Commodity Trading, Carbon Trading, Worldwide Carbon Trading : Eucalyptus Worldwide Ltd.

The environmental commodities market is the fastest growing new commodity market and could reach over U$2,000 billion by 2020.

The global market for carbon emissions trading doubled in value last year, despite the global economic slowdown in the second half of 2008, but actual realized emissions cuts fell, the World Bank said. The market grew to USD 126 billion last year, up from USD 63 billion in 2007 and nearly 12 times the value in 2005, it said in a report. A total 4.8 billion tons of carbon dioxide were traded last year, up 61 percent from the 3 billion traded in 2007.

Carbon emission trading is a relatively new market and has traded, albeit at minor levels, in the OTC market since the 1990’s. Recent developments in this vibrant market is due to significant global governmental involvement which has facilitated the tremendous growth for carbon emission trading since 1997 from $727 million in 2004 to over $120 billion in 2008. The carbon credit market emerged due to various regulatory bodies that collaborated with governments to establish the framework for carbon emission trading in a proactive attempt to involve the world to decrease their carbon footprint. Furthermore, due to the complexity of this market, carbon emission trading has attracted numerous intermediaries including brokers, exchanges, aggregators and financiers.

Opportunities for market participants are expected to continue to increase as the value of global carbon markets are forecast to grow by 68% per year to $669 billion in 2013. With the EU members taking common commitment to reduce their average greenhouse emissions by 8% in the first Kyoto commitment period (2008 – 2012), the EU has set up a European Emissions Trading Scheme. With the Japanese and Canadian governments entering the markets, and increased pressure on US companies to comply with carbon emission reduction, the end-user in this market has grown and will continue to do so. Further to this Britain’s Department of Energy has committed to cut carbon emissions by 80% before 2050. Even Barack Obama's new US administration is considering whether to set up its own federal carbon emissions trading scheme, in another step towards a global trading scheme.

The establishment of the Energy exchanges has prompted the active trading of carbon credits on the futures market. Companies use the exchanges to manage the price risks associated with trading in carbon credits. Also trading on the exchange reduces potential policy and project risk.

Carbon Credits Explanation

AAU	Assigned Amount Units are emissions credits allocated to governments of countries with abatement targets under the Kyoto protocol. They are tradable between countries. Most trades that take place will be connected with GIS (Green Investment Schemes). These schemes require the government selling the credits to invest all proceeds of the sale in environmental projects.
CER	A Certified Emission Reduction is a credit originating from the Clean Development Mechanism (CDM) of the Kyoto Protocol. The credits are generated by projects producing reductions in green house gases relative to what would have occurred if the project activity had not taken place. They originate from countries that have ratified the Kyoto protocol but do not have an abatement target.
ERU	ERU Emission Reduction Units are credits produced by joint implementation projects that result in a reduction in GHG emissions in developed countries with caps under the Kyoto protocol. When ERUs are issued within a country an equivalent number of AAUs have to be cancelled to keep the market whole.
EUA	European Union Allowances granted to participants of the European Union Emissions trading scheme
RMU	Removal Units are a carbon credit created under Kyoto and allocated for carbon sink projects such as forestation. They can be used by governments to meet the Kyoto targets.
VER	Voluntary Emission Reductions are carbon offsets offered by commercial firms from GHG reduction projects. Typically the purchaser buys credits which are then retired or cancelled on their behalf to offset the carbon they, or their clients have produced. The lack of a firm standard such as the CDM to oversee credit production and cancellation means they trade at a discount to CERs and are viewed by some as being less robust than their Kyoto regulated counterparts.