Big banks weigh risks, rewards of California’s new CO2 market

SAN FRANCISCO, Fri Sep 7, 2012 – Major banks are weighing whether to wade into the California carbon market, which experts believe could grow into a $40 billion a year market by 2020, but one that is also loaded with risk and uncertainty.

Following last week’s successful test of the state’s auction platform, the reality is starting to settle in: California carbon trading has overcome legal and political challenges to position itself a mere 10 weeks away from its first official CO2 permit sale.

The carbon market’s success or failure will sway U.S. environmental policy for years to come, and early-moving Canadian banks like Bank of Nova Scotia (Scotiabank) and the Royal Bank of Canada, as well European banks like Deutsche Bank and Barclays, could play a critical role in that outcome.

Banks facilitate the purchases and sales of carbon credits for their clients, advise company executives on how to keep their costs down, and ultimately help them meet their environmental goals.

But so far, most brand-name investment banks have either kept their distance or already walked away, wary of pumping precious capital into the nascent market, especially in light of their tumultuous experience in the European carbon market.