The United Nations recently reported that the Clean Development Mechanism is close to collapse, clearly a worry for any investors who have already invested their hard earned money into speculating on the price of carbon credits rising.
London, UK (PRWEB UK) 29 October 2012
Investors’ portal iNVEZZ has published an analysis by Tsveta Zikolova on carbon credits as an ‘investment’ commodity. With investing in carbon credits having been heavily marketed over the past couple of years, mainly by unregulated companies with dubious high-pressure sales tactics the analysis explains what carbon credits are and why the author does not believe that they should be considered as an ‘investment product’ by the average investor.
Zikolova provides a general background of carbon credits as a commodity, pointing out that many people struggle to understand how the commodity and carbon offsetting system function despite the fact that they have been around for a number of years now. The analysis details the structure of the UN’s Clean Development Mechanism which was devised to commodify the polluting greenhouse gases causing global warming by making companies pay for all emissions above a certain quota. Emissions are represented by the fungible commodity of carbon credits and traded on global exchanges. Zikolova highlights the significant amounts of money and effort by the international community which have been put into establishing greenhouse gases as a tradable commodity.
The iNVEZZ piece details how brokers quickly jumped on this new commodity and over the past couple of years have been offering carbon credits to investors with the sales pitch that the tradable price of the credits is likely to rise significantly as the market develops. However, the United Nations recently reported that the Clean Development Mechanism is close to collapse, clearly a worry for any investors who have already invested their hard earned money into speculating on the price of carbon credits rising.
Having explained both the UN backed compliance market for carbon credits, as well as voluntary carbon credits, Zikolova presents the reasons why, in her opinion, carbon credits should be steered clear of as an investment product. The doubt over the viable future of the commodity is a primary concern. However, the piece highlights a number of other concerns that potential investors should be aware of. The lack of any clear ‘exit strategy’ is covered with a clear market or platform for small numbers of carbon credits to be bought or sold conspicuously absent at the present time. Another flaw in the approach of investors thinking they can ‘sit on’ carbon credits until the market develops and prices rise is that even if this were to eventuate, carbon credits drop significantly in value as they get older with fresher ‘vintages’ generally preferred by buyers.
Zikolova warns that many of these weaknesses are not transparently represented by marketers of carbon credits who are usually unregulated and often misrepresent the true risks associated with any investment in carbon credits.
The analysis concludes with the assertion that for the author there are just too many ifs regarding the future of carbon credits as a commodity. Combined with the lack of any established exit mechanism for owners of small volumes of carbon credits as well as a number of other weaknesses, Zikolova fears that any investment in carbon credits would be highly risky and speculative. As a result she does not believe that they can or should be considered as an investment vehicle for the vast majority of investors.
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