The birth of a new commodity

From Co2 emissions to Emissions Trading Permits; the birth of a new commodity

The international drive to lower greenhouse gas emissions has created a multi-billion-dollar global market for Emissions Trading Permits ETPs.

The humble ETPs have come a long way in a short space of time and with it the exciting news this week from the World Bank that ‘ETPs market trading reached a record value of $176 billion in 2011′ spurred on by secondary trading volumes which have offset lower prices and slowing economies.

Let’s take a look back at how trading this particular commodity all began.

It started with significant amounts of Co2 being pumped into the atmosphere by the top ten most powerful countries in the world; Anthropogenic factors are human activities that change the environment and influence the climate. In some cases the chain of causality is direct and unambiguous while in others it is less clear.

In 1870, the level of CO2 gas in the atmosphere was 290 parts per million (ppm) and the mean global temperature was 13.6 degrees Celsius. Today, there are 396.18 parts per million of CO2 in the atmosphere, according to CO2now.org. The upper safety level for atmospheric Co2 is 350 parts per million. The world’s most current data for atmospheric CO2 is measured at the Mauna Loa Observatory in Hawaii.

A recent report published by the OECD (Organisation for Economic Cooperation and Development) projects that ‘the atmospheric concentration of GHG’s could reach 685 parts per million by 2050.’

Data courtesy of Mauna Loa Observatory, Hawaii

Co2 emissions have been tracked for 40 years. Scientists in the 1960′s estimated that the effect of Co2 emissions would become apparent in the year 2000. They were, more or less, correct. People were aware of the effect of Co2 emissions before 2000, though. The top 10 countries in the world emit 67.07% of the world total. The Kyoto Protocol then introduced the cap-and-trade system and the idea of emissions trading permits (ETPs).

Emissions Trading Permits Timeline

The Intergovernmental Panel on Climate Change report, said that by ‘2080, 1.1-3.2 billion people would be experiencing water scarcity, 200-600 million hunger and 2-7 million coastal flooding every year.’

May 30th 2012 “When I look at this data, the trend is perfectly in line with a temperature increase of 6 degrees Celsius (towards the end of this century), which would have devastating consequences for the planet,” Fatih Birol, International Energy Agency’s Chief Economist told Reuters.

‘Scientists say ensuring global average temperatures this century do not rise more than 2 degrees Celsius above pre-industrial levels is needed to limit devastating climate effects like crop failure and melting glaciers.’ Reuters.

The reality; trees absorb Co2 from the atmosphere, store Co2 in their trunks and release oxygen into the atmosphere and polluters may offset their emissions by paying for reforestation projects, wind farms and methane captures. Hence, the first compliance verified ETP was traded in 2005, the first voluntary permit was traded in 2007 and a new commodity was born.

After pursuing countless generations of continuous growth, the human species is confronted with one of its greatest challenges: how to live sustainably on planet earth. In a just world, it would appear that profligacy has a price.