REC markets are both regional and national. The regional markets are a result of regulations, typically at the state level, which create renewable energy portfolio standards (RPS) and use tradable RECs as a market mechanism to allow a more efficient means for power suppliers to meet regulatory requirements. Project developers/suppliers can sell RECs as a monetization of their commitment to create or sell energy from renewable sources. Each REC is roughly equivalent to one kilowatt hour of energy. At present some states allow producers to sell the energy produced as a separate commodity from the certificates earned, others do not allow this "unbundling," considering the energy and certificates to be two parts of the same product. Because the US is not a party to the first phase of implementing the Kyoto Protocol, operations inside the country are not subject to the Protocol’s GHG emissions caps. However, a national cap-and-trade program is likely in the future. The consensus opinion among those who follow the issue is that legislation will be enacted by 2009, with regulations going into effect sometime in 2011-2012. This would correspond with the end of Phase I of the Protocol, and suggests that the US may also be a party to a post-Kyoto international regime. In the meantime, ten Northeast states have formed the Regional Greenhouse Gas Initiative (RGGI), and will begin auctioning emissions allowances in late 2007. California has enacted legislation which was written to promote emissions trading as a cornerstone of achieving the required GHG emissions reductions. In addition, the Western Climate Initiative (WCI) has adopted a regional GHG reduction goal of a 15% reduction below 2005 levels by 2020. The market for transactions involving international GHG compliance units is centered in Europe and, especially, in London. After a slow beginning during its initial decade, with market demand composed primarily of the voluntary activities of GHG emitters positioning for the possibility of future regulatory regimes, the “carbon market” entered a new era with the launch of the EU’s Emissions Trading Scheme (ETS) in early 2005. The EU ETS created a more robust market for GHG compliance units (equivalent to one metric tonne of CO2). Other international green commodities include government allowances such as European Union Allowances (EUAs), which are tradable in 25 EU member states through a system of national registries; to project-based compliance units known as Certified Emissions Reductions (CERs) generated from CDM projects, and Emissions Reduction Units (ERUs) generated from JI projects. |
