q1: Brief Overview of Louis Redshaw’s Career:Louis Redshaw holds an MSc in Environmental Technology and Energy Policy from Imperial College. He began his career as an analyst, trader, and marketer in electricity and renewable energy for London Electricity, Enron, and EDF from 1996 to 2003. In 2004, he founded and became the Managing Director of Barclays Capital’s emissions trading business, which became the world’s largest by volume. In 2014, he established Redshaw Advisors, a company dedicated to assisting organizations in navigating global carbon markets, providing expertise in carbon market design, managing risk exposure, and supporting financial institutions in carbon market investments.Q2: Main Carbon-Related Uncertainties for European Companies up to 2020 and Beyond:European companies face uncertainties related to carbon-based on their specific exposure. Those under the EU Emissions Trading Scheme (EU ETS) must comply with purchasing carbon allowances annually. Companies with indirect exposure need to find ways to hedge their carbon exposure. Both types of companies share uncertainty related to price development. While the EU ETS is complex and subject to continuous adjustments, analysts predict that EU carbon prices are likely to triple by 2020 based on existing certainty from Brussels. Looking beyond 2020, uncertainties are compounded by changes in free allocation. The recent EU ETS review confirms reduced free allocations, with no company receiving 100% coverage and the majority receiving only 30% for expected emissions.Q3: Consideration of Direct Carbon as an Asset Class for Institutional Investors:Louis Redshaw suggests serious consideration of investing in carbon markets as a hedge or an independent asset class for institutional investors. The urgency to reduce carbon emissions due to the reality of climate change makes carbon markets crucial. Mature markets like the EU’s and California have overcome historical volatility and challenges. Carbon markets serve as hedges against fossil fuel investments, aligning with divestment trends due to anticipated underperformance or ethical reasons. Notably, European carbon markets are projected to outperform other commodity markets, with prices expected to triple in the next five years due to significant legislative changes. Investing in carbon offers value, diversification, and a hedge, presenting promising opportunities for institutional investors.Q4: Possibility of a Single Global Carbon Market:While theoretically feasible given the standardized nature of carbon emissions, creating a single global carbon market faces challenge. Even in other global commodities markets like oil, a single global price does not exist, and multiple benchmark prices are used. The UNFCCC meeting in Paris in 2015 gathered emissions reduction commitments, many including emissions trading schemes. The transition from the existing patchwork of ETSs to a unified scheme requires gradual convergence of ambition levels and carbon reduction abilities among different economies. Redshaw Advisors is working with a supranational organization to simplify the concept of a global, networked carbon market. Immediate linking of carbon markets can occur through establishing a carbon exchange rate reflecting each scheme’s ambition and ability. Overcoming technical obstacles and securing agreement among economies could lead to a global benchmark price for carbon, similar to oil.Q5: Louis Redshaw’s Preferred Time and Place for Time Travel:If given the opportunity, Louis Redshaw would travel back to the Rio Earth Summit in 1990. During the summit, he would inform attendees about the unfortunate waste of the following 25 years in combating climate change. He would urge them to seek legally binding commitments from countries, emphasizing the urgency and importance of immediate action against climate change.
