Earth Day Special- In a recent interview with Terence Gallagher of Kaufman Bros., LP he introduced us to Carbon Trading.
Mr. Gallagher: Carbon trading had its origins in the United States through SO2 and NO2 trading. SOX and NOX, as they are called, was started to reduce these pollutants and cut down on acid rain. Kyoto decided to adopt this model and apply it toward CO2.
Currently, according to New Carbon Finance, the worldwide market is $118 billion, with the majority of that market being Kyoto-based. Kyoto was established to encourage the developed countries of the world to invest in cleaner power in the developing countries. This provides a method for the developing countries to gain assistance and use cleaner, more expensive power as their needs increase. As a reward, the developed countries receive credits that they can apply to their CO2 caps.
One of the big issues that this market has to work out if it is going to grow further is that the carbon credits are not fungible. There are too many ways to define a ton of carbon that is taken out of the atmosphere. Currently, there are existing and potential markets all over the world, and there is limited overlap among the applicable products.