Why Your Company Should Already Be Trading Carbon Credits

Last Updated Sep 17, 2008 9:07 AM EDT

US companies should be trading in overseas carbon credit markets right now; not waiting for the idea to become law here.

Why the hurry? By understanding carbon credit markets today, you will have a competitive advantage tomorrow as your competitors struggle to come up to speed after the US adopts its own carbon-emission caps.

"It's risky to wait until greenhouse gas regulations emerge from the U.S. Congress," write Alex Rau and Robert Toker in their Harvard Business Review short, Start Thinking About Carbon Assets -- Now. Rau is a principal at a carbon-finance consultancy while Toker heads UK Trade and Investment for Florida and Texas.

Carbon credit markets allow companies (or countries and even individuals) to offset their carbon dioxide emissions by purchasing credits from firms that pollute less. Such markets are already underway in countries that signed the Kyoto Protocol and in the European Union. Several "cap-and-trade" proposals are starting to make the rounds in Washington, D.C.

Strategic Importance
The HBR article answers some basic questions about how carbon credits work, how much they are worth, and the costs of undertaking carbon initiatives. The overall point, however, is that carbon offsets are of importance beyond operational or regulatory concerns. These markets will affect a company's bottom line both by offering new revenue opportunities but also by causing some assets -- those tied to emissions -- to lose value.

"The most successful companies," argue Rau and Toker, "will be those that quickly figure out carbon's strategic implications."

  • Sean Silverthorne

    Sean Silverthorne is the editor of HBS Working Knowledge, which provides a first look at the research and ideas of Harvard Business School faculty. Working Knowledge, which won a Webby award in 2007, currently records 4 million unique visitors a year. He has been with HBS since 2001.

    Silverthorne has 28 years experience in print and online journalism. Before arriving at HBS, he was a senior editor at CNET and executive editor of ZDNET News. While at At Ziff-Davis, Silverthorne also worked on the daily technology TV show The Site, and was a senior editor at PC Week Inside, which chronicled the business of the technology industry. He has held several reporting and editing roles on a variety of newspapers, and was Investor Business Daily's first journalist based in Silicon Valley.