Carbon Emissions Trading




After a 40 minute taxi ride from the O＇Hare Airport in Chicago, the US, I arrived at the Chicago Climate Exchange. Next to the Grand Park dubbed as the oasis of the city, it is situated at the financial center district where the Chicago Board of Trade and all sorts of financial institutions are closely clustered.

To picture something of a stock exchange, then you will get disappointed. It is nothing less than a common consulting firm office. It has only one or two offices and conference rooms. Also, it lacks a giant screen, commonly seen in such a place as a stock exchange.

Its vice president Rafael Markes, when asked where a price board was, with a smile on his face, pointed at a computer monitor in front of the information desk, saying "every transaction is made in the little monitor." The monitor showed that the number of companies that joined the scheme of trading in greenhouse gases totaled roughly 100. Although the number was still small, they included the US leading companies, such as Ford, Motorola, IBM, and Dupont.

In Europe, carbon is traded at a rate of ？28 per tonne; in the CCX, by contrast, it remains as low as 2 dollars per tonne, aiming at encouraging companies to join the scheme on a voluntary basis. The United States has been opposing to be in compliance with the Kyoto Protocol, yet its top notch firms spearheading the global industry are preparing for carbon trading.

Its trading hours are from 10 a.m through 12.30 a.m, or two and a half hours. By the time I visited, carbon prices constantly fluctuated somewhere between $2.15 a tonne and $2.17. Vibrant trading signals many participants are involved in the scheme.

In effect, the CCX whose major shareholder is the British listed firm the Climate Exchange PLC was founded by the British firm to preoccupy the American market. Its vice president Markes said, " Since its foundation in December, 2003, its carbons traded for the period of one and a half years amount to only 2 million tons," predicting that with more than 10 states and plenty of cities, including Chicago and Portland, imposing mandatory limits on green houses gas emissions, carbon permits trading will surge explosively shortly.

According to the World Bank, trading in carbon emissions across the world was up 38% from 78 million tons in 2003 to 107 million tons last year when the Kyoto Protocol did not even come into force. This year, 43 million tons of emissions were traded by the mid-May. The emissions trading system is the key mechanism of the Kyoto Protocol. It has set a target of emissions reduction by countries, and if a country fails to fulfill the target, it will be fined or have to purchase emissions in an emissions exchange. In other words, the system priced carbon so that greenhouse gases could be traded as a kind of product.

Carbon emissions are financial instruments which may be deposited and also traded. Currently, 8 out of the total 10 carbon exchanges being run worldwide are all in the European Union. This clearly shows the EU＇s will to be the world leader in the so-called "CO2 industrial revolution." Experts say the creation of carbon exchanges takes on a significant meaning in that the blossom of capitalism, triggered by the industrial revolution, is the stock market.

It is estimated that if trading in carbon emissions begins to be implemented at a global level, the carbon market will exceed $10 billion(approximately 10 trillion won) this year, surpassing $100 billion(approximately 100 trillion won) by 2007. Some expect that emissions would jump to $200 a ton.

Not surprisingly, the EU, taking the initiative in the Kyoto Protocol, has been witnessing the most vibrant carbon emissions trading. It has launched the EU Emissions Trading Scheme starting from January 1 this year, in which its members may purchase and sell carbon permits. A total of 15,000 companies in the 25 EU member countries have joined the scheme. In the first phase, the EU ETS plans to impose a target of emissions reduction on an individual company within a particular country in accordance with its carbon emissions allowances plan by countries until 2007. In the second phase, from 2008 to 2012, it will impose limits on emitting all greenhouse gases, including CO2. If a company fails to fulfill the target, it will be imposed the penalty of ？40 per tonne in the first stage, and ？100 in the second stage.

In the EU, carbon trading is as dynamic as stock exchange. Carbon prices were up sharply from ？8 per tonne early this year to ？29 early last month. On the 25th last month right before the announcement of the US-led Asian Pacific Partnership, they plummeted to ？18 per tonne, reacting sensitively to the market shift. As the Asian Pacific Partnership became widely seen as an approach to supplementing the Kyoto Protocol, carbon prices rebounded to ？22.10 per tonne as of the 29th of July.

Carbon trading volume has been swelling. Just four months after it launched, the EU ETS＇s carbon trading has surpassed 37 million tons, nearly twice as much as the combined volume of 19 million tons last year. Recently, its daily trading volume has reached almost 1 million ton, giving a further boost to the trading. The EU expected that the emissions registered early this year would stand at from 250 million to 400 million tons, and the annual trading volume would reach ？1.7 billion(approximately 2.3 trillion won).

Translated by International Cooperation Division ☎ +82-42-481-4081 (Ms. Kang Hye-young)