Carbon Credits Investment Management

What is the international emissions trade?

The international emissions trade is a marketing tool to buy and sell greenhouse gas emissions. The target is to distribute costs between companies and countries that make investments to reduce their emissions, and therefore have fewer emissions according to their commitment to the Kyoto Protocol, and others whose emissions have raised more according to their quota. Doing this, companies can sell left over rights to those countries who are short of them.

What sort of transactions occurs in the carbon market?

Transactions that occur in the carbon market are grouped into two big categories; transactions based on rights like assigned amount units (AAU) in the Kyoto Protocol and emission unit allowances from the European Union (EUA) under the european system or EU ETS. The other major category gather emissions from "the Kyoto mechanisms" projects, in which certified emission reductions are verified, compared to the existing categories: CDM projects (CER) and JI projects (ERU).

How can the buying and selling of carbon credits be formalized?

There are several ways to formalize the buying and selling of CERs and EURs. This category of transactions has two major subgroups: primary market and secondary market. The primary market, or origination, brings together operations between project promoters and companies buying emissions rights before they are released and verified by The United Nations, through bilateral contracts between buying companies (polluters in need of credits) and sellers (project promoters), the so-called ERPAs (emission reduction purchase agreement).

What are carbon funds?

In the case of contracts between companies or ERPAs, you can buy emission rights through carbon funds. In these funds, a promoter negotiates a portfolio of CDM projects and / or JI projects and the emission credits obtained go straight to the fund . The promoter formalises the contracts with each one of the companies promoting CDM projects or JI projects. Participants of the funds are committed to buy them according to their participation quota. Participants can be governments or private sector companies that either buy them for their own use or sell them on the secondary market.
There are carbon funds promoted by institutions such as the World Bank, manage by the Spanish Carbon Fund or the BioCarbon Fund, or the European Investment Bank with the Multilateral Carbon Fund. Other funds are promoted by private entities such as the Fund for Spanish companies manage by Banco Santander and ICO.

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