Monday, July 14, 2008

ASX preparing to trade carbon

Greed is good, but green greed is best.

The ASX has their eyes on their share of the $46.5 trillion investment market that the International Energy Agency says is required to reduce the world's CO2 emissions by 50 percent by 2030, 21.5 years away.

Robert Elstone | July 14, 2008

AS record high prices for coal, gas and oil - together with speculation as to the impact of the forthcoming emissions trading scheme on the Australian economy - dominate the headlines, the existing infrastructure of the Australian Securities Exchange remains a conduit to help firms raise and allocate capital as well as manage the risks associated with fluctuating energy and environmental product prices.

The International Energy Agency estimates that a $US45 trillion ($46.5 trillion) investment would be required to reduce the world's carbon dioxide emissions by 50 per cent by the year 2030.

Domestically, the National Generators Forum estimates that $150 billion is required to meet a 60 per cent reduction on year 2000 emissions by 2050.

While these estimates appear staggering, a well-designed ETS will generate an acceptable rate of return on the investment required. In other words, superannuants and other investors will be beneficiaries of the transformation process.

To put in context what needs to be achieved over the 42 years until 2050, one only has to look back over the same duration since 1966 to see how far that investment in new technologies and the sophistication of financial markets have advanced.

In 1966, we did not have personal computers or futures contracts on financial instruments such as equity indices and interest rate securities, let alone active derivative markets for compliance instruments such as emission permits and renewable energy certificates.

This is good news for prescient Australian companies who are already trading overseas, like AGL trading abatements on the Chicago Climate Exchange.

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