Global Climate Fund: Energy Alternatives: Trading Pollution

What are all those carbon credits, offsets, and things?

There has been carbon trading for years: I'll give you a ducat for that coal, a riyal for that oil, a pew for that tree. This is commodity trading.

What is new is trading various derivatives related to the carbon in a fuel, the carbon dioxide emitted by a process, the production of renewable energy, or the sequestration or reduction of CO₂ output.

In case you have been as confused as I have by all the permutations, here is a breakdown:

Emissions Trading	Carbon Credit	Renewable Energy Certificate	Carbon Offset	Carbon Tax
"Cap and Trade" -- tradable right to exceed government-set quota	Tradable permit to emit CO₂ issued by a seller who is reducing CO₂ emission.	"Green Tag" -- tradable evidence that electricity was produced by approved renewable sources	Tradable assurance that someone else has reduced CO₂ emissions by a certain amount	A tax paid to government based on carbon content of fuel
Transfers wealth from greater polluters to lesser polluters in a regulated system of allowances	Transfers wealth from carbon emitter to carbon emissions reducer or mitigator.	Transfers wealth from electricity consumer buying from the grid to generator using renewable technology selling to the grid elsewhere.	Transfers wealth from a CO₂ emitter to owner of a project that reduces CO₂ emissions. Project may sequester carbon, or produce energy by less carbon intensive means, or prevent the emission of carbon as from change in land use.	Transfers wealth from users of fuel to the government.
Right to emit a given quantity of pollutant above allowance	Right to emit one tonne of CO₂	Essentially a premium paid above standard rates for production of electricity by renewable sources. Makes production by renewable means more profitable.	Gives you the right to feel OK even though you are emitting CO₂. May provide additional revenue to emission-reducing project.	Puts a cost on the negative externalities associated with using CO₂-emitting fuel. Makes reducing such use more economically attractive.

Any Questions?

These posts are thoughts that have occurred to us here at GCF Associates and Global Climate Fund. Feel free to contact us if you have any questions or ideas for future posts.