An asymmetric bet on a phase transition

Compliance carbon markets typically go through a number of distinct phases in their development. Each phase sets the stage for the evolution of subsequent phases.

There is a sweet spot in the development of an individual carbon market where the strength of policy support is such that the market has to dramatically revise its view on prices to reflect the potential improvement in the underlying fundamentals.

The key questions for carbon market investors looking to invest is how to identify when this switch is likely to occur, what factors should you be looking out for, and when are they likely to occur?

To begin to find out we need to look at how emission trading schemes have tended to evolve.