As the global economic storm rages on, Wall Street executives and their city officials are discussing how to transform the US financial sector into an international hub for green finance and environmental commodities trading. Talks were sparked by news of a draft for energy and climate legislation recently unveiled by House Democrats Reps. Henry Waxman of California and Ed Markey of Massachusetts.
The cap and trade proposal has investors and analysts talking amongst themselves and measuring the prospects of the nation’s economic future. There are certainly provisions to be wary of, such as those concerning a federally mandated carbon market, which may make it difficult to find domestic offsets. Still, carbon offsets require low capital intensity and promise guaranteed returns. Not to mention, the Waxman-Markey proposal seems to offer the much needed confidence to many that Congress is poised to pass a bill that offers more business opportunities than costs.
As the city and state of New York are heavily dependent on the financial sector for revenue, it is hoping to position itself to capitalize on the potential federal opportunities. The commotion seems to be inspired not only by survival, but about helping the US shift toward national sustainability and keeping New York the financial capital of the world.
Indeed, the anticipation of a larger, federally regulated carbon market is the biggest driver behind the growing popularity of green finance, along with the support of the New York City Economic Development Corp. The notion that emissions trading and climate change related investments could potentially help revive Wall Street’s fortunes has corporations actively seeking how best to position New York’s financial community ahead of the game.
It appears the general advice is to stake a claim in the expanding US carbon market, now largely dominated by the voluntary Chicago Climate Exchange. New York has already missed out on the chance of becoming the center of market activity surrounding the Regional Greenhouse Gas Initiative (RGGI), the burgeoning cap-and-trade program involving ten Northeastern states and currently the nation’s only mandated carbon emissions trading scheme. A federal carbon market would dwarf RGGI and all other emissions trading initiatives.
Currently, most of the trading volume can be found at the Chicago Climate Exchange, Chicago Climate Futures Exchange, with some activity is growing at the Green Exchange (an initiative launched by the New York Mercantile Exchange). NYMEX’s Green Exchange is already a popular platform for trading in sulfur dioxide and nitrogen oxide pollution permits, so carbon markets could abundantly grow there. It will be interesting to see where the momentum drives the trends and the future.