Why does business need a carbon rating engine: A new business initiative for early greenhouse gas trading
Presented by the International Emissions Trading Association

Frank Joshua, Andersen, and Dirk Forrister, Natsource, describe the results of the recently completed Emissions Market Development Group (EMDG) Technical Feasibility Study.

Frank Joshua, Andersen, presented the results of the recently completed Emissions Market Development Group (EMDG) Technical Feasibility Study. The study was conducted by Andersen and commissioned by Credit Lyonnais, Natsource and Swiss Re on behalf of a group of participant companies, including emitters, insurers, banks, brokers and accountants. The purpose of the study was to assess the feasibility of the technical and commercial viability of a Carbon Repository, which would issue common carbon credits in the market for greenhouse gas (GHG) emissions reductions.

The Carbon Repository concept was elaborated to facilitate the early development of trading by providing a clearer link between what is being traded today and the meeting of future emissions limitations when regulatory frameworks are established within different jurisdictions. The Repository was aimed to address: the absence of rules to allow cross-border and cross-jurisdiction trading; uncertainties associated with the quality of credits that can be obtained; risks associated with undertaking early investments in emissions reductions before rules are finalized and with the lack of certainty that valid credits will be generated; and the ability of entities to trade emission credits to offset future GHG emissions liabilities with the knowledge that they will be valid as compliance units. Joshua explained that the Repository would work by taking in verified emissions reduction units from different types of projects, evaluating their quality by applying various risk management techniques and determining their value in terms of a common carbon credit, and issuing guaranteed "gold standard" carbon securities.

Joshua explained that the study found that a carbon repository is technically feasible, but requires certain preconditions which do not yet exist, including: the design and implementation of a Carbon Rating Engine (a software tool that could assess the value of a ton of reduction and the rate of risks); the development of a market risk model that can forecast the future price of carbon; the emergence of insurance products; and greater clarity on regulatory frameworks.

Dirk Forrister, Natsource, announced that, following the successful completion of the feasibility study, the EMDG has decided to move forward with an initiative to work toward the eventual commercial launch of the Carbon Respository concept. The EMDG has commenced a pilot programme, whose goals are to: enhance the value of intellectual property; develop and test tools; be prepared to capitalize on market opportunities; and take advantage of shared learning, shared costs, and diversity in expertise. The pilot programme is working to develop a carbon rating engine, a trading platform, a registry, a pilot carbon portfolio, more carbon prices, and insurance products.