In finance and economics, arbitrage means taking advantage of the price difference between two markets.
In practice, arbitrage happens when Wayne Swan and Julia Gillard are in charge of setting up a market but Christine forgot to turn the tap off and it's emptied the tanks onto Europe but we've got lots of bits of paper.
Someone found the prospectus for Dutch Tulip Bulbs under the lino when Bruce (while I was away) just decided to renovate the house - and hey presto, instant regulatory framework for carbon credits. Fill your boots with them.
Our carbon price per certificate for use as wallpaper in the spare room is $23 per A4 absorbent sheet this year, rising to $25.40 in 2015.
(Pssst - hey buddy, yeah you - I got cheap Rolex.)
So class, here's your homework. If you let Al Gore create a global market, and sufficient people in Europe watch Al Jazeera all day on welfare - how long until Peter Foster on the Gold Coast realises that you can buy carbon credits for nearly nothing in Brussells while the Australian Government ones sell for $23?
Group Term Assignment - Produce a marketing plan featuring Christine Milne and Sarah Hanson Young as Carbon Credit Maids on the Gold Coast to encourage eco-Carbon-Trading-Tourism.
Supplementary - engineer a sports-doping race-riot scandal that blames Tony Abbott.
Value of the European emissions trading scheme and UN CDM fell 35% in 2012, Point Carbon analysts warn
"Dramatic", "enduring", "meltdown" – the words used by leading analyst firm Thomson Reuters Point Carbon to describe the continued slump in global carbon prices could not be starker. And according to analysts the chances of prices recovering in the near future remain extremely thin.
The company today released data for 2012 showing that, while the volume of carbon traded globally rose 28 per cent to 10.7Gt, the value of the market fell 35 per cent to €62bn as the price of allowances in the EU Emissions Trading Scheme (ETS) and UN Clean Development Mechanism (CDM) collapsed.
The figures mirror similar data released last month by Bloomberg New Energy Finance, which claimed the market value contracted by more than a third to €61bn last year.
"In Europe, prices plunged as it became clear that the EU's Emissions Trading Scheme (ETS) is over-allocated all the way to 2020, mainly due to the impact of Europe's economic troubles on emissions", explained Anders Nordeng, senior carbon analyst at Thomson Reuters Point Carbon and co-editor of the report.
"Unless European policy makers quickly agree to take action, either through backloading or some form of long-term structural change, we are now facing the prospect of the carbon prices in Europe inching ever closer to zero."
Speaking to BusinessGreen, Nordeng said oversupply in the European market was now so severe that the record low carbon prices of under €3 a tonne that have been seen in recent weeks were only stopped from falling further by hopes the EU may eventually reform the market.
"Everything depends on the political signals, but whenever they come up with a new plan to tackle the problem it gets stuck in endless negotiations," he said. "There is not the political will to tackle the problem, and until that political will is there it will continue."
The report confirmed similar woes afflicting the CDM offset market, where the value of the market "crashed" from €17.8bn in 2011 to just €6.1bn, despite an increase in traded volumes from 2,012 to 2,408Mt.
The price of the CER offsets traded in the CDM have dropped below €0.50 in recent months, and Nordeng warned that until a new source of demand emerges for the credits prices will remain in the doldrums.
However, the report did reveal some silver linings for a global market that analysts believe start to recover in recent years as new carbon trading schemes in the US and Asia come online.
The price of so-called JI carbon offset credits from industrialised economies also fell sharply, but a four-fold increase in demand for the allowances meant the value of the market rose 26 per cent to €906m.
More important still, the US carbon market, which is based on a handful of regional carbon trading schemes, grew 30 per cent in volume and saw its overall value more than double to €575m.
The market is expected to grow further this year as California's emissions trading scheme transfers from being a voluntary to a mandatory scheme. Crucially, the Californian market is not linked to other markets and as a result has not been affected by the glut of credits found in Europe.
The US carbon market could receive a further boost today with reports suggesting the voluntary Regional Greenhouse Gas Initiative (RGGI), which centres on a group of eastern states, will lower the emissions cap governing the scheme.
Reuters reported that the RGGI's board will from 165 million tons to 91 million tons for the next phase of the scheme in an attempt to drive up the price of carbon allowances in the market.