Carbon trading is the name of the game this week, what with the Copenhagen Climate Change Conference taking place on Monday. As governments scramble to create emission deadlines they can agree on, banks are also scrambling -- to get a piece of the carbon trading action.
Analysts estimate the potential size of the U.S. cap-and-trade market to be anywhere from $300 billion to $2 trillion. With such large numbers at stake, banks can't afford to miss out.
JPMorgan, which purchased ClimateCare in 2008, paid $210 million this month for Eco-Securities Group Plc, the biggest developer of projects used to generate credits offsetting government-regulated carbon emissions, according to Bloomberg. JPMorgan and other financial institutions will create derivatives contracts for clients to hedge their price risk. In addition, they'll sell carbon-related products to outside investors.
Still, carbon trading itself hasn't taken off yet -- Goldman Sachs only has about ten carbon traders, for example. Because offsetting carbon emissions is a risky -- and politically uncertain -- enterprise, biding time is a smart way to ensure clients are completely cared for. Still, Ken Newcombe, one of the world's first carbon traders, says getting banks involved is the only way countries can achieve their environmental and geopolitical goals.
"The ultimate objective is economic efficiency," he told Bloomberg. "How can we reduce the cost of implementing important public policy? Having a pool of risk capital is absolutely vital to the smooth introduction of a cap-and-trade regime in the U.S."
And that means an army of finance pros
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