U.S. Carbon Traders Face Two Markets

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While U.S. policy might be getting left behind in the global race toward carbon capping, U.S. companies are working hard to keep pace. For U.S. carbon traders and offsetters, this creates a divided market: the sheltered domestic market of voluntary offsets, and the international market of Kyoto compliance.

This split in the volatile and maturing carbon market has created a gap between U.S. pricing and standards and those abroad. Steps have been taken to link the two — the Chicago Climate Exchange recently expanded past the U.S. border, for example — but American carbon policy and the fact that the U.S. is the the last big hold out to ratify the Kyoto Protocol means that carbon is a different monster domestically. This domestic policy barrier surely cannot last, but how long will it take for the U.S. to join the volatile global carbon market, and on what terms?

Even here at home, standards and pricing are anything but consistent. At a panel discussion on carbon trading at the ThinkGreen conference this week in San Francisco, Terrapass Chief Environmental Officer Tom Arnold spoke of the inconsistencies in the third-party auditing system for carbon emissions reduction (CER) credits. In verifying the offsets of a project, different auditors use different standards, making guarantees for offsetting projects difficult, Arnold said. Terrapass sees “2008 as the shakeout period for those standards,” he added.

Natsource Managing Director Bill Tyndall was on hand to talk about serving both markets. Natsource got into the carbon market right after the Kyoto Protocol was drafted, when carbon trading wasn’t “cool or lucrative,” Tyndall half-joked. Today, however, Tyndall has a great deal of confidence in the international market, saying that the UN clean development mechanism program (CDM), which has recently come under fire, is one of integrity that offers real offsets at reasonable costs. Earth2Tech pressed Tyndall on this point after the panel, and he assured us he’s never seen issues of “malfeasance or negligence” on the individual project level in developing nations. It seems to us that malfeasance and negligence could alsoeasily occur at the other end, with corporations in the developed world ducking their reduction mandates.

Tyndall does expect to see changes concerning the limits that developed countries can use CDM CERs to meet emissions reductions mandates. Natsource works with the carbon offsetting projects; through the CDM, it connects them to institutions in the developed world that need to buy offsets. Between tightening limits and new countries joining, it’s unclear which way CDM CERs will go.

The game-changing development for the carbon market will be the opening of the U.S. and China to a global cap-and-trade system. While there are those who advocate a carbon tax, it seems a cap-and-trade system will be much more welcome by emitters. While it is important that the carbon market grow and mature quickly, it’s absurd to think that it will reach any level of real stability until the world’s two largest carbon emitters join the game.

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