SMBs who implement renewable energy and carbon reduction projects now may be able to offset a portion of capital expenditures through tax credits.
Since the conception of the Clean Energy and Security Act, the intricacies of carbon trading are becoming of interest to those who have not previously participated in the voluntary market. Following is a very basic overview of what carbon credits are and where they come from.
The point of the cap-and-trade program is greenhouse gas reduction. This method can be used for various gases, however, we’ll stick with CO2 to simplify. The first step is to devise a carbon reduction project and measure the resulting amount of carbon saved. For example, installing a photovoltaic system will generate a specific amount of energy that will replace an equal amount of energy previously derived from the coal powered electricity grid. In a regulated market, third-party verifiers will make sure that the project lives up to its objectives. Carbon credits can represent renewable energy produced (one megawatt hour of electricity produced = one carbon credit) or CO2 saved (one ton saved = one carbon credit). The credits are either sold to carbon offset brokers or placed into a carbon exchange market, such as the Chicago Climate Exchange (CCX) or the upcoming New York Mercantile Exchange’s Green Exchange (NYSE’s BlueNext is also keeping an eye on the U.S. carbon market). Here, carbon credits can be traded through brokers or trading platforms like a commodity. Those who have “extra credit” can sell certificates and those who are short or have not yet managed to meet standards, buy them.
| CCX CFI Vintage 2009 | (Quoted in mt CO2) |
In 2008, the voluntary trading market for carbon offsets in the U.S. exceeded $700 million. At that time, the world-wide market was estimated to have reached $118 billion. Once emission limits are mandated, the price of carbon credits in the U.S. is expected to rise with demand. Any corporation, but particularly small and mid-sized businesses (SMBs), would be well-advised to begin renewable energy projects now and take advantage of existing tax credits at the same time, while they are still available.
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