Investing in Carbon Credits
Originally developed as a method of capping air pollution, emissions trading has developed into a commodities market. Carbon is one of the emissions capped in this market-based control method. Initially, a company that succeeded in lowering its emissions below its cap could sell the difference as credits to a company that needed additional allowances for carbon emissions. As the concept evolved, it blossomed into a commodities market, with third-party investors purchasing credits just as they would stocks, and then reselling them, ideally at a profit. The purchases move through a carbon fund exchange, a market organization much like the New York Stock Exchange, but specializing in emissions trades.
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Instructions
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Contact your stockbroker for advice and guidance. She can provide you the latest prospectuses for existing funds and advice on comparing exchanges. If you do not normally use a stockbroker, it is recommended for your first foray into the carbon market, as emerging markets can be difficult to navigate.
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Read each prospectus carefully. Funds differ in their investment approaches and goals.
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Choose an exchange from which to buy your credits (shares). The CME Green Exchange, a sister entity of the CME Group Inc., the holding company for the Chicago Mercantile Exchange, is a partnership between Constellation Energy, Credit Suisse, Goldman Sachs, JP Morgan, Merrill Lynch and Morgan Stanley that received its U.S. Commodity Future Trading Commission approval in July 2010. The Climate Exchange PLC, however, has been trading since 2003. It owns the Chicago Climate Exchange and the European Climate Exchange.
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Tell your stockbroker which exchange you would like to trade on and how many credits you want to purchase.
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Tips & Warnings
Remain calm if you notice the price of credits fluctuating wildly. The carbon market is volatile at times.
References
- Photo Credit blue carbon image by FFprod66 from Fotolia.com
