UPDATE: related story shows what can happen when emissions trading doesn’t have proper checks and balances – Carbon trading tempts firms to make greenhouse gas
California hasn’t learned from the failure of the Chicago Climate Exchange this year, when a ton of Carbon traded for a mere 5 cents. Nobody wanted to buy it even at that ridiculously low price. But, like a zombie, carbon trading rises again in brain dead broken California.
Now the the AB32 madness begins, and PCarbX (which sounds like some over the counter antacid remedy) is the new trading scheme. I give it two years, max. Here’s the story from the San Francisco Chronicle.
California poised to enter carbon-trading market
Andrew S. Ross
Today could be seen as the biggest day yet for California’s climate change law, assuming, as expected, the state Air Resources Board signs off on the rules to implement it.
It will also be a big day for Aaron Singer, CEO of San Francisco startup Pacific Carbon Exchange, (at left) which is engaging in an enterprise thought dead in the water not so long ago: carbon trading.
“It’s the official starting gun for California and for Western regional carbon markets,” Singer said. “It means we get to make this business a growing reality.”
Central to the law, which goes into effect in 2012, is a “cap and trade” system designed to limit the amount of carbon from the state’s 500 largest emitters – mostly power plants, energy companies and heavy industry.
Companies emitting less than their state-mandated limit can trade their unused allowance – also known as carbon credits, or offsets – with companies that may be seeking to emit more than their mandated share.
“This is a significant milestone,” said Josh Margolis, CEO of Cantor CO2e, a San Francisco offshoot of New York’s Cantor Fitzgerald, referring to the board’s expected action. “In the trading world, it’s been a decadelong anticipation.”
With the Bay Area Council serving as the firm’s incubator, Singer has been working on its trading infrastructure for the past two years and is in the process of obtaining the certifications and accreditations from the U.S. Commodity and Futures Exchange Commission.
In the meantime, PCarbX, as it is known, plans to begin some futures and options trading next year, pending a full rollout when the bell officially rings in January 2012.
In September, it also signed a memorandum of understanding with the Shanghai Environment and Energy Exchange to explore the establishment of more carbon markets in the United States and China.
Other entrants: PCarbX is not alone. In addition to Cantor CO2e, others in the “environmental commodity” business who are reported to be coming to California include the global Intercontinental Exchange and the Green Exchange, both with U.S. headquarters in New York. “We expect healthy competition,” Singer said.
“As a San Francisco-based entity with ties to policymakers, they’re in a unique position,” said Adam Raphaely, director of environmental markets at Karbone, an environmental commodity brokerage and project finance company in New York. “We see a potential relationship there.”
Neither is California alone, even though Congress and the Obama administration gave up on a national cap-and-trade policy this year.
The Western Climate Initiative, a cap-and-trade program, which includes several Western states and Canadian provinces, is due to go into effect – also in 2012.
Still, for all the anticipation, carbon trading here is likely to start small, especially as the Air Resources Board is initially giving emission allowances away for free, rather than the $10 minimum per ton the agency had proposed in its rules. And companies don’t necessarily have to trade through exchanges.
“You won’t see a big bang, but, rather, a buildup in intensity,” said Margolis, who has estimated the market could be worth anywhere from $3 billion to $58 billion by 2020 – the target year for California’s emissions to be lowered.
“This is much more than simply a business opportunity,” Singer said. “We’re here to serve the aims of AB32 and help the next generation of clean tech investment for our state.”