Carbon Investments

Carbon investments, investment in carbon credits and investment or trading in the carbon market are beginning to become buzz-words in investment circles. Particularly over the past year both institutional and private investors have been gathering information and beginning to dabble in carbon investments.
Some of the larger investment banks such as JP Morgan, Morgan Stanley, Goldman Sachs and Barclays Capital, have already established carbon trading departments and made carbon investments. However, there is still a degree of confusion over carbon investments by many investors, which we will try to clarify here.

What are Carbon Credits?

In a nutshell, a carbon credit is the financial instrument, which represents one metric ton of carbon pollution, and carbon trading is a system which was initiated by the Kyoto Protocol of 1997.
In order to preserve a high probability of keeping global temperature increase be¬low 2 degrees centigrade, current climate science suggests that atmospheric CO2 concentrations need to peak below 450ppm. We are currently at 395ppm and rising faster than at any time in the past 400,000 years, at a rate of 2ppm each year." This requires global emissions to peak in the next decade and decline to roughly 80% below 1990 levels by the year 2050 (Baer and Mastrandrea, 2006).
What changes hands in carbon trading is the right for industries to emit a certain volume of Co2, putting a price and cap on such emissions.