There are quite a few green business opportunities on offer. One of them is carbon credits. So let’s look at what carbon credits are, and whether you can make money from them.
A Simple Guide To Trading Carbon Credits
Carbon credits are an instrument that has been created as a result of the United Nations Framework Convention On Climate Change. Many governments around the world have committed to slash emissions of greenhouse gases. To achieve this, many have agreed to a cap on the amount of carbon their industry, domestic users and so on will emit in any one year.
So that this system can operate, markets for trading carbon have emerged. Essentially this means that those who are producing more carbon than they should be can buy credits from those who have credits to spare, or who are operating schemes which claim to remove carbon from the environment.
So in other words carbon has become a commodity in much the same way as oil, rubber or iron. As a result it is supposed to offer a way to make money in just the same as with any other commodity – by buying carbon credits now and, hopefully, selling them for more if the market rises.
As a result lots of investment schemes have been put up to allow investors to buy into the carbon market. These are usually one of two very distinct types: Actual carbon credits or voluntary emission reductions (VERs) as they are usually known. Or investments in green schemes, often land or forestry, that qualify for carbon credits.
On the face of it, it seems a clear cut moneymaking opportunity for those willing to play the carbon market just like, say, the stock market. But what are possible snags?
Firstly, there are no properly established markets for selling VERs yet – nor the investments that are supposed to generate them. So even if your credits do rise in value (and just like any commodity market they could just as easily fall) there’s no guarantee that you will be able to realise that value easily.
Secondly, carbon credits aren’t limited in quantity like other commodities such as gold or oil. There’s scope for many more to be ‘made’. And in fact lots and lots of schemes are setting up to do this.
Thirdly, there have been claims of mis-selling. Unlike many other investments these schemes aren’t regulated by the Financial Services Authority (FSA) and official financial services compensation schemes. Many of them are located abroad.
So can you make money from carbon credits? I wouldn’t want to write this opportunity off completely. Green issues and the environment are going to become bigger news in future – and the issue of carbon trading isn’t going to go away anytime soon. So it’s probably an area of investment potential well worth keeping an eye on. But by their very definition carbon credits trading is going to be highly speculative in nature. Which means it is probably one for the investor who is able to fully understand and monitor the market and accept a highish level of risk.