Carbon Trading

U.S. companies are exploring ways to profit from trading credits to emit carbon, as the prospect of mandatory greenhouse gas regulation draws nearer. A growing number of firms are positioning themselves ahead of expected federal and state carbon caps by developing internal accounting for emissions and trading strategies for carbon allowances.

The emerging carbon market offers opportunities for companies to generate credits through emissions-reducing projects, then sell those credits to firms that need to offset their own emissions. Financial institutions, energy companies, and industrial firms are among those building carbon trading desks and carbon-management practices.

Much of the early activity centers on voluntary markets and the Chicago Climate Exchange, where companies trade carbon credits without a federal mandate. However, state-level initiatives, including the Regional Greenhouse Gas Initiative in the Northeast and California’s planned cap-and-trade program, are creating regulated markets that could expand significantly in the coming years.

Analysts note that the value of carbon credits depends heavily on the design of any future cap-and-trade system, including the stringency of emissions caps, the allocation of allowances, and the availability of offsets from emissions-reduction projects. Companies that understand these dynamics early stand to gain a competitive advantage as carbon becomes a priced commodity.