Today the Howard government in Australia is set to come out with its cap-and-trade system. In this context it is important to remember the “government risk” in a system like this.

Charles Morand from Alternative Energy Stocks has more on this:

…as the market for carbon emissions grows, the need for standardization and collaboration between governments and regulators will become ever more pressing. This could create problems.

The carbon market is unique in that the commodity traded derives its
value primarily from its ability to meet the requirements set by an
environmental regulator…

As the hype around emissions trading and global carbon markets engulfs you, be sure to always keep in the back of your mind the fact that one of the largest risks this market faces is governments and their regulatory agencies. Like any market, it won’t take much of a faux pas for investor confidence to be severely shook and for millions or even billions of dollars in market value to be wiped out overnight. This would be bad for the market and the environment.