Anaconda Carbon

A central authority (usually a government or international body) sets a limit or cap on the amount of a pollutant that can be emitted. Companies or other groups are issued emission permits and are required to hold an equivalent number of allowances (or credits) which represent the right to emit a specific amount. The total amount of allowances and credits cannot exceed the cap, limiting total emissions to that level. Companies that need to increase their emissions must buy credits from those who pollute less. The transfer of allowances is referred to as a trade. In effect, the buyer is paying a charge for polluting, while the seller is being rewarded for having reduced emissions by more than was needed. Thus, in theory, those that can easily reduce emissions most cheaply will do so, achieving the pollution reduction at the lowest possible cost to society.

The overall carbon market continued to grow in 2008, reaching a total value transacted of about S$126 billion (€86 billion) at the end of the year, double its 2007 value (Table 1). Approximately US$92 billion (€63 billion) of this overall value is accounted for by transactions of allowances and derivatives under the EU Emissions Trading Scheme (EU ETS) for compliance, risk management, rbitrage, raising cash and profit-taking purposes. The second largest segment of the carbon market as the secondary market for Certified Emission Reductions (sCERs), which is a financial market ith spot, futures and options transactions in excess of US$26 billion, or €18 billion, representing a five-fold increase in both value and volume over 2007. These trades do not directly give rise to mission reductions unlike transactions in the primary market.

*Source: State and Trends of the Carbon Market