The future of cap and trade for carbon emissions, which financial institutions had banked on becoming a $2 trillion a year business, appears murky, given the political climate, according to a special report in the New York Times.
Investors are avoiding energy saving projects because so many of them are weighed down by ambitious plans to generate carbon credits, observers say.
A robust future for the carbon economy hinges on the ability of government to mandate cap and trade, analysts say.
Even without government action, Dieter Helm, professor of energy policy at Oxford University, said there will still be a market for trading carbon emissions, but he predicts that governments may end up simply taxing emissions directly.
Some business leaders, including FedEx Chief Executive Officer Fred Smith, indeed have called for a carbon tax.
The 2012 expiration of the Kyoto Protocol's Clean Development Mechanism also has carbon traders worried, especially since the Copenhagen talks in December made little headway.
Graciela Chichilnisky, who played a central role in designing and negotiating the carbon market that she drafted into the Kyoto Protocol, argues that the carbon economy still has legs, and could yet become a $3 trillion business.
The so-called "cap and dividend" alternative to cap and trade involves setting a national cap on CO2 emissions and gradually ratcheting down the cap, reports the Missoulian.
First sellers of carbon, such as coal mines, oil and gas producers and importers of fossil fuels would pay to buy carbon shares that equal the amount of CO2 their fuel produces.
