Carbon will be the world's biggest commodity market, and it could become the world's biggest market overall
Louis Redshaw: Head of Environmental Markets, Barclays Capital
The burning of fossil fuels is a major source of greenhouse gas (GHG) emissions, especially for power, cement, steel, textile, fertilizer and many other industries which rely on fossil fuels (coal, electricity derived from coal, natural gas and oil).
The major greenhouse gases emitted by these industries are: Carbon dioxide (CO2); Methane (CH4); Nitrous oxide (N2O); Hydrofluorocarbons (HFCs); Perfluorocarbons (PFCs); and Sulphur hexafluoride (SF6) - all of which increase the atmosphere's ability to trap infrared energy, and thus affect the climate.
A carbon credit is a generic term for any tradable certificate or permit representing the right to emit one ton of carbon dioxide or the mass of another greenhouse gas with a carbon dioxide equivalent (tCO2e) equal to one ton of carbon dioxide.
Carbon credits create a market for reducing greenhouse emissions by giving a monetary value to the cost of polluting the air. Emissions become an internal cost of doing business and are visible on the balance sheet alongside raw materials and other liabilities or assets.
Since GHG mitigation projects generate credits, this approach can be used to finance carbon reduction schemes between trading partners and around the world. There are also many companies that sell carbon credits to commercial and individual customers who are interested in lowering their footprint. These carbon off-setters usually purchase the credits from an investment fund or a carbon development company that has aggregated the credits from individual projects.
Buyers and sellers can also use an exchange platform to trade, such as the Carbon Trade Exchange, which is like a stock exchange for carbon credits. Currently there are five exchanges trading in carbon allowances: the European Climate Exchange, NASDAQ OMX Commodities Europe, PowerNext, Commodity Exchange Bratislava and the European Energy Exchange.
Managing emissions is one of the fastest-growing segments in financial services in the City of London, with a market estimated to be worth about €30 billion in 2007.
For trading purposes, one allowance or Certified Emission Reduction (CER) is considered equivalent to one metric ton of CO2 emissions. These allowances can be sold privately or in the international market at the prevailing market price.
These trade and settle internationally, and hence allow CER`s to be transferred between countries.
Unchecked, energy use and hence emission levels are predicted to keep rising over time. Thus the number of companies needing to buy credits will increase, and the rules of supply and demand will push up the market price, encouraging more groups to undertake environmentally friendly activities that create carbon credits to sell.
ECI should be well placed to benefit from future activity in this marketplace. Our operations will open the way for the Company to attract and offset carbon credit allowances under the Certified Emission Reduction (CER) Scheme via the carbon credit trading marketplace - in line with a private and/or exchange based transaction. Such an outcome would enable ECI to access low cost capital, and has the potential to introduce an added future dimension to the business.
On-site support equipment
Pressure gauge component
ECI technicians, at Korat site
Drums of ECI oil from plastic
Volume gauge on ECI oil storage unit
Automatic gas discharge