Wednesday, September 3, 2008

A Bird In The Hand--Anticipating The Value Of Carbon Offset Credits

I read an article a few weeks ago on Europeans snapping up US carbon offset credits on the cheap. See In short, because the United States does not currently have a mandatory carbon offset program, US carbon offsets purchased on the Chicago Climate Exchange are far cheaper than the mandatory carbon offsets for sale on the European climate market. The theory is, however, that soon the United States will regulate carbon and establish a mandatory cap-and-trade system, and the credits will increase in value. build a green building now, and have the less valuable carbon offsets which might be worth something more in the future (or to purchasers in Europe). Those ownership rights need to be considered. How should they be valued? At the current US price? Some future estimated value? Who owns them? The builder of the building or the lessee? See an interesting analysis of this situation at

In my opinion, the carbon offsets should be valued at the current Chicago Climate Exchange value. Anything else is simply too speculative. However, they should be treated as if they have value, because they do. Therefore, the allocation of the carbon offsets should be treated as an asset in the negotiation of any green project, with ownership rights as clearly established as the physical asset. Legal draftsmen, sharpen your pencils...

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