News May 2001 Huge weather trade heralds new capacity Goldman Sachs has structured a portfolio of weather options that market participants say represents a substantial injection of cash into the weather market. The deal - the Mercury Winter Weather Option Portfolio - is understood to have transferred $120 million worth of US weather risk largely to European investors. "This is a very large transaction to get away," says Lynda Clemmons, president of Element Re, the Connecticut-based weather risk arm of reinsurer XL Capital. "It would appear to be a capacity-building trade," which will allow whoever is behind the deal to provide their customers with a similar volume of weather hedges. Enron offers Kelvin online Enron has begun making a market in a synthetic version of the Kelvin weather bond, in a move which lays the foundations for the firm issuing its own bonds linked to weather risk, says Mark Tawney, head of weather risk management at Enron in Houston. From 23 April, the US energy and trading giant began posting prices at which it is prepared to both buy and sell a contract which replicates the exposure to the weather risk within the bond on its EnronOnline (EoL) internet trading system. Price surprise from ERUPT tender The Dutch government has signed contracts for its first emission reduction credit trades under the Kyoto Protocol - sending a signal to the market that some analysts believe could raise the price of future credits. It has also brought forward plans to buy credits under the Clean Development Mechanism in a bid to send a political signal of support for the Protocol - the 1997 international agreement to cut greenhouse gases which is threatened by hardening US opposition. On 17 April, economic affairs minister Annemarie Jorritsma signed contracts to buy emission reduction units from five projects in Eastern Europe under the Protocol's Joint Implementation mechanism. The Netherlands paid E35.8 million ($31.8 million) for credits for the reduction of 4.18 million tonnes of carbon dioxide or equivalent (CO2e) generated between 2008 and 2012 under its ERUPT programme. The price paid for the credits - an average of E8.6($7.60)/tonne CO2e - is surprisingly high, say some observers. But it is nonetheless likely to set a benchmark for future deals, they say. UK eyes market in tradable landfill permits A market in tradable permits is being proposed by the UK government to reduce the amount of biodegradeable waste disposed of in landfill sites. A spokeswoman for the Department of the Environment, Transport and the Regions, (DETR) says the government believes such a market would be the first of its kind in the world. A consultation paper on the proposed scheme, which would initially apply only to local government agencies in England, has been published and feedback is requested by 22 June. R&D consortium seek new GHG finance tools A new research project to develop financial products to help participants in greenhouse gas emissions markets and potential users of the Kyoto mechanisms has been launched by a consortium of financial companies and a Swiss university. The project, co-financed by the European Commission and the Swiss Federal Office for Education and Science, began in April and runs until September 2002. The participants are: Gerling Sustainable Development Project, a subsidiary of Germany's Gerling insurance group; Italian bank San Paolo Imi; UK-based brokerage Natsource-Tullett Europe; and the University of St Gallen. Europeans trade 'greenness' Almost 200 participants plan to take part in a European trading simulation for renewable energy certificates (RECs) this month. The four-week simulation begins on 3 May and will comprise 10 separate sessions spread over five days. Each session will involve up to two hours of live trading. The simulation forms part of the European Renewable Electricity Certificate Trading Project (RECerT) and is known as RECerT-sim. Its aim is to examine how trading in 'green' certificates could help Europe achieve its growth targets for renewable electricity generation at least cost. The 15-nation European Union aims to double the share of its electricity produced from renewable sources to 12% by 2010. The RECerT project is part funded by the European Commission. Natsource unit funds weather research CBF Energy Brokers, the Oslo-based division of Natsource Tullett-Europe, is funding a one year research project to generate long-term European weather forecasts. The brokerage is paying Norway's meteorological institute, DNMI, an undisclosed amount to create what it claims will be "the first long-term quantitative weather forecasts for northern Europe." Aquila forges Japanese weather alliance Mitsui Marine and Fire Insurance has entered into a weather risk alliance with Aquila, the US energy company. The Japanese firm has taken a stake in the global weather risk book that Aquila manages and will use Aquila's pricing and modelling tools to place weather risk from its Japanese clients into the global portfolio. SAM plans new sustainability index for Europe SAM Sustainable Asset Management plans to launch a new European equity index, comprising the continent's sustainability leaders, in September. Potential constituent companies of the new index have been asked for information on their activities and SAM - a Zurich-based fund manager and research company - has begun to analyse the data, says Alois Flatz, the company's head of research. The initiative is in response to strong demand for European sustainable investment products, SAM says. Native Americans sell carbon credits from forestry project Sustainable Forestry Management (SFM), a London-based company which invests in forestry projects with environmental and social benefits, has agreed to buy greenhouse gas emission reductions equivalent to almost 48,000 tons of carbon dioxide from native Americans in Montana. SFM is paying the Confederated Salish and Kootenai tribes an undisclosed amount to reforest 100 hectares of their Montana reservation that was hit by forest fires in 1994. In return, the tribes have undertaken to maintain the forest for 100 years and to pass on the associated GHG offsets or 'carbon credits' to SFM for 80 years, explains Michael Walsh, senior vice-president of Chicago-based Environmental Financial Products which arranged the deal. ABI embraces SRI disclosure The Association of British Insurers (ABI) is to adopt guidelines on companies' disclosure of social, environmental and ethical (SEE) policies and procedures. The guidelines will set out what institutional investors should look for in the annual reports of companies in which they invest - and could provide the basis for engagement with companies who are failing to disclose sufficient information. "These guidelines will be designed to align the interests of companies and their shareholders," says Peter Montagnon, head of investment affairs at the ABI. "This will help companies understand what responsible investors want to know." FOR THE FULL STORY EVERY MONTH, SUBSCRIBE TO ENVIRONMENTAL FINANCE, OR CONTACT info@environmental-finance.com FOR OUR BACK ISSUES SERVICE