Say Goodbye!
Clean Development Mechanisms
CDM's can create a framework to simplify the develop of salable carbon credits. By directly allocating credits to some activities which reduce carbon output or remove atmospheric carbon dioxide it creates a more measurable system which creates the potential for the securitization of carbon offset credits. Part of the CDM system allows for a multiplier effect when carbon sequestration is coupled with another component allowing some systems with carbon sequestration potential that are not fully defined to particpate in sequestration programs.
Implementation & Verification
Verification, auditing, measurement and definition. A carbon offset credit is a contract between parties. One has verifiable assets to sell and another has a need to take delivery. At this time approximately 98% of all carbon contracts are delivered to an end user. Various CDM pairings and variations on this theme create a non-standard trading environment which has lead to the establishment of several climate or greenhouse gas based futures exchanges which have created securities which correspond closely to standards already practiced in the derivatives market. One of these greenhouse gas exchanges, the Chicago Climate Exchange, was founded by one of the original creators of the derivative security, Dr. Richard Sandor of the University of Chicago.
Futures-like exchanges for green house gas offsets seek to increase market liquidity by creating verifiable new sources of carbon offsets under the audited general terms of Kyoto. Greater market liquidity, contract standards and velocity will help increase market acceptance of this type of security leading to more widespread contract trading and a new profitable derivatives market where none existed before.
Until a zero emissions state is reached, optimistically in 100 years or so, Carbon Trading will allow many countries and entities both civic state and local to securitize, monetize and trade their carbon resources once they have established proper title to them. This could create considerable unforeseen revenue streams that may have to be incorporated into development trusts to prevent fights from breaking out between various government departments on who receives these windfalls. The model of Norway's national trust for north sea oil revenues is a model of a National Trust system that 'works' while Gt. Britain's is an example of too free a market 'Laissez Faire.' Other more localized vehicles may be developed depending on how ownership of the carbon resources are adjudicated.
Revenue Potential
Once a recognized carbon credit is established it acquires the vintage of the year in which it was created. If not sold it accumulates vintages along with a concomitant change is price for each year that it remains unsold. If a carbon offset was created vintage 2001 for 1 million tonnes when the price of carbon was say $4/tonne and not sold until 2011 when the price of the offset had climbed to $20/tonne then the 10 years of accumulated vintages could be sold from the 'carbon bank' for 10 years accumulation at $20 million a year for ten years or $200 million with the accumulated vintages. Enough moneys are involved to make financial markets take notice.
Size Matters
There are economies of scale in creating large projects that are carbon aggregators. A carbon aggregator is a legal vehicle that combines diverse carbon offsets into one large managed portfolio filled with different vintages and sized blocks of assets. These aggregators can be the tools which actively trade carbon offsets on behalf of their owners. Think of it as a kind of carbon asset or offset investment bank.
OwnershipAll in all much of the potential for these kind of carbon projects lie in areas that affect over 1 billion people. The ownership of many of the potential carbon offset rights has not necessarily been assigned by default to the people that own or live on the land.
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