Australia is the latest country to get into this potentially rewarding asset class in which to invest but the fluctuation in price of carbon credits suggests a cautious approach
Energy suppliers are getting the message that they will no longer enjoy a free pass to pollute the atmosphere as a regulatory trend to put a price on the emission of carbon dioxide gathers momentum around the world. Markets are being left to establish what those prices should be so investors have a new and potentially rewarding asset class in which to invest. But the roller-coaster ride taken by the price of carbon credits traded since 2005 under the European Union Emissions Trading Scheme (ETS) suggests they should proceed with extreme caution.
The latest country planning to join the club of carbon trading nations in Europe is Australia, which aims to have an emissions trading system in place within two years. By the time it is up and running in 2010, notes financial consultancy Ernst & Young, the new market will have yielded a number of investment opportunities.
'With the scheme commencing in 2010, we expect a range of new products and services to emerge in the next few years,' says Ernst & Young in a report on the proposed scheme.
Also on the cards, it predicts, is the emergence of derivative investment products based on the carbon trading permits that will be required by polluters. Australia's largest energy provider, Australian Gas Light (AGL), has already created such a derivative instrument. It did so by taking a punt on what price the market might place on an 'Australian emissions unit' that forms the cornerstone of the proposed trading system and will be equivalent to one tonne of C02e or carbon dioxide emissions.
Just weeks after the government signalled its firm intention to push ahead with an emissions trading scheme by releasing a detailed timetable on March 17, AGL announced that its operating arm AGL Hydro Partnership had sold 10,000 tonnes of AETUs at a price of A$19 (HK$128) per tonne for settlement on February1, 2012.
