News April 2002

UK claims carbon auction success

Supermarket groups, property developers, a bank, an airline and even a museum have joined the giants of the energy and chemicals sectors as launch members of the UK’s new Emissions Trading Scheme. They are among the 34 companies which will receive government payouts totalling almost £215 million ($305 million) if they cut their emissions of greenhouse gases (GHGs) by the equivalent of 4 million tonnes of carbon dioxide (CO₂) over the next five years.

This incentive money was allocated by auction on 11 and 12 March. “We are very pleased … the auction went very smoothly,” says a government spokeswoman. The volume of the winning bids was higher than the government had expected, adds Chris Fay, chairman of the government’s Advisory Committee on Business and the Environment. The government had said it hoped the auction would yield savings of 0.8 million tonnes of carbon (equivalent to 2.9 million tonnes of CO₂).

Morgan Stanley attacked on Asian financing

Morgan Stanley is under attack by environmental activists for its role in financing Asian projects that they claim are harming the environment and involve human rights abuses.

Directors of the bank were confronted at its annual general meeting in London on 19 March by protesters from Friends of the Earth, the International Rivers Network and the Free Tibet Campaign.

Denmark hopes for Kyoto reprieve

The 15 members of the European Union have reached agreement on ratification of the Kyoto Protocol – at the expense of deferring a potentially controversial decision on reducing Denmark’s greenhouse gas emissions reduction target.

At a meeting in Brussels on 4 March, EU environment ministers signed a joint agreement legally binding their respective countries to the terms of the climate change pact. But Denmark successfully argued for the inclusion of the phrase, “Certain Member States expressed assumptions concerning base year emissions and common and co-ordinated policies and measures,” in the preamble to the agreement.

“The Commission and all other member states of the European Union have accepted politically that Denmark is in a special situation as far as the base year is concerned,” Danish environment minister Hans Christian Schmidt said in a statement.

South Africa poised for weather hedging

Gensec Bank has become the first organisation to publicly offer weather hedges in South Africa. The Johannesburg-based bank has formed a strategic alliance with Aquila, a Kansas-City based energy and weather trading firm, to extend the bank’s derivatives expertise to weather contracts. The agreement will give Gensec access to a share of the $70 million of risk capital Aquila has available for weather trades. In return, Gensec will open up a new market for Aquila that will help it diversify its weather risks.

Gensec has already been approached about hedging against rainfall at international cricket matches. A broker asked Gensec Bank if it would be prepared to offer a weather hedge for the series of matches between South Africa and Australia held in February and March this year, says Peter Dalton, manager of structured products at Gensec Bank.

FTSE4Good keeps exclusion policy

The FTSE4Good advisory committee plans to announce changes to its selection criteria early this month, but will not change its policy of screening out tobacco producers, manufacturers of weapons systems and owners/operators of nuclear power plants, says Mark Makepeace, chief executive of the FTSE Group.

When the family of socially responsible investment (SRI) indexes were launched in July last year, FTSE said it was keen to dispense with these exclusion criteria and that it was trying to develop ways to measure the performance of companies in the
excluded sectors. Several SRI fund managers have criticised the indexes for excluding certain sectors completely, arguing in favour of a ‘best-in-class’ approach to stock selection. But Makepeace now says that, “there are not many people that argue for best-of-sector anymore”.

Ministers ponder French GHG trading scheme

French industry is waiting for government ministers to give the go-ahead for a voluntary emissions trading scheme to help the nation reduce its emissions of greenhouse gases (GHGs). A framework for such a scheme was thrashed out in a series of meetings in January and February between industry representatives and senior officials from the ministries of industry and the environment.

If ministers give the proposals the green light, the proposed national GHG market would run for two years from 1 January 2003. The European Commission has proposed that a multinational GHG trading scheme covering all member states in the European Union should be launched in January 2005.

IETA flags carbon contract

The International Emissions Trading Association (IETA) is to launch a 'cornerstone carbon contract’ on 8 April. The document, which has been produced by law firm Baker & McKenzie in conjunction with a number of IETA members, is a first step towards setting out “a common language and common terms to make it easier for people to deal carbon,” says André Marcu, IETA’s Geneva-based executive director.

It is “essentially a very sophisticated checklist of the legal issues to take into account” when drawing up financial contracts that include a carbon component, says Anthony Hobley, a senior associate at Baker & McKenzie in London.

US industry awaits New Source Review changes

Momentum continues to build in Washington for changes to the New Source Review (NSR) provisions of the Clean Air Act, despite the resignation of a top official at the Environmental Protection Agency (EPA) and widespread criticism from US environmental groups.

Final plans for reform of the NSR programme have yet to be announced officially but documents leaked to US non-profit the Natural Resources Defense Council indicate that the EPA is working on several possible modifications to the controversial scheme, including changing emission baseline standards and introducing new 10-year emissions limits that would allow pollution levels to fluctuate.

SO2 auction shrugs off Enron absence

This year’s US auction of sulphur dioxide (SO₂) allowances passed off smoothly on 25 March, despite the absence of Enron, the dominant bidder in recent years. In last year’s auction, Enron bought 95% of the available allowances.

This year, no single player dominated the bidding. PSEG Energy Resources and Trade bought just over 40% of the available 2002 vintage allowances, with Reliant Energy winning almost 24% and TXU believed to have taken almost 20%.

France demands more environmental reports

France’s largest companies will be obliged to report on their social and environmental performance in their 2003 annual reports as a result of recent government legislation. The new requirements will undoubtedly increase France’s relatively poor reporting record, analysts say, but some are concerned that the ruling does not go far enough to ensure the quality of information that companies publish.

All companies listed on the 'premier marché’ of the Paris stock exchange – now around 400 – will have to report on a set of social and environmental indicators, according to an amendment to the New Economic Regulations law published on 20 February. It requires companies to report on a range of issues including human resources, labour standards, their impact on the community and their consumption of water resources, raw materials and energy.

go to Features April 2002