Carbon - Expanding Black Hole

The boosters of the global carbon market excitedly claim the world market in carbon in the first half of 2006 was 684 millionn tonnes "worth" €12 billion. In value more than the whole of trades in 2005(€9.4 billion) , and 85% of volume traded in the same period (800 millin tonnes).Note that the total of all allowances to end 2007 in the EU = 2.1 Billion tonnes per annum, covering 13,000 industrial installations. Remember also that these allowances can be traded between years, i.e "borrowing" allowances for next year for the current year. (Graph of collapsing EUA price (again) in last 30 days)

Do not lose sight of the fact that the whole EU carbon market is created by politicians through political decisions, a dimension to any market that is beyond calculation and subject to manifold influences, national, ideological, stupidity, lack of information, misinformation, misunderstanding and pure simple corruption.

EU Emissions trading accounted for 440 million tonnes or 65% of the traded volume worldwide. As the market price collapsed in April May traded value declined dramatically.

The flexible Kyoto market mechanisms of Clean Development Mechanisms (CDM) and Joint Implementation (JI) have also seen a considerable growth in volumes and values this year compared to 2005. In total, 226 Mt, worth €1,976 million have been transacted. A major part of this was CDM trades at 193 Mt, worth €1,545 million. In addition, secondary CDM trades increased tenfold compared to 2005.

“This shows that the EU ETS is moving steadily forward and upwards, despite some turbulence during the last few months. The significant increase in traded volumes and values in emissions trading schemes in Australia and the US is also quite promising for the global carbon market as a whole”, says Henrik Hasselknippe, manager in Oslo based Point Carbon’s EU ETS team.

What the informed observer needs to bear in mind however is that all this activity is not related, as in standard commodity markets to actual amounts of actual product but to a notional amount of a product.

What is being "sold / traded" is the right to emit carbon as carbon dioxide from industrial / commercial processes. Typical sellers will or expect to produce less than they are allowed, so they may sell that unused right to emit to someone who emits more than their allocated amount.

The EU Emissions Trading Scheme (ETS) operates in a similiar fashion to the milk licensing scheme. To regulate supplies, and therefore the price of a perishable product, farmers were provided with a quota or license to produce so many litres of
milk, they discovered this was tradeable, and so a market grew, it attracted traders who could buy and sell such licenses.

The EU ETS operates in an identical fashion but the tradeable blocks are bigger, more valuable and therefore attract greater commissions, and with an inherent volatility (derived in part by the uncontrollable weather in Europe - which affects energy demand and hence CO2 production), market price fluctuations which can be exploited by knowledgeable, or lucky traders.

Naturally this market attracts it's snake oil salesmen, just as the booming pensions market did in the 70's / 80's 90's and the trick is to attract as investors, not those who trade carbon as part of running their business - power utilities, steel works, etc., but equity investors.

In the UK, if you invest in a fund, especially a pension at least some of your money will be sinking into this black hole,(eg Fidelity funds have just bought into 0.9% of AgCert International) however you can throw away your money without involving anyone else but a share broker.

There are currently 5 listed companies in which you can invest.
(alphabetically) AgCert International, Climate Exchange,Econergy, Ecosecurities,Trading Emissions.

AgCert International Plc
Apex Building Blackthorn Road Sandyford
Dublin, 18P: +3531.2457400 F: +353.

“Climate change is key to the world’s economic progress and AgCert is determined to play its leadership role in the reduction of greenhouse gases. “ Bill Haskell, AgCert CEO, when announcing results for 2005 on April 6th 2006.(Loss Euros 19,289,830)

AgCert’s business is the production and sale of reductions in greenhouse gas emissions (referred to as "Offsets") from agricultural sources on an industrial scale. Its methods involve the capture and combustion of biogas containing greenhouse gases, primarily methane, emitted from animal waste (shit) management systems ("AWMSs"). To achieve this, AgCert has developed proprietary data systems and processes which have been designed to be fully scalable and adaptable to the AWMSs of large confined animal feeding operations including those for swine, dairy and poultry.

AgCert has developed rapidly, expanding its initial operations in Brazil and Mexico, establishing operations in new geographies, namely Chile and Argentina, and extending its activities to new agricultural sectors, such as dairy and poultry.