Why Buy Carbon Credits?

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    Where Profits & Ethics Unite

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    Global Warming means that too many Green House Gases (GHGs) arecontinuously being released into the Earths atmosphere, trapping heat andincreasing the Earths temperature. It is generally believed that this hasbeen caused largely by human activity over many years since the start ofthe Industrial Revolution with the result of witnessed and recorded meltingice caps, rising sea levels and extreme weather patterns, etc.

    A carbon credit is the financial instrument that represents 1 metric ton ofGHG that has been reduced, stored or avoided. This can be achieved byany organisation that has produced the technology to attain thissequestration (a wind farm for example) and that is recognised andrecorded by credible sources as having done so.

    The ultimate goal of purchasing carbon credits is to offset emissions byretiring the credits so that they can never be purchased or sold again andthat the emissions they represent are removed forever.

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    Emissions trading, which is also called cap and trade, has evolved as a means ofreducing the amount of GHGs released into the Earths atmosphere utilizing a marketbased approach. Since many countries now have their own emission reductiontargets to achieve, caps have been placed on industries on the amount of pollutionthey are allowed to release. If they produce more than permitted they will either haveto reduce their emissions themselves, which may involve considerable expenseinvesting in technology and machinery to achieve this, or they will have to purchasecarbon credits to offset their emissions from a verified source in order to comply.

    When petrol prices increased significantly in the US, so did sales of hybrid greenenergy saving cars like the Toyota Prius. When petrol prices came down again so didthe sales of the hybrid cars.

    The fact is that people are more interested in saving money than saving the planet sointroducing financial incentives is perceived to be the most effective way forward byboth governments and the private sector alike.

    To truly transform our economy, protect our security and save our planet fromthe ravages of climate change, we need to ultimately make clean, renewableenergy the profitable kind of energy. President Barack Obama

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    This historic meeting in 1997 attended by 160 nations in Kyoto, Japan, was thebaseline to establish a way of cutting GHGs on a global scale.

    Many nations had targets set to reduce their emissions with the onus ondeveloped countries who were deemed to be principally responsible forreleasing the most pollution to date.

    The largest carbon emissions market is currently the European UnionEmissions Trading Scheme (EU ETS) created in 2005 in compliance with Kyoto.

    Although not yet ratified by America, President Obama has pledged that the USwill reduce its emissions by 20% lower than 2005 levels by 2020 and 83%lower by 2050. Many experts believed that a similar cap & trade market toEurope will have to be implemented to help achieve this and is expected to

    happen within the next 2-5 years although it has continually been voted out untilnow. Currently, California is leading the way with their cap and trade systemand other states are also looking at ways to effectively reduce emissions so theexpectation is it will happen on a more fragmented state by state basis ratherthan a blanket federal law.

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    There are basically 2 types VERs & CERs

    A CER stands for Certified Emission Reduction and is a certificate issued bythe Clean Development Mechanism (CDM) as part of the Kyoto Protocol.Each certificate represents 1 metric ton of GHG that a project in a developingcountry has reduced, stored or avoided, enabling a developed country topurchase in order for them to comply with their own capped targets in line withKyoto.

    A VER is a Voluntary Emission Reduction, the concept the same as above, butoutside the Kyoto Protocol regime. However, these projects have beenassessed and validated by objective third parties and placed on publicregistries. Although currently smaller than the CER market, the growth by theprivate sector is already mushrooming with expectations within the industrythat it could even overtake the compliance market, especially with theincreasing corporate social responsibility being demonstrated by non

    compliant businesses around the world. With Australia recently announcingthe introduction of their own cap and trade programme which will be phased innext year, the expectation is that they may well continue to buy VERs of VCSand Gold standard in addition to CERs as they already do under their NCOSscheme that is currently in place.

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    Additionality:This means that the credit must represent a true reduction emission over and above thenormal business as usual scenario.

    Sustainability:

    The 2 objectives in the compliance market are to reduce the emissions and contribute tosustainability and the voluntary market, driven by buyers who are concerned with price andquality, are often even more sensitive to the additional benefits that may result from aproject.

    Verifiability:

    An independent, objective third party must verify the project to confirm it has genuinelyreduced emissions. These are usually carried out by various large, internationalorganisations accredited to the UNFCC or professional, often globally recognised,accounting / auditing and consulting firms.

    Reliability:

    This is a key area of concern for anyone purchasing a VER in order to make sure that it hasnot been double sold. Therefore it should be officially registered on one of therecognised, central public registries.

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    New York Times:

    Carbon Trading is one of the fastest growing specialities in Financial Services.

    Louis Redshaw, Barclays Capital:

    Carbon will be the worlds biggest commodity market & it could become the worlds biggestmarket overall

    CFCT Commissioner:

    Carbon trading may dwarf that of crude oil within 5 years, worth 2 trillion

    President Barack Obama:

    There is no better potential driver that pervades all aspects of our economy than a new energyeconomy... Thats going to be my No. 1 priority when I get into office

    Fortune:

    JPMorgan isn't alone. All the big global investment banks including Barclays, Citigroup,

    Goldman Sachs and Merrill Lynch are hurrying into carbon finance

    Chris Leeds, Head of Emissions Trading, Merrill Lynch, London

    Carbon could become one of the fastest growing markets ever, with volumes comparable tocredit derivatives inside of a decade

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    Whilst all eyes are still on the US to join the rest of the world in developing methods

    to reduce their enormous emissions, particularly with the additional pressure ofcountries like China announcing the launch of their own carbon trading market soon,it has already shown to be the case that with the uncertainty over the extension ofKyoto in its present form and no cap and trade on the horizon in the US yet, thevoluntary market has surged forward with significantly higher growth than thecompliance market with organisations and individuals around the world clearlydemonstrating that they care about the environment and are offsetting theiremissions through the purchase of VERs. For investors wishing to participate in this

    exciting new market and gain the best returns, investing early while demand is stillincreasing with the anticipation of a shortage of credits in the coming years meansthat they will be well positioned to profit whilst doing something worthwhile.

    With voluntary credits trading relatively low at present we believe that those with theforesight to enter now have the potential to earn very good returns within the nextfew years. Corporate Social Responsibility is a growing trend that will help to drivethis forward.

    The Voluntary Carbon Market is a great starting point due to low cost entry andrecognised and identifiable carbon standards, true and transparent verifications bycredible third party organisations and official public registries and exchanges.

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    In the compliance market, companies, governments and other entities purchase carbonoffsets to comply with regulation.

    In the voluntary market, individuals, companies and governments buy offsets to mitigatetheir emissions from transport, electricity consumption, etc.

    Companies often purchase carbon credits for corporate branding and to raise their profile. Itis increasingly popular for businesses to advertise themselves as carbon friendly / neutral ordisplay the types of projects they have invested in to assist global warming issues, improvebio diversity and help local communities in developing countries. Even major artists and rockbands buy carbon credits to offset their emissions when touring.

    The other reason for the private investor is the pre-compliance buy or those buying inanticipation of regulation which is expected to happen around the world.

    The world population is increasing at an alarming rate and is expected to reach 9 billion by2050 and has quadrupled already in the last century alone.

    3% annual global growth rate will result in the doubling of consumption & production of food

    and other commodities within the next