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  A Lucrative Green Business: Europe's Carbon-Trading Pioneers

A Lucrative Green Business Europe's Carbon-Trading Pioneers

By Mark Scott

Part 2: Acting as Emmissions Credit Brokers

The expansion of carbon contracts also has created a demand for financial intermediaries to help European companies navigate the emissions trading scene. Heavily polluting industries, such as energy, cement, and metals production, must buy and sell credits under the EU ETS, but smaller companies often lack the resources to trade CO2 on their own. Where oil producers such as BP or utilities such as France's EDF already have deep experience with trading, a small-scale glass manufacturer in Spain could be caught out by the complex carbon markets.

In response, outfits like Britain's Carbon Capital Markets (CCM)have stepped into the void. Offering to shoulder companies' commitments under the EU ETS, CCM trades emissions credits on behalf of small industrial clients and simultaneously finances carbon projects in the developing world to create CER credits. Since opening its doors in 2005, the company now has more than 350 clients across Europe and trades up to 50 million emissions credits each day.

"We act as a sort of stockbroker for players in the emissions trading market," says CCM Chief Executive Officer Lionel Fretz. "The market is here to stay -- the EU really stepped out on its own by creating this market-based mechanism."

Unfair Advantage to Emerging Nations?

To be sure, not everything has gone smoothly for Europe's attempts to reduce CO2 emissions. An overallocation of carbon credits caused prices to drop almost to nothing in the first phase of the EU ETS, which ended in 2007. At the same time, consultancy Point Carbon estimates the Continent's emissions actually rose by 1.1 percent last year.

Polluting industries also say the extra costs associated with carbon have given a competitive advantage to rivals located in emerging countries that don't have to offset their CO2 footprint. "At today's prices, buying carbon adds 10 percent on to industry production costs," says Ian Rogers, director of UK Steel, an industry body.

Market watchers expect these problems to iron themselves out as Europe's carbon markets mature -- especially after 2011, when the aviation sector joins the EU ETS. Other parts of the world also are taking a page out of the European playbook: Australia will launch its own cap-and-trade scheme in 2010, and analysts reckon a federally regulated market in the US could get approval soon after the November elections.

Despite a few early teething problems, Europe's solution to climate change stands as a global model of applying market-based innovation to a tough social and environmental problem. And nimble companies like ECX and CCM have led the way.

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