With the pivotal climate change summit in Copenhagen approaching, there has been a considerable focus on developments in the US. The debate has raged. Do developing countries have a duty to cut emissions or is it up to the developed world to lead by example? One thing is clear, the US does not stand alone in playing a role as deal maker supreme at Copenhagen. Our attentions must also focus on China. China’s recent announcement that it plans to restrict carbon levels belies the fact that there is an increasing appetite for cap and trade in Beijing.
As the world’s biggest emitter, China would have to move from being a net seller of carbon credits to being a partial buyer. No small task, but such a move would signal true globalisation for this burgeoning asset class. For China to join what would be a rapidly maturing market, it needs help. The European Commission has set a deadline of 2020 to link all major emissions trading schemes. The clock is ticking. China must consider trading strategies as a way of using the market to wean itself of its carbon habit. Only this month, Australia ratified its cap and trade plans and although moving slowly through the Senate, similar moves are afoot in the US. We need to reach a critical mass of trading nations for these plans to be truly efficient. It can be argued that it was the notion of a market and consumerism that got us into this environmental position, now it is time for the market to help save us.
Any market created will have to be very liquid. Many non-energy companies are looking for a slice of the carbon action. The market will therefore mature very quickly and will be suitable for traders that can add volume to this market. One of the barriers to setting up a market is introducing new technology, and for the decisions made in Copenhagen to translate into financial reality, carbon traders will need systems that can provide global markets on the same screen, adopting existing proven technology.
If we are to make positive moves to meet emissions targets, carbon trading needs to be fully embraced. Increased global carbon trading will mean the creation of thousands of jobs and numerous business opportunities, but everybody has to come to the party.
Elliot Piggott, Managing Director, Trayport