ESG | The Report

Energy Traders Turn to Carbon Trading Markets

To summarize the article, it discusses how carbon trading is becoming a more popular way to offset emissions, with BP and Shell being two of the biggest players in the market. It also mentions that there are some challenges with cross-border carbon trading, including a lack of regulations and difficulties defining what qualifies as a high-quality carbon credit. However, there is hope that these issues will be addressed at the upcoming United Nations climate conference.

Some sticking points include:

-Concern about double counting of carbon offsets

-How to account for compliance markets and voluntary markets

-How to treat carbon credits issued historically

-Cross-border trade between Switzerland and the EU and between Quebec and California.

But in conclusion, the future of the market looks promising. Stay tuned as the markets continue to evolve at an exponential pace. North America will need to move fast to catch up to the EU carbon markets.

LONDON—Big energy trading houses, long focused on deep, volatile markets such as oil and natural gas, are now bulking up their carbon-trading operations as governments around the world push to expand the market for trading carbon emissions. Two of the world’s biggest oil companies, Royal Dutch Shell PLC and BP BP 1.01% PLC, already have significant carbon-emissions trading arms, thanks to a relatively well-developed carbon market in Europe. Big carbon emitters such as steel producers receive emission allowances, and can buy more to stay under European emissions guidelines. Companies that fall below those limits can sell their excess carbon-emissions allowances. The carbon market is small compared with the world’s multitrillion-dollar oil markets and to other heavily traded energy markets, such as natural gas or electricity. But growth potential exists, the industry says. Wood Mackenzie, an energy consulting firm, estimates a global carbon market could be worth $22 trillion by 2050. Carbon makes up about 5% to 10% of BP’s trading activities and has contributed between $50 million and $100 million to trading profits annually for the past two years, according to the people familiar with the operation. BP’s overall annual trading profits were between $3.5 billion and $4 billion during the past two years, according to a person familiar with the matter. Among the challenges: There is no rulebook to enable cross-border trading. There are voluntary efforts where carbon offsets are earned through endeavors that reduce or sequester greenhouse gases, such as planting trees to address emissions that are hard to eliminate. But these efforts are often outside of regulated markets. “There is huge interest in participating in carbon markets from banks, but they are extremely concerned about the reputational risk,” said Chris Leeds, head of carbon-markets development at Standard Chartered STAN 0.40% PLC, which is building up its own carbon-trading business. The Wall Street Journal is a high-circulation, English-language international daily newspaper based in New York City that reports on finance and the economy. The Journal, as well as its Asian editions, is published six days a week by Dow Jones & Company, which is owned by News Corp.

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