News, November 2001

Battle looms on EU emissions trading scheme

The European Commission looks to have a fight on its hands to push through its emissions trading directive without substantial changes. The UK government and various European industry groups have raised concerns about the proposal, particularly its likely incompatibility with trading under both the UK’s planned scheme and the Kyoto Protocol, and the mandatory nature of the Commission’s plans.

The long-awaited draft directive on a European Union-wide greenhouse gas (GHG) emissions trading scheme was finally issued on 23 October. The scheme as proposed will cover emissions of carbon dioxide (CO2) from around 4,000–5,000 facilities, representing 46% of CO2 emissions in the EU.

“It would be necessary to adapt the Commission’s proposed scheme before it is compatible with ours,” says a senior official within the UK’s Department of Environment, Food and Rural Affairs (Defra). Defra is responsible for the UK’s Emissions Trading Scheme (ETS), which is due to begin operating in April 2002. The EU scheme is due to come into force in 2005.

Brazil claims SRI first

ABN Amro Asset Management Brazil has launched the first socially responsible investment (SRI) fund in an emerging market. On 1 November it unveiled the ABN Amro Ethical Fund, which will invest in listed Brazilian equities and is aimed at Brazilian retail investors.

“The reaction has been very good,” says Luiz Ribeiro, portfolio manager for Latin American equities at ABN Amro in Brazil, “and companies are calling to ask how to be included in the fund.”

US, Canada halfway to cross-border market

The Ontario Ministry of the Environment’s plans for cross-border markets in nitrogen oxides (NOx) and sulphur dioxide (SO2) emissions permits have come partially unstuck: the US Environmental Protection Agency (EPA) will not allow US emitters to use allowances bought from Ontario for compliance under its schemes. Emitters in the Canadian province,however, will be able to use US allowances.

“The US has an emissions trading system, and our [planned] emissions trading system is similar to theirs,” says John Steele, a ministry spokesman. “Our view is that we should harmonise our systems.”

Dutch re-enter carbon market

The Dutch government has announced tenders to buy emission reduction credits equivalent to 13 million tonnes of carbon dioxide (CO2e) to help it meet its commitments under the Kyoto Protocol. The tenders – which are open to developers of both Clean Development Mechanism (CDM) and Joint Implementation (JI) projects under Kyoto – follow agreements to purchase 4 million tonnes of CO2e announced in April.

However, Senter Internationaal, the government agency running the purchase programme, is expecting to pay less for the new credits than the average of €8.6 ($7.7) per tonne of CO2e it paid in the first tender.

Weather hedge plugs productivity freezes

ABN Amro has completed what brokers say is the largest weather derivatives deal in the European market – and one of the largest end-user deals worldwide.

The Dutch bank is declining to comment on the transaction, but it is understood to have provided a Dutch company with around €100 million ($91 million) of cover over five years against loss of productivity caused by freezing temperatures over the winter season.

Sydkraft commits to green certificates market

Swedish energy group Sydkraft has entered the growing market in renewable energy (‘green’) certificates with one of the biggest trades to date. The Malmo-based company has sold more than 100GWh of power from small-scale hydro plants in Sweden, along with the associated green certificates, to Dutch utility Nuon for an undisclosed price. London-based GT Energy brokered the transaction.

Employers’ group attacks insurers’ disclosure guide

The release of guidelines on corporate disclosure of social, ethical and environmental (SEE) issues from the Association of British Insurers (ABI) has met with a frosty response from UK employers’ association, the Confederation of British Industry (CBI). A spokesman for the CBI cites concerns about “a proliferation of different disclosure codes” and the added burdens that the guidelines could impose on companies. Investors, on the other hand, are generally supportive.

CO2e.com restructures, reports brisk business

CO2e.com is now fully back in business, having completed an operational and technical restructuring following the 11 September attacks, says Steve Drummond, the new chief executive of the web-based carbon market. He adds that the firm is working on “a number of active deals” for the UK’s planned market in greenhouse gas emissions.

CO2e.com, an offshoot of Cantor Fitzgerald, had its main offices near the top of the World Trade Center’s north tower. Its founder and chief executive, Carlton Bartels, and two employees, John Willett and Adam White, were lost in the attacks.

CME weather contracts brighten up

There is life yet in the Chicago Mercantile Exchange (CME) weather futures contracts. After languishing untraded since May 2000, 25 contracts changed hands in October, referenced to temperatures in Atlanta and Chicago.

This hardly represents a flood of liquidity. But some weather derivatives dealers believe that volumes on the CME are set for steady growth, as counterparties increasingly value what the exchange can offer that the privately-negotiated over-the counter market (OTC) cannot: anonymity and rocksolid credit.

STOXX backs new SRI indexes

Anew set of equity indexes for the socially responsible investment (SRI) market was launched on 15 October to meet growing demand for such investments in Europe.

The aim of the four new indexes – the Dow Jones STOXX Sustainability indexes (DJSISTOXX) – is to track the performance of companies judged to be the European leaders in terms of economic, social and environmental performance.

The sustainability analysis on which the choices are made is the same as that developed by Zurich-based Sustainable Asset Management (SAM) for the Dow Jones Sustainability indexes (DJSI) launched in 1999.

SAM seeks sustainable profits in water

Anew fund investing solely in water-related companies has been launched by Zurich-based Sustainable Asset Management (SAM).

Water use globally is rising by around 2.6%/year, which is significantly faster than population growth of 1.5%/year, notes Christian Siegfried, head of fund management with the company. At the same time, he says, there are mounting concerns over water scarcity and quality and the infrastructure needed to distribute it.

Weather hedgers in Toronto get help from RMS

Canadian data has been added to the Climetrix weather risk management system. Some 50 years of daily measurements from 20 of the main weather stations in Canada have been compiled and cleaned by Risk Management Solutions (RMS), the developers of Climetrix, and its partner in the project, Earth Satellite Corporation.

Flare trading moves forward

Participants in the UK’s pioneering off-shore ‘flare emissions’ trading scheme are exceeding their targets for emission reductions and several trades have already taken place. Four inter-company trades and seven intra-company trades have been executed and more are expected before the year-end, Steve Messner, environmental manager with oil and gas producer Amerada Hess, told the Carbon Finance conference in London on 8 October.

GHG Protocol aims to harmonise emissions reporting

After three years of development, a protocol designed to help companies standardise the calculation and reporting of greenhouse gas (GHG) emissions was launched on 23 October. Known as the GHG Protocol, the standard was developed by the US environmental think-tank, the World Resources Institute (WRI) and the World Business Council for Sustainable Development (WBCSD).

US corporates shift on carbon

Two of the largest coal-burning utilities in the US have signalled a shift in their attitudes towards regulatory caps on carbon dioxide (CO2) emissions, amid growing signs that North American companies are embracing action on climate change.

AEP and Cinergy – both based in the US Midwest – expressed a willingness to discuss potential mandatory controls on their CO2 emissions at recent stakeholder meetings held by the US Senate Environment Committee to consider the drafting of new clean air legislation.

“We are willing to accept a cap on our emissions, depending on the specific numbers, the timing of implementation, and some recognition for projects that would reduce, avoid, or sequester CO2,” says a spokesman for AEP.