The Future of the Carbon Market

The Congressional Budget Office has released a study that estimates that a carbon offset market could be worth $60 billion by 2012. Such a market, value-wise, would be “on a par with U.S. corn and wheat markets [.]”

However, the potential for growth could be large as ‘“it will make forestry mitigation opportunities more important,” says Chicago Climate Exchange senior economist Jeffrey O’Hara. O’Hara recently told participants of the Climate Change Legislation Workshop at Mississippi State University that, ‘“We think carbon is going to be a big market.”’ According to Hembree Brandon’s article for the Delta Farm Press, the Carbon Climate Exchange (CCX) is “the world’s first and North America’s only carbon and environmental derivatives market.” The future of carbon markets is being debated on Capitol Hill as part of climate change legislation.

Currently, CCX is trading between 3,000 to 5,000 contracts daily. According to Brandon’ story, the market is made up of “20 percent of the largest carbon dioxide-emitting utilities in the U.S. participating; 11 percent of the Fortune 500 companies; and 17 percent of the Dow Jones Industrials companies.” There are several factors that could affect whether or not a forest would be part of the market. These factors include “forest type, site productivity, timber prices, transaction costs, and the type of project undertaken.”

David Miller, chief science officer for the AgraGate Climate Credits Corporation believes that carbon prices must be $4 per metric ton at a minimum for carbon credits to be viable. Additionally, understanding the rules of the market, whatever they may be in their final form, is essential to the market’s success. Brandon writes that Emily Schultz, an associate professor with the Forestry Department at Mississippi State University believes a “tree biomass and carbon estimation system (carbon calculator)” could provide those interested in participating in the market with the information needed to make an informed decision based on a cost/benefit analysis.

Until a final product emerges from Congress, it will be tough to estimate with complete accuracy what types of forests, what types of species, and what types of planting and forestry techniques will give those participating in the market the most value.

To read the Brandon article click here.

Posted: 09/09/09