Efforts by government agencies, companies, and investors to limit the effects of climate change continue to influence activity in the financial markets. Interest in carbon markets, where emission credits are purchased and sold─and also where derivatives on those credits are traded─is growing rapidly, and that trend is expected to continue. Some estimates predict the cost of carbon could eventually double, due to the increased focus on climate issues and the tightening of greenhouse gas standards by global regulators.
The increase in trading volume has attracted the attention of regulators and enforcement agencies. Jones Day partner Josh Sterling explains how the carbon markets work, details the risks participants face, and describes what companies using these markets should do now.