Emerging carbon market

The new age  aim is to get a low carbon growth and global investors are looking for diversification into climate change investment schemes to ensure safe and regular returns through clean energy investment . Institutional investors believe  the climate  change schemes provides returns of more than 10% per annum and therefore , the schemes to reduce carbon emission and to reduce the level of greenhouse gases is considered attractive. The demand for food grains in the world is increasing with the growing global population and hence, investment in agriculture provides opportunity to gain carbon credits and get returns in the form of harvests and rise in price of the agricultural land.

Capital Alternatives: Climate change investment strategies

Economics of the world are moving towards attaining a low carbon growth which involves reducing carbon productivity and increasing energy efficiency. The phenomenon of climate change is, scientifically, recognized as a threat to the environment, which can be reduced by controlling the emission of greenhouse gases.  Today climate change is not recognized as a social responsibility but as an opportunity which can provide continued returns over the years, and institutional investors are eyeing the global climate play for diversification and secure returns. Clean energy investments rose by 5% from 2010 to 2011, and institutional investors believe climate change investments provide returns of more than 10%.

The increasing level of Greenhouse gases

The concentration of greenhouse gases in the atmosphere increased after the Industrial Revolution significantly due to increased burning of fossil fuels and urbanization, which led to the process of deforestation and changed the concentration of major greenhouse gases in the atmosphere. Carbon dioxide increased from 280 parts per million to 391 parts per million (Mauna Loa Observatory) in 2011 and it can reach the dangerous level of 500 ppm, if its emission is not reduced. The United Nations Food and Agriculture Organization predicted rise in food prices in the year 2012 and one of the causes for rising food prices is poor agricultural production in some parts of world due to change in global climate.

Why to invest in climate change?

Global investors are watching the carbon credit market and examining its capabilities. In a UN meeting in New York, institutional investors claimed it was a profitable area to invest. Some of the main reasons for investing in climate change are -

1. The value of energy efficiency market will rise to more than $500 billion by 2050 (Stern) and the demand for projects into GHG emission credits will rise to $100 billion by 2030 (UN).


2. More and more governments and regulators are supporting investment opportunities in climate change.


3. Diversified strategy of investment in environment offers secure returns.

Factors determining returns in climate change strategies

The returns in climate change strategies are determined by

1. Changes in policy and regulation


2. Forecasting and change in prices of carbon


3. Climate changes


4. Corporate responsibility


5. The government policies (Climate change policies are imposed either through the taxation system or the cap-and-trade regulatory system. Certain regulatory organizations provide incentives and subsidies for investment in green policies)

Why investors should invest in climate change?

1. Global organizations such as United Nations, regional organizations and global groups are demanding climate change initiatives.


2. State governments across the world are making policies to prevent climate change.


3. Institutional investors are interested in combining a variety of portfolios to their profile for diversification benefits.


4. Global and local governments are supporting investment into forestry and agriculture.

Two natural and easy ways of reducing carbon emissions

Land management (rice cultivation and planting trees) and forestry are two natural ways to reduce carbon emissions.

Forestry projects reduce the rate of destruction of natural forests and also prevent the loss of biodiversity. Primary untouched forests contain 2 times the carbon produced by secondary forests. The main challenge of forestry management - forest area density varies and it is exposed to danger of fire and destruction.

Planting trees is another way of reducing degradation of forested land and it includes either permanent managed forests or plantation for carbon exclusion. Forestation is eligible for generating project based Clean Development Mechanism credits and it requires land for forestation, and if forests are grown on land it may take 15 to 50 years to grow depending in on the soil and tree’s varieties.

Capital Alternatives options in Land management and Forestry