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News, October 2001
UK emissions trading off the blocks
US chemicals company DuPont and Marubeni, a Japanese energy and trading firm, have concluded the first trade under the UK’s planned greenhouse gas (GHG) Emissions Trading Scheme (ETS).
Under the terms of the deal, MIECO, an US-based energy trading subsidiary of Marubeni, will buy allowances equal to 10,000 tonnes of carbon dioxide equivalent from DuPont. Marubeni owns oil and gas production assets in the North Sea.
The parties to the deal, which was arranged by US energy and environmental broker Natsource, declined to comment on the price of the allowances. However, it was a forward transaction covering allowances to be generated from April (when the UK ETS begins) to December 2002.
ROCs start to roll
Accord, the trading arm of UK energy firm Centrica, is circulating a draft ‘master agreement’ which it hopes will form the basis of a standardised contract for the proposed UK market in renewables obligation certificates (Rocs). Rival energy trading group Cinergy, meanwhile, says it is working on a “more advanced” agreement. Standardised contract terms are vital for the success of a new market, says Paul Massara, commercial director of Centrica’s energy management group.
Renewable Trading, a Cinergy subsidiary, has already executed several forward market ROC trades and is posting ‘grey market’ bids and offers on its website. “Until the [government’s] consultations are complete, trading will continue on a bilateral basis,” says Rob McKenzie, the firm’s economist.
SO2 bull market falters
Spot prices of sulphur dioxide (SO2) allowances fell back almost 15% in September, amid mounting concern about the slowing US economy. But market opinion is mixed as to whether this represents a decisive new price trend.
As energy demand has fallen in recent weeks, so has the demand for coal, the main source of SO2 emissions. “The SO2 market price tends to trail along after coal prices,” notes Jim Webb, an emissions trader with Akron-based First Energy.
The price fall interrupts a bull run which saw SO2 allowances soar from less than $120 in December 2000 to $218 in August. Increased energy production from coal and speculative trading by major market players had been pushing prices steadily higher. September’s heavy selling, however, saw prices slump to around $185 as some companies holding large numbers of allowances reduced their positions.
DJSI revamps sustainability indexes...
Many blue chip names will be dropped from the Dow Jones Sustainability Group Indexes on 5 October. They include US entertainment giant Walt Disney, Dutch electronics group Philips,Telecom Italia, Canadian metals firm Alcan, Swiss engineering group Sulzer and French cement company Lafarge. A total of 45 companies are being removed following the second annual review of the indexes, which have now been renamed the Dow Jones Sustainability Indexes (DJSI). In addition, stocks are now selected from a larger universe than before, using slightly different criteria, and the selection methodology has been made more transparent.
... and so does FTSE
The first review of the FTSE4Good indexes – just two months after they were launched – has seen a significant turnover of constituents, particularly among UK companies. The new family of indexes for the socially responsible investment (SRI) community was launched in July but many fund managers were surprised by some of the blue-chip names omitted (see Environmental Finance, September 2001, pages 18–19). Many of these, including BG, Royal Bank of Scotland and Tesco are included in the revised list of constituents.
In all, an extra 37 companies are now deemed to meet the criteria for inclusion in the FTSE4Good benchmark index. As a consequence, five of the constituents of the 50-stock tradable UK index have changed.
AGO stamps its approval on carbon neutrality
The Commonwealth Bank of Australia (CBA) and oil giant BP are working with the Australian Greenhouse Office (AGO) to launch a government certification scheme for carbon-neutral products. Under the scheme, companies that can demonstrate that they are offsetting forecast emissions can use the AGO’s ‘Greenhousefriendly’ logo on their products or services.
“The Australian government – through the AGO – will provide confidence to consumers who purchase greenhouse friendly products that the claims being made are accurate and reliable,” says Simon Mathis, head of the new products group at the CBA Sydney.
Shell commits to green trading
Shell Trading has hired a leading greenhouse gas (GHG) broker to head up a new environmental products trading desk. Garth Edward, formerly with energy and environmental brokerage Natsource in New York (see page 11), will be responsible for establishing the firm “as a significant player” across the range of environmental markets, according to a senior source at the firm. Initially, the London based desk will trade in GHG permits and green certificates, but will look at “any and all” new environmental markets as they develop, the source says. He also anticipates that Edward’s team will assume responsibility for running Shell’s internal GHG emissions trading s c h e m e , known as S T E P S (Shell Tradable Emission Permit S y s t e m ) , although no decision has yet been taken.
Liquidity lures UK energy firms into weather market
Two of the UK’s largest electricity utilities, and a leading oil and gas firm plan to begin using or dealing weather derivatives in the coming months – and other utilities are increasing their activity, as trading builds in the European weather market.
Utilities London Electricity and PowerGen both expect to be trading by the end of the year, according to traders at the two firms. And BP plans to soon begin offering weather hedges to its clients.
Social investment goes pan-European
Five European social investment networks have come together to form a continent-wide social investment forum. The European Sustainable and Responsible Investment Forum (EuroSIF) will aim to provide information and networking to promote socially responsible investment at the European level.
“The initial project is to create an internet site that will link the existing European social investment forums,” says Emma Howard-Boyd, head of the environmental research unit at UK fund management firm Jupiter Asset Management.
EuroSIF is also to submit a pan-European response to the European Commission’s green paper on corporate social responsibility, which was published in July, she says.
Friends, State Street ally to engage
Friends Ivory & Sime (FIS) has entered into a strategic alliance with State Street Global Advisors (SSgA) to offer index-tracking funds with an ‘engagement’ overlay. The move is a bid to tap growing demand from UK pension funds both for passively managed investments and for socially responsible investment (SRI) products.
“This will allow pension funds to maintain their passive exposure to the market while credibly implementing their [SRI] commitments,” says Craig McKenzie, director of governance and SRI, at FIS in London. The UK fund management firm, which has £39 billion ($58 billion) of assets under management, is a leading provider of SRI products.
Forest research targets water services
Forest owners, policy makers and investors should consider using financial incentives to encourage watershed management, according to a new report.
The study, Developing markets for water services from forests, sets out to “help forest owners add financial value to their forests based on the water-related benefits they provide, thus increasing their incentive to maintain healthy forests.”
The report was produced by Forest Trends, a Washington based non-profit, with the World Resources Institute, a US think tank, and the Katoomba Group, an international working group dedicated to developing ‘green’ forest products.