The new carbon economy

While teething problems remain in building an interconnected world carbon market, trading in carbon credits is still a big market, worth more than US$130 billion globally, according to the World Bank.

The European Union’s six-year-old emissions trading scheme is the most advanced in the global economy. As such, its performance should set an example for other economies to follow.

Trouble is, says Giles Drury, London-based KPMG International senior manager, the price of carbon is too low to stimulate the investment needed for low-carbon technology.

Under the EU scheme, industries receive carbon credit allocations specifying a specific amount of emissions. Exceed the allocation and you have to buy credits on the market. Go below and you can sell the surplus.

It was supposed to limit the total number of carbon credits, driving up the price of carbon to the point where investment to reduce emissions becomes economic.

Early mistakes – allocating more credits than there were emissions, for example – have been corrected.

However price volatility and the global financial crisis, which drove sector emissions down by suppressing activity, continues to deliver challenges to this growth industry.

 The New Carbon Reality

Multinational companies such as Nestle, L’Oreal and the major oil companies are well advanced in reconfiguring their businesses to the new carbon reality, while major airlines such as British Airways and Emirates and retail giant Wal-Mart are taking active steps to either assess their carbon liability or reduce it.

After carbon credits, certification services will be the biggest sector for growth and is currently estimated to be worth US$200 million.

A leading certification company is New Zealand organisation, CarboNZero, recognised by 50 economies, including the US, Canada, the UK and the European Union, says Mike Tournier, business manager at the strategic business unit owned by Landcare Research.

The EU, comprising 26 countries, counts as one economy, he notes.

CarboNZero has global reach and gives Tournier a unique perspective of the carbon economy.

“It’s a very narrow slice,” he says of the certification sector, “but we’re the world’s best at it.”

There are companies who have used CarboNZero’s programme who report that “for every $1 spent in this area, they’ve got $15 back,” he says.