News October 2000 Element Re hooks up with XL Element Re - the company set up by members of Enron's original weather derivatives team - has finally found a home, as a unit of Bermuda-based reinsurer XL Capital. But the group, which pioneered weather derivatives when at Enron, is to focus on weather insurance products rather than derivatives. "What we found in our marketing is that lots of customers would be more comfortable with weather products in an insurance format [rather than structured as derivatives contracts]," says Lynda Clemmons, president of Element Re. "But we will be participating in the weather derivatives markets." Weather hedges allow companies to protect their revenues from adverse weather conditions. Emissions trading goes electronic US brokerage Cantor Fitzgerald and eSpeed, the Cantor offshoot company that runs electronic trading platforms, have joined forces to launch two new electronic markets for trading emissions allowances. The two firms have created a new company, CO2e.com, a business-to-business venture focusing on the understanding, mitigation and management of greenhouse gas (GHG) emissions. Unveiled on 1 October at the Toronto meeting of the Emissions Marketing Association, CO2e.com offers an internet marketplace for trading GHG emissions offsets. Battle over new NOx rules draws to close The end is in sight for the prolonged legal battle by a handful of US states to win exemption from new rules on emissions of nitrogen oxides (NOx). In early September eight states filed a motion seeking the right to appeal to the Supreme Court against a Court of Appeal ruling which largely backed the position of the Environmental Protection Agency (EPA), the body behind the new rules. October 20 was set as the deadline for any such appeal. The controversial legislation, first announced by the EPA in September 1998 and known as the 'NOx SIP call', requires 22 states and the district of Columbia to submit plans to sharply reduce NOx emissions - which are a major cause of smog - from facilities under their jurisdiction. It could potentially lead to a major expansion of the market in tradable NOx emissions allowances, brokers say. The initial reduction targets have been revised down since 1998 but still represent an average cut of around 25% from 1996 emissions levels. Dow Jones and SAM renegotiate Dow Jones Indexes and Sustainability Asset Management (SAM) - whose joint-venture produces the Dow Jones Sustainability Group (DJSG) Indexes - are re-negotiating their business relationship. They will most likely cease to be joint-venture partners and become licensee and licensor, where SAM will license the right to use the Dow Jones name in connection with the indexes, says John Presbo, an editor at Dow Jones in New York. "This does not impact in any fashion our commitment to the sustainability indexes," he says, "and our role in calculating it, disseminating it, and marketing it. I'll still be out on the hustings." "The business model will remain the same," says Alois Flatz, head of sustainability research at SAM, which is based in Zurich. "This is simply affecting the internal relationship." Eco-efficiency indicators spark disagreement Industry and analysts have welcomed a new report from the World Business Council for Sustainable Development on measuring and reporting companies' eco-efficiency. But some companies involved stopped short of endorsing its recommendations - highlighting the ongoing difficulty in establishing universal eco-efficiency indicators. The report, Measuring Eco-efficiency - a guide to company performance, is the result of two years work, including pilot studies conducted at 22 major companies - such as General Motors, Norsk Hydro, Shell Chemicals, and Toyota. Prebon Energy flexes PECS Prebon Energy is dramatically expanding its Prebon Environmental Consulting Services (PECS) division, in advance of the launch of its new greenhouse gas (GHG) emissions credit product, and to bolster its GHG consulting service. Early next year, the UK-based broker is to launch EcoStream, which PECS managing director Colin Emery describes as "Kyoto-complaint greenhouse gas credits". Ecostream, an insurance product, has been developed in partnership with a global reinsurer and a law firm, and the roll-out may be in conjunction with an investment bank as well, says Emery, who declines to name the partners. Long journey to Hague for climate negotiators Kyoto Protocol negotiators face an uphill slog on the way to The Hague after two "disappointing" weeks at Lyon, but remain hopeful that compromise can still be reached on the outstanding areas of disagreement on the climate change treaty. "We were hoping for more progress than we made," says a spokesman for the United Nations Framework Convention on Climate Change (UNFCCC) secretariat, which is co-coordinating the negotiations. "But we've been here before [at the Kyoto meeting in 1997 which spawned the Protocol]. Then, there was little movement until the last few days.". Energy consumers eye weather hedges Energy consumers have responded positively to a marketing push that aims to remove the greatest obstacle to the growth of the US weather derivatives market - the current lack of interest from energy consumers. A group of weather dealers and brokers hope to generate interest in weather transactions from 'energy buyers forums' - groups of large energy consumers - that could include new, aggregated weather hedges. United Weather, a New Jersey-based broker, energy giant Koch and Swiss Re, the reinsurer, organised a presentation to the New York Energy Buyers Forum in mid-September. "People were receptive to the presentation," says Catherine Luthin, executive director of the Forum. "Quite a few of our members understand [their exposure to weather] but this is the first time that they have had the [hedging] mechanisms explained to them." Power companies invited to build emissions market Fifty of the world's leading power companies have been invited to join a new working group to help develop the infrastructure for an international market in greenhouse gas (GHG) emissions credits. Consultancy Arthur Andersen, US broker Natsource, and French bank Credit Lyonnais are to launch the group - the Emissions Market Development Group (EMDG) - in The Hague in November. "We're trying to do what we can to speed up the development of a market in carbon emissions," says Martin Bartlam, at Credit Lyonnais. Poor diagnosis for global ecosystems The UN, the World Bank, and the World Resources Institute (WRI) have kicked of an ambitious four year study of the world's ecosystems with a damning report on their current state. The report, People and Ecosystems, the fraying web of life, attempts to analyse eco-systems on their ability to produce the goods and services that communities and economies rely on. "No-one has ever taken a look at the world's ecosystems on a global basis," says Jonathan Lash, president of the WRI, a US think-tank. "It's time to give the world a physical." FOR THE FULL STORY EVERY MONTH, SUBSCRIBE TO ENVIRONMENTAL FINANCE, OR CONTACT info@environmental-finance.com FOR OUR BACK ISSUES SERVICE