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By Anthony Milewski, Chairman of Nickel 28 Capital
Carbon credits, carbon offsets, renewable energy credits, weather derivatives, water markets … an increasing number of market mechanisms are now part of the fight against climate change. They are also part of the newly emerging basket known as environmental commodities.
Perhaps the best known of these are carbon credits, which are split into two types of markets. The first, known as the Compliance Markets, are essentially a cap-and-trade affair backed by the EU, Canada and a variety of other nation states worldwide, as well as the US state of California. The system puts a price on each metric tonne of carbon emitted by certain industries, and by doing so penalizes polluters who are forced to offset emissions with the purchase of credits. In addition, the cap normally shrinks each year, which in turn ensures that prices are steadily pushed upwards.
Then we have the less structured...
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