What is the Carbon Market and can individuals invest in it?
Lately, many of you concerned about responsible investment have been writing in to ask us whether or not individuals can invest in the Quebec carbon market. Meanwhile, as you no doubt know, the United Nation conference on climate change (COP 21) begins this week in Paris and will last until December 11. For these reasons, Ethiquette has asked Bertrand Fouss, Director of Strategy and Innovation at Coop Carbone to explain how the carbon market works and what it has to offer individual investors.
Quebec’s cap-and-trade system for greenhouse gas emission allowances, commonly known as the carbon market, has been operating since January 1st, 2013 and working at full capacity since the beginning of 2015. In this system, the government forces certain businesses to obtain what are called emission allowances, or permits, for each metric ton of CO2 emitted. The targets are primarily industrial companies that produce heavy emissions (such as cement factories and refineries) and fossil fuel distributors.
Emission allowances are created exclusively by the government and issued to market entities in various ways, most notably by auction. All auction proceeds go to the Quebec Green Fund and are fully earmarked to finance initiatives that aim to reduce emissions or adapt to climate changes. Once on the market, emission allowances can be traded indefinitely as a commodity, thereby creating a “carbon market.”
Each year, the government reduces the number of permits in circulation, driving up prices and providing an incentive for businesses to improve their energy efficiency. It is worth noting that the Quebec market is linked to California’s and soon, Ontario’s.
In its present form, the carbon market leaves very little room for smaller players. Here are a few thoughts on the subject:
Certain businesses can issue and resell emission allowances themselves provided they reduce their own greenhouse gas emissions according to government-set protocols. These permits are called offset or carbon credits. However, only a limited number of industries are eligible (agriculture, forestry, waste management) and the current market is challenging.
Any individual or small business can sign up to take part in the carbon market, even when there is no regulatory obligation for them to do so, and trade emission allowances the way all commodities are traded, in the hopes of making gains when market values increase. However, such activity remains negligible owing to a stable, illiquid market and insufficient speculation.
The carbon market associates a cost to practically all greenhouse gas emissions in Quebec. Added to the resources this initiative allocates to the Quebec Green Fund, that cost will, in time, stimulate changes in technologies and behaviors, creating business opportunities for enterprises that hasten the shift toward a low carbon economy. The Coop Carbone’s mandate is to bring these businesses together to help them benefit from just such opportunities.
The Coop Carbone is a cooperative of businesses spearheaded by Fondaction CSN, the Mouvement Desjardins, the Coop fédérée, the AQME and C3E. Its mission is to promote the implementation of projects that reduce greenhouse gas emissions in Quebec, while maximizing gains for the collectivity. In addition to being active in the carbon market, the Coop Carbone develops collaborative projects, especially with the food industry and with municipalities. Bertrand Fouss is Director of Strategy and Business Development at Coop Carbone and as such is responsible for developing projects in Quebec.