Learn how to profit from Carbon Credit trading with New Frontier Advisory's guide. Investing in Carbon has never been so easy.

1. NE W F R O N T I E R A D V I S O R Y
How To P From Trading Carbon
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2. Introduction
The task of helping the environment is now 100 global businesses are direct members for growth, and there is already the Chicago
big business. Carbon credits are being including Barclays, BP Newedge, E.ON UK,
, Climate Exchange (CCX), which trades
traded all around the world by companies Fortis, Goldman Sachs, Morgan Stanley and voluntary credits from 400 members including
to meet environmental emissions targets, Shell, in addition to several thousand traders Ford, DuPont and Motorola, driving global
individuals looking to decrease their personal around the world with access via clearing growth further.
emissions, and investors looking to pro t from members.
The carbon credit trading system is often seen
the carbon market boom whilst helping the
As well as the ECX, the European Union as a way of investing in something that helps
environment.
Emissions Trading Scheme (EU ETS) is the the environment as well as generating a pro t.
According to the latest report from the World largest multi-national emissions trading Each carbon credit bought puts money into a
Bank, the global carbon trading market is scheme in the world, and a major pillar of project that is ve ed to reduce greenhouse
now worth a phenomenal US$144 billion, up EU climate policy. The EU ETS is a scheme gas emissions, and can then be sold to
6% from 2008 despite the global downturn. which monitors European company’s carbon companies who need to reduce emissions to
Marketplaces such as the European Climate emissions, and creates a market for them to comply with global targets, or to individuals
Exchange (ECX) have seen trading volumes buy and sell credits to meet emissions targets. who want to reduce their emissions. But what
soar, with 2009 seeing an 82% increase are carbon credits exactly? Who buys them?
And it’s not just in Europe. The US is actively
year-on-year, surpassing 5 billion tones And how can investors pro t?
setting up its own trading scheme, the US
of CO2e equivalent to €68 billion. Over
ETS, to create a more e cient marketplace
4.93% Number of projects entering the CDM pipeline
140 Number of days
105
70
35
0
Jan 2004 Jan 2005 Jan 2006 Jan 2007 Jan 2008 Jan 2009 Jan 2010
Source: unEP Risoe and World Bank
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3. What are carbon credits?
The opportunity to trade carbon credits was
created by the United Nations’ Kyoto Protocol, a
CERs VERs
legally binding document committing countries Reductions (CERs) were
created under the Kyoto Protocol’s Clean third party, but without the costs associated with
(GHGs). Development Mechanism (CDM) to allow CERs, which are a type of carbon credit subject
industrialised countries to invest in emission to much more stringent regulation, pushing
The treaty created a number of emission
reducing projects in developing nations. The up the price. This means that individuals and
reduction targets that nations needed to meet
CDM projects generate CERs, credits which can companies can reduce their emissions in a more
to safeguard the environment. Collectively,
S. y. Despite there
industrial nations agreed to reduce their GHGs
Once a CER has been issued it carries the same being less regulation, VERs are still subject to a
by 5.2% from 1990 levels. On an individual
compliance value as an EUA. standard, and emissions reductions must be real,
country basis, this ranges from an 8% reduction
measurable, permanent, additional to what is
in the European Union to 6% for Japan, 0% CER credits are highly regulated and must meet
for Russia, and an increase permitted of 8% for
Australia and 10% for Iceland. These countries the Kyoto Protocol. The emissions reductions VERs trade over the counter and on some
are now responsible for ensuring that companies, must be real, measurable, permanent, additional exchanges such as the Chicago Climate
and the governments themselves, are reducing to what is already being done, and independently Exchange (CCX). This is giving structure to the
GHGs. market, and helping it grow.
To facilitate this, the Kyoto Protocol gave GHGs The VER market is growing. In 2008, 123.4
a value, known as a carbon credit. Each carbon million metric tones of CO2 were transacted, a
credit is equivalent to one tonne of CO2. If a
company has emissions over its allowance, then
EUAs near doubling of the 2007 volume. VER prices
then increased by 20% in 2009, and the market
this entails a cost. Conversely, companies able These are the emission allowances given to was valued at US$705 million, with annual
to stay under this allowance receive credits which participants in the EU ETS and are traded in growth of 15% projected. General market
can be traded on exchanges for their value. a secondary market on the European Climate opinion is that the wider scope of the voluntary
Thirdly, projects in developing countries which Exchange (ECX). One EUA gives the holder the market, and growth led by the private sector,
actively reduce GHG emissions become eligible right to emit one tonne of CO2. Approximately not public policy, means that it has a strong
for these carbon credits, and by selling on an 2.3bn EUAs have been issued annually to potential to outstrip the mature market size of the
exchange can raise funds. industries covered under the EU ETS. compliance regime.
By the end of 2013, the total value transacted in
the carbon markets is projected to reach US$669
billion, making it one of the biggest growth
stories in investment (Carbon Emissions Trading
Markets Worldwide, 2010).
CDM Project Distribution by Type (%)
Each carbon
credit is equivalent
4.93%
Capture of fugitive
emission
17.00%
to one tonne of
Waste handling and
disposal Transport (0.11%)
CO 2
Mining (0.96%)
Metal production (0.29%)
62.61% 4.54% Af/Re-forestation (0.54%)
Renewable energy sources Agriculture Energy demand (0.96%)
2.39% Chemical industries
4.82% Manufacturing
Source: United Nations Framework Convention on Climate Change, 2010
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4. Gold Standard and VCS
markets established by the Kyoto Protocol as well
by the Gold Standard F
organization that has trademarked the Gold
Standard Label, which is today internationally-
recognised as the leading indicator of quality in
carbon markets.
Supporters of the Gold Standard are committed
to promoting sustainable development through
by transparency and equality of access for all
market participants. It was designed to ensure
that emissions reductions that back up carbon
the project activities make a measurable impact
on sustainable and social development in local
communities.
The Gold Standard logo is a trademarked brand
that represents premium quality in the carbon
market.
Each carbon
credit is equivalent
to one tonne of
CO 2
4.93% EUA average prices (US$)
45
30
Jan 2010
15
0
Jan 2008 Mar 2008 May 2008 Jul 2008 Sep 2008 Nov 2008 Jan 2009 Jan 2009 Mar 2009 May 2009 Jul 2009 Nov 2009
Source: World Bank
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5. Who’s buying credits?
The potential market for carbon credits is huge. in Europe, followed by a Polish energy group. The prices of the credits themselves vary and can
Under the Kyoto Protocol, not just companies but Overall, European groups are spending £800 be volatile, creating the potential for large gains
million on carbon credits. as demand grows.
Even outside of the agreement, many companies
are buying up credits to help their corporate Last year, Spain announced that in order to As of the 30th September 2010, CER spot
image and to encourage their customers to go Kyoto Protocol, it would be purchasing prices were €13.56 and EUA spot prices €15.60
green. 6 million tonnes of carbon credits, and is as traded through the exchanges. Running
calculating that it will need to spend €1.2 billion alongside this are the OTC markets, where
overall to comply. Most countries are spending one of the largest companies charge £15.49
ability to purchase credits for a number of years similar amounts or more. And in the voluntary per credit, ranging to £10.90 for each credit
Westin resort and Spa and over the counter (OTC) markets 94 million from another supplier. British Airways charge
tonnes of CO2 were traded last year, with market
y, and have reduced 800 tonnes participants predicting that over 1 billion tonnes
of CO2 to date. The Swedish energy group per annum will be traded by 2020.
Vattenfall is the largest single buyer of credits
This is where investors come in.
(also known as the spread) of OTC credits
bought from a company which either gets them
from an exchange or direct from a project can
ensuring that the investors money is going into
emissions reducing projects worldwide. This form
the communities where the projects are located,
r.
Through some credit trading companies, they
are available from as little as €5, creating the
trading company which preferably has access to
BlueNext, the world’s leading trading exchange
for credits. T
and high quality, which increases credit value,
buy only gold standard or VCS (Voluntary Carbon
Standard) credits.
The carbon market continues to grow, and
continues to provide further opportunities to
Each carbon
credit is equivalent
to one tonne of
CO 2
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6. NE W F R O N T I E R A D V I S O R Y
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New Frontier Advisory LTD, Centralpoint, 45 Beech Street, London EC2
Please remember that all investments carry risk.Whilst we undertake all due diligence and research to
present accurate scenarios and investment opportunities, the information presented is based on today’s
market value and predicted growth rates and as such cannot be guaranteed.