Financial investors are calling for greenhouse gas emission regulations to provide them some security as California, the western states, and federal government develop climate change protection provisions. The development of carbon markets is said to be inhibited by uncertainty related to the lack of a firm carbon price but more so by the lack of protective ground rules to help attract investors into carbon emission trading markets. Rules are expected, for example, to keep carbon prices from getting too volatile. “Once regulations come in, this market will explode,” said Brian Prusnek, Climate Change Capital vice president, and former energy advisor to Governor Arnold Schwarzenegger. Under California’s climate change protection law, AB 32, regulations are to be in place in 2012. It is unclear what kind of carbon framework will come from Washington D.C. A bill authored by Senators John Warner (R-VA) and Joe Lieberman (I-CT) is expected to be the vehicle for a federal carbon cap-and-trade system Carbon reduction requirements being set under AB 32, and the established emissions reduction market in Europe are driving the trading market, according to speakers at a February 25-26 Carbon Forum held in San Francisco. “Supply and demand depend entirely on public policy,” said Mark Trexler, managing director of Ecosecurities. Conference participants also discussed linking the various emissions trading markets. Linking a western U.S. and/or federal market with European and other international trading regimes is seen as a way to reduce the cost of carbon reductions. Money is expected to flow from countries that have set emissions caps to countries offering lower cost carbon reduction projects. The drawback of linked carbon emissions trading markets is a government’s reduced control over its cap-and-trade system. “Foreign government decisions affect costs and operations,” said Judson Jaffe, Analysis Group vice president. Market linkages will only succeed if countries with trading systems have comparable carbon offsets that can be verified. In addition, participants of different trading systems must trust each other and allow outsiders a peak into how their system is developed and functions. Advocates of emission trading schemes promote them as an essential strategy for mitigating global warming and making money or, “delivering a public good and creating wealth worth having,” according to James Cameron, Climate Change Capital vice chair. “If emissions reductions [projects] in China are faster and lower cost, it delivers benefit to California,” he added. “There is no gain to being a laggard.”
