FINANCE: 'Old money' warms to carbon trading (05/29/2008)
Nathanial Gronewold, ClimateWire reporter
Even though the volume of global voluntary carbon trading has nearly tripled in one year, the investment community is still mostly just waking up to the opportunities emerging from the evolving carbon market in the United States. But emission reduction project developers, carbon credit brokers and exchanges are beginning to get Wall Street's attention.
Representatives from the nation's oldest and largest banks and investment houses gathered in Lower Manhattan yesterday to learn from and network with a host of smaller companies that have firmly established themselves in the ever-expanding greenhouse gas reductions marketplace. For their part, the new "carbon capitalists" hope to convince participants following the two-day Carbon Finance and Investment Summit -- sponsored by EcoSecurities, the law firm Baker & McKenzie and APX -- that now is the time to cram for the test that will be posed by a federal emissions control program most see as inevitable.
A pre-conference briefing held yesterday demonstrated clearly how far they have to go in educating old money in the ways of carbon finance and trading. Milo Sjardin, head of North American operations for New Carbon Finance, gave money managers a basic overview of carbon markets. He explained who the major players are and how both voluntary and compliance markets are now functioning. He fielded basic questions over forestry sequestration projects and the extent to which a U.S. regime will have links overseas.
"There's general agreement that 1 ton of CO2 emitted in New York is as bad as 1 ton of CO2 emitted in Beijing," Sjardin said.
Today, participants will hear experts from EcoSecurities, Credit Suisse, Barclays Capital, Citigroup, General Electric Co.'s finance arm and others explain what they believe are the best strategies to prepare for a nationwide mandatory greenhouse gas emissions cap-and-trade scheme. Organizers will also provide examples of how they and others are capitalizing on the development of reduction schemes for the voluntary market or through buying and reselling emission credits, hoping to open investors' eyes to the growing potential.
Voluntary trading programs shifting from U.S. to Asia
"The global market is developing incredibly fast," Sjardin said.
Carbon markets appear to be expanding faster than even enthusiasts had expected. At the U.S. launch of the latest report by Ecosystem Marketplace and New Carbon Finance on the global voluntary carbon market Tuesday, hosted by JPMorgan Chase, analysts used the latest dramatic findings to describe just how big the whole undertaking is getting.
The global voluntary offset market, for instance, has tripled in size, from an estimated value of $96.7 million in 2006 to $330.8 million in 2007, according to the report, "Forging a Frontier: State of the Voluntary Carbon Markets 2008." The total volume of voluntary emission reduction credits traded last year equaled about 65 million tons of CO2 equivalent, up from 24.6 million tons the year before.
The average price for a ton of carbon traded in the voluntary market outside the umbrella of the Chicago Climate Exchange (CCX) -- what the industry calls "over the counter" (OTC) transactions -- also went up by about 50 percent, from $4.10 a ton to $6.10 a ton, the report's authors said. OTC transactions account for roughly 78 percent of the total voluntary market, with CCX, a membership, contractual-based trading scheme, making up the rest. In 2007, $258.4 million worth of trading happened in the international OTC market, versus $7.4 million under CCX.
Voluntary emission reduction projects are also shifting more toward Asia, whereas North America previously dominated the scene. And transactions are increasingly being handled by third-party brokers who find projects and offset credits for their clients, mostly corporations looking to gain some public recognition of their environmental stewardship through offsetting emissions or becoming "carbon neutral."
But most important, say carbon market analysts, is that the voluntary market is maturing fast. Project standardization is emerging, and certification schemes are adopting stricter standards and a higher degree of sophistication. Companies and individuals purchasing offset credits are also becoming more conscientious.
Trying to 'get ahead of the curve'
"Consumers are becoming a lot more savvy," said Katherine Hamilton of Ecosystem Marketplace. In a quest for better public relations, corporate offset purchasers are also increasingly seeking out what Hamilton called "charismatic carbon," or credits from offset projects that produce a number of added environmental and social benefits.
Corporate customers make up about 80 percent of buyers of offset credits, according to the new report. Nongovernmental organizations make up another big chunk, with individuals purchasing credits to offset their air travel or other polluting activities composing about 5 percent of the market.
Findings from the survey show that 2007 was a banner year for voluntary carbon markets, and interest from corporate America is growing as the European Union's emissions trading scheme matures, the United Nations' Clean Development Mechanism gets stricter and profits from carbon offsetting and credit trading expand.
"People are trying to get ahead of the curve," said Catherine Flax, who handles environmental markets at JPMorgan Chase, at a gathering of money managers at her company's headquarters in midtown Manhattan to present the report findings.
Flax admitted that her company is still a relative newcomer to the game, having moved mostly last year and in early 2008 through such activities as the Carbon Principles initiative with partners Citigroup and Morgan Stanley and its acquisition of the British offset supplier ClimateCare. But the coming federal cap-and-trade scheme, inching ever closer as the Senate starts next week to debate the climate legislation sponsored by Sens. Barbara Boxer (D-Calif.), Joseph Lieberman (I-Conn.) and John Warner (R-Va.), is making it more urgent for companies like Flax's to position themselves as best as they can.
"We really believe that this is going to happen," Flax said. "Even in this pre-compliance phase, people have become very, very serious."
|
