The beginning of 2008 heralds the next phase of the Kyoto Protocol, which runs for four years to 2012. During this stage, the targets set out for the reduction of emissions of harmful greenhouse gases become stricter and, consequently, the prospects for further development of the carbon trading market become rosier.
Carbon trading is a key part of the strategy for reducing greenhouse gas emissions with London a global centre for carbon-related businesses. But, progress has not been smooth as over-allocation of national emission targets in the EU hammered the cost of carbon credits in 2006 and also hit confidence in the emerging sector.
But, as 2008 looms though the EU Emissions Trading Scheme (ETS) is maturing, allocation plans for future years look far more realistic, and exacting, and with this trading volumes and the price of forward carbon contracts have risen.
UK-quoted companies whose prospects look good include Trading Emissions and Camco International, both of whom advise on, and invest in, clean energy producing projects in developing countries in return for the carbon credits produced to be sold to polluting industries in the developed world. Both have built up significant portfolios of credits for delivery in the next four years at costs well below the current carbon price.
Those with less appetite for project risk might fancy Climate Exchange. It runs the European Climate Exchange and its sister operation in Chicago, both of which are market leaders in their regions. With the carbon market set to grow rapidly, and with its new found maturity, volumes should rise significantly. Although Climate Exchange is not yet profitable, it is forecast to break even in 2008 and profits should grow rapidly from there.
Carbon trading is still a relatively young market and it has had its teething troubles, but with the next phase of Kyoto upon us, it appears to be here to stay. And with the added kicker of a likely move to carbon trading on a federal level in the US in the not too distant future, it may pay to be an early mover in this market.
