Shocker: CO2 Market to be Worth $3.1 Trillion by 2020

Posted by: Andy Reinhardt on May 22

The following is a guest blog entry by London-based correspondent Mark Scott.

Anyone who thinks there’s no money to be made from reducing carbon dioxide emissions should remember just one number: $3.1 trillion. That’s the estimated annual worth of the world’s carbon markets by 2020, according to Norwegian-based consultancy Point Carbon.

How did they reach that figure? The analysts assumed the U.S. would implement a cap-and-trade scheme that mirrors one already working in Europe, and that industries such as aviation and shipping also would be included in these market-based attempts to reduce greenhouse gases. With everything totaled, Point Carbon forecasts 38 billion tonnes of CO2—the standard measurement used to trade carbon dioxide—to reach the market by 2020 at a cost of $78.5 per tonne.

The most surprising prediction, though, is where these emissions will be traded.

While the U.S. so far has lagged behind Europe in embracing climate change, America is expected to play host to two-thirds of all CO2 trades, valued at $1.96 trillion, by the end of the next decade. That's a major U-turn from how things stand now, given the U.S. has been widely criticized for its sluggish response to the Kyoto Treaty.

The fact that America soon will play a major role in carbon trading shouldn’t come as a surprise. Indeed, the U.S. has a long history of embracing market-based mechanisms to combat environmental problems (the response in the 1980s to acid rain comes to mind). That's a far cry from the top-down approach favored by Europeans.

The European Union, for example, has dictated policy for the continent's emission trading scheme through regulation, such as country-wide CO2 quotas, not free-market instruments like open auctions for carbon credits. Companies have long decried this approach. They say it doesn't provide the necessary long-term stability needed to make the multibillion dollar investments linked to CO2 reductions.

Slowly that’s changing, although Europe will soon lose its lead in the carbon markets when--not if--the U.S. gets its act together. Some form of cap-and-trade scheme is expected soon after the November elections. No wonder, then, that so many firms are clamoring to get a piece of this soon-to-be $3.1 trillion market.