Decarbon Daily - Emission Trading & Carbon Investments

I'm working on a deep-dive into the carbon trading markets. If you know anyone starting a carbon trading desk, I'd be grateful for an introduction. I expect the final essay/report to be published December 1st. Below is a short introduction to the topic. Thanks! ~Todd

Overview of Emission Trading Systems (ETS)

ETS provides for carbon pricing, an important tool to promote clean energy transitions. By imputing a societal cost of GHG, carbon pricing can incentivize productive investments in low carbon technological innovations, facilitate multilateral cooperation and create healthy synergies between energy and appropriate climate policies.

ETS is a financial way to internalize environmental benefits when investing in sustainable energy infrastructure. With the capping of emission levels, ETS offers an attractive revenue proposition through fluctuations in carbon prices which aids capital investment for reduced emissions.

Emission trading, also known as ‘cap and trade’ (CAT), is a cost-effective way of reducing GHG. To incentivize firms to reduce their emissions, caps on the maximum level of emissions and creation of permits or allowances are set by the government.

Policy makers set the caps. There are many ways to set the caps. Most common way is based on absolute emission reductions target (mass-based) or relative to output (intensity-based) specific to industry. A firm is restricted to the level of capped emissions. Emitting firm must obtain and surrender a permit for each unit of its emissions. It can obtain permits from the government or through trading with other firms. The government may also choose to give the permits away for free or to auction them.

The permits are tradeable. When a firm has exhausted its permits by exceeding their cap, it either cuts back on its emissions or buys permits from another firm at the prevailing market permit price. Sometimes, it may be cheaper to reduce emissions than buying permits due to higher price of permits. When supply of permits exceeds demand, the price of permits will fall and vice versa.

The upcoming introduction to emissions trading systems will be available the week of December 1st.

Inside this Issue

💰 Cash-Infused Carbon Capture Office Expands DOE’s Climate Mission
☁️ Carbon Clean Launches Modular CO₂ Capture System
⚡️ CO2-Free Natural Gas? CCS Project Powers Grid for First Time
🚀 Interest Surges Around Carbon Capture and Hydrogen in Canada