Making Sense And Money Out Of Carbon
Like the European model, the Markey-Waxman bill plans to grant this first round of carbon allowances, versus auctioning them. Granting should mean less of an immediate impact on the firms being capped, and hopefully fewer costs passed on to their clients.
President Obama sought to have allowances auctioned in his proposed budget for 2010, a move that would have brought in $78 billion in 2012 and as much as $83 billion in 2019.
Barnes says her firm is neutral as to how any US carbon scheme allocates carbon allowances, but the easiest path may be to blend auctioning and granting credits.
“We think neither all-auction or all-grants works,” she says. “But a hybrid of these (systems) would work.”
If the Markey-Waxman bill does pass this fall, the next step could be integrating a US carbon market with a potential broader global carbon market, spurred by a successor treaty to Kyoto.
The potential shape and scope of this market will be discussed at the COP15 summit — the annual climate change meeting attended by the world’s environment ministers — being held in in Copenhagen in early December. A lot has changed since Kyoto was first signed.
China has since passed the US to become the world’s largest carbon emitter, and other rapidly developing countries, like India, may have a harder time making a case for exemption from caps.
Other nations, like Australia, have explored creating their own national carbon market, similar to current US federal efforts.
Asked if he thought a single global carbon exchange could come out of these discussions, Sandor says the markets for other commodities may be a better template.
“I see global markets developing on what I call a ‘pluri-lateral’ basis,” he says. “I think we’ll see markets in different pockets of the world that are linked by similar contracts—much like you see with crude oil today or like we saw with cotton in the 19th century.”
(Editor's note: This is the first in a series of articles examining the business and technology of the carbon trade.)