Before going directly into the topic itself, environmental commodities, it is essential to understand what commodities are. Commodities is an anglicism used in the financial world. It refers to commodities standardized for purchase and sale, adopting international trading criteria in organized markets. They are also known as raw materials, since these goods have a low degree of transformation.
According to the News Portal of Universidad de La Sabana, commodities are basic goods, which are used as inputs in the production of other goods. These goods can be implemented in the trading or financial sector, as objects of acquisition (underlying assets).
Bearing this in mind, the product must comply with the following characteristics to classify it as a commodity:
- Worldwide importance and relevance.
- Produced on a large scale.
- Storage capacity without the risk of loss of product quality.
- Comply with worldwide quality standards.
So, what are environmental commodities?
Environmental commodities (EC) are basic goods originating from natural resources, produced under sustainable conditions. They are vital inputs for industry and agriculture.
In accordance with Amyra El Khalili, economist, promoter of the Brazilian Environmental Commodities Exchange project and author of the book “Commodities Ambientais em missão de paz – novo modelo econômico para a América Latina e o Caribe” (Environmental Commodities in peace mission – a new economic model for Latin America and the Caribbean), the environmental commodity is the product manufactured by the community in an artisanal way. It can be integrated into the ecosystem and does not cause environmental impact such as the production of conventional commodities.”
Environmental Commodities can be obtained from numerous sources and are subdivided as follows:
- Recycled materials
- Pollutant emission control (for the good maintenance of water, soil and air)
The classification may vary in more or less groups. But the main ones are detailed below:
- Energy commodities: Energy commodities are those related to energy production such as oil, natural gas, electricity and coal.
- Mineral commodities: Mineral commodities are all those raw materials related to metals and minerals such as iron, gold, copper, aluminum, nickel, silver, among others.
- Agricultural commodities: Agricultural commodities are those products grown in agribusiness, such as soybeans, wheat, corn, sugar, wheat, cotton, beef and coffee.
- Environmental commodities: Environmental commodities are natural resources that are important for the agricultural and industrial sectors. They include water and timber.
- Financial commodities: Financial commodities are financial products available for trading such as government securities and national currencies (euro, dollar, yen, pound, real, etc.).
Another classification divides them into:
- Conventional commodities where we find energy, mineral and agricultural commodities.
- Environmental commodities.
Let’s talk about the differences between environmental commodities and conventional commodities
Based on the characteristics of commodities and their classification, it is necessary to mention some differences in order to clarify both concepts.
Environmental commodities are the opposite of conventional commodities. They contrast standardization and commercialization criteria, technically questioning conventional commodities by confronting the numbers and statistics of large production scales; considering social and environmental variables. When it comes to environmental commodities, standardization criteria is used to reevaluate the standards adopted by conventional commodities. Unlike conventional commodities, the standardization criteria for environmental commodities can be discussed. They require the intervention of those who produce, the ones who should be at the top of the pyramid. Farmers and communities living in these ecosystems are the ones who should decide on contracts, criteria and management of these resources.
Environmental commodities are associated with socio-environmental services, ecotourism, integrated tourism, culture and knowledge, education, information, communication, health, science, among other variables that are not considered by conventional commodities.
Conventional commodities are concentrated in a few export products with production scales, high competitiveness, and state-of-the-art technology with environmental commodities. By doing that, alternative production criteria are developed, such as agroecology, organic agriculture, permaculture, biodynamics, etc.
At ALLCOT Trading, our mission is to promote additional sustainable impact with every transaction. We do so by offering environmental commodities such as carbon credits, plastic credits and IRECS. If you want to have an extra positive impact on the environment by trading with us, contact us and together we will make it happen.
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