would play the deciding role would be the carbon price. But the objective of carbon market is not only to have internationally competitive pricing for the element but also to reduce the level of pollution. It has been observed that the efficient pricing of the carbon is definitely necessary along with the effective usage of the carbon market but these factors are not sufficient (Ackerman, “Carbon Markets and Beyond”). The former head of BP, Lord Browne felt that to meet the desired goals of the renewable energy, Great Britain should fall back on greater state control in the energy markets though market conditions are also necessary. As once he observed, “I remain convinced that the market is the most effective delivery unit available to society. But the market will need a new strategic direction and a new framework of rules, laid down by government.” (Rusbridger & Adam, “State intervention vital if Britain is to meet its green energy targets, says former BP boss”). Dr. Martin Bergfelder, project manager of International Carbon Action Partnership (popularly known as ICAP) rather feels the need of the hour is the public and private partnership. He feels the trust among the governments across the world with the market participants only can help the carbon market to prosper which would invariably ensure better carbon offset projects (Bergfelde, “Carbon Markets USA”). Role of Internet The internet has been a revolution in the world of communication. It has changed the entire tricks of trade for almost all of traditional products and services. So, it is evident that the internet would surely influence the non conventional trade of carbon and also the offset projects. The success of internet is that it made all the necessities just far away from a click of mouse. Traditionally, carbon offsetting was basically taken up by non profit and non government organisations. But recent trades show that even the big corporate houses along with the governments are initiating such measures. It generally involves two methods namely investing into projects that would develop research and development and would reduce carbon dependency and the other method is to plant more trees i.e. afforestation so that the ill effects of carbon emission are reduced. The objective of such project is to stay carbon positive or carbon neutral, if not carbon positive. Internet has brought all the relevant parties come closer. The small carbon suppliers, for the parties it could be really tough to find the carbon purchasers, can reap the benefits of the internet and can easily find the desired purchasing parties. The internet acts as the place of exchange among various interested parties of carbon trading. The entire carbon market has evolved keeping internet in the backdrop. The concept of carbon trade evolves around the REC (Renewable Energy Certificates). REC can be referred as the mechanism that helps various governments, business houses, industry leaders and even home owners purchase clean energy. It is prudent to presume that the consciousness of being carbon positive is more in the developed nations. The small suppliers from the developing or less-developed countries might not have enough means to contact such big organisations though they would aim to sale their carbon emission. Internet would definitely make them transact their deal apart from fixing the price considering the international demand and supply. So, the role of internet can be easily assessed with respect to the carbon market. Growing Carbon Markets & the Workers The ever growing carbon market has changed many of the traditional practices, beliefs and ways of interpreting things. It also has a lasting influence on the workers and the employees of the industry. It is true that many of the industries which have generated employment on large scale for industries have used carbon as the fuel. It implies as and when such industries either close down or change their course of action, a huge cut in jobs along with retrenchments and layoffs can be experienced. But more important fact is that the workers those who work in such factories or industries often found to suffer from acute physical disabilities because of their long bonding with such a dangerous means of energy. As the carbon market grows it is expected that such industries and the factories stops using carbon as their base fuel as the incentive increases to sale the carbons and remain carbon positive. Such step would definitely help in achieving the desired goal of corporate social responsibilities for the company. Such a measure would act as the blessing in disguise for the workers as they can expect to get out of the polluting environment. The undertaken offset projects also help in developing the scope of more jobs for the workers. More of such projects imply higher employment opportunities. Most importantly, with the increasing popularity of the carbon markets, the workers can expect to have sustainable and pollution free work place. The carbon offset projects would be the most crucial aspects of such development of scope for the workers. Apart from the active affected of the polluting environment i.e. the workers, the more offset project means that the passive pollution affected i.e. the general public can also expect to have sustainable environment. Considering all the above facts, the essence of carbon offset projects can easily be determined for the sake of sustainable living. Key Issues The international carbon market is growing at a very exciting rate. The growth of international carbon market would definitely promote more carbon offset projects which would lead to sustainable and pollution free environment, as discussed earlier. There are certain key issues that are to be discussed and properly addressed if the international carbon deals are expected to be successfully transacted. Basically the entire carbon market and the related activities depend on the decisions undertaken at Kyoto Protocol. Kyoto Protocol Clean Development Programme (CDM) has been the guiding force for the market. But experts feel, with change in much of the external environment, the time has come to make required reforms to it. As the International Business Manager, one must be aware of all the related key issues in the field. The offset supplier should be asked about the various carbon offset projects that their organisation offer. To verify, the location and the address can also be sought for. In the vast field of carbon offsets, there are several recognised standards like CDM (Clean Development Programme), Gold Standard or the Green e-Control Climate Protocol Energy. The offset supplier may be asked to notify the standards that his organisation adheres to and what is the performance. The carbon offset supplier may be required to validate the reductions in green house gas that the offset supplier represents have been accurately quantified. It should also be clarified if the carbon offset that the supplier is providing is a sort of forward crediting. The forward credit, assumes that offset will be created in future. If it is a forward credit, the purchaser should compel the supplier to detail out all the processes that have been or would be taken to validate the claim of creating such offset at some future date. The offset supplier can also be asked if his organisation is initiating any measure to educate the common mass and the general public regarding the ill effects of carbon emission and resultant climate change. Last but not the least; the purchaser should also seek for any certification that the supplier might possess as the members of any reputed body in the respective field e.g. like that of International Carbon Reduction and Offset Alliance or ICROA (David Suzuki Foundation, “What questions should I ask a carbon offset supplier?”). The Future: Gold or Sub-prime Mortgage There is little doubt over the emergence of the carbon market and the importance of carbon as the product of future for national as well as international trades. But the fact debate lies else where. Some believe carbon is all set to be the next most universally accepted precious element like that of gold where as others decline to buy the point. Often the hype is compared with the sub-prime element which was mere financial reengineering and did not possessed any real value and so ultimately led the market to crash and bring in the financial meltdown and the economic recession. After the affects of financial meltdown getting over, the prices of carbon have again started to rise in the international market. The funding to the climatic change mechanism calls for huge sum of amount and therefore the Kyoto protocol of 1997 evolved the cap-and-trade system. The recent emission figures of Europe have been significantly less than the past years. The experts feel that it is more because of the financial meltdown (resulting lesser demand of goods) than because of effective implementation of Kyoto Protocol Agreement. The success of the future carbon market basically depend upon two widely discussed issues namely the willingness of the industry and society to pay for the mitigation of climate and the management of prices for the purpose of creation of stable investment environment for any new technology (Mignone, “Carbon Market Conundrum: How To Build a Better Safety Valve”). Though the market of the carbon trading can be newer in the industry but like all other markets the law of demand and supply holds good here too. Therefore, whether carbon can become the next gold or not would much depend upon the players of the market and the regulatory authorise that bind the market. The carbon market players must take the learning from the recent sub-prime crisis and financial meltdown and should not solely depend on the financially reengineered instruments. Rather, the trade should have proper regulations and should be able to channelise the funds effectively towards the much needed offset projects. Conclusion Carbon trade has tremendous scope. The Kyoto Protocol has done wonders for the industry. The need to shift to the renewable sources of energy and the requirement of the offset projects has boosted the over all market. Internet has also played vital role in the development of the international market. But to avoid the fate of sub-prime mortgages, the most sought thing is proper regulations of the trade. With the above factors, the carbon market is all set to touch the US $ 1 trillion by 2020. References Ackerman, Franck. “Carbon Markets and Beyond”. 03 October, 2009. Inter Governmental Group of Twenty Four. 2008. Bergfelde, Martin. “Carbon Markets USA”. 03 October, 2009. Green Power Conferences. 2009. David Suzuki Foundation, “What questions should I ask a carbon offset supplier?” 03 October, 2009. Purchasing Carbon Offsets. No Date. Los Angles National Labs, “Carbon”. 03 October, 2009. Chemistry Division. 15 December, 2003. Mignone, Brian K. “Carbon Market Conundrum: How To Build a Better Safety Valve”. 04 October, 2009. Brookings. 26 March, 2009. Rusbridger, Alan & Adam, David. “State intervention vital if Britain is to meet its green energy targets, says former BP boss”. 03 October, 2009. The Guardian. 25 March, 2009. Bibliography Capoor, Karan & Ambrosi, Philippe. “State and Trends of the Carbon Market 2009”. 03 October, 2009. . The World Bank. May, 2009. Read More