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News October 2002
Compromise emerges on EU trading scheme 
Compromise is emerging on the thorny issue of whether the European Union’s planned greenhouse gas (GHG) emissions trading scheme (ETS) will be voluntary or mandatory – but other aspects of the EU-wide scheme, due in place by 2005, remain controversial.
The Council of Ministers – representing the 15 member state governments – is moving towards a deal whereby installations could apply to opt out of the first 2005–07 phase of the scheme if they can show ‘equivalence of effort’ – that existing policies and measures will reduce GHGs at least as much as ETS participation.
UK mulls trading in SO2 and NOx
A proposal for a ‘cap-and-trade’ scheme to help reduce UK emissions of sulphur dioxide and nitrogen oxides is being considered by the government.
The idea has been put forward to help the UK meet its obligations under the European Union’s Large Combustion Plant Directive. This legislation, heavily revised in October 2001, applies to combustion plants of more than 50MW capacity and aims “to reduce acidification, ground level ozone and particulates throughout Europe”.
Thailand tones down CDM ban
Thailand’s government has stepped back from a surprise decision to ban Clean Development Mechanism (CDM) projects – but will tightly control their approval.
In a cabinet meeting on 10 September, the Thai government decided to refuse to allow industrialised world companies to set up projects under the CDM – a tool by which investors can earn ‘carbon credits’ from projects in developing world countries that reduce or avoid greenhouse gases, under the terms of the Kyoto Protocol.
However, it moderated its decision in a statement on 24 September, in response to opposition from some Thai ministries and the United Nations Environment Programme, according to Bangkok sources. CDM projects will now be accepted, but must be reviewed, on a case-by-case basis, at cabinet level.
Partner Re enters weather market
Partner Re has bucked the trend of contraction in the US weather risk market, with the creation of a small weather desk. In September, three former Aquila employees joined the Connecticut-based reinsurer, which is planning a cautious, end-user focused entry into weather risk management.
“The weather business is a young one, and it’s still evolving,” says Marvin Pestcoe, head of the new solutions group at the firm. “We’re not in a position where we’re going to go gung ho into the market.”
Japan coal tax looms over mining sector
News that the Japanese government is considering a tax on coal saw the share price of UK mining firm Xstrata briefly dive early last month. Many analysts doubt that a coal tax would heavily impact coal companies in the short to medium term. However, others see the tax issue as an indicator of the long-term risks posed to them by government policies to curb greenhouse gas emissions.
The Ministry of Economy,Trade and Industry is to carry out a reform of Japanese energy policy and taxation, which will consider the possibility of a coal tax, minister Takeo Hiranuma announced on 28 August. The tax could come into force in the next fiscal year.
Asbestos threat to insurers still growing
All but four of 250 companies defending the latest major asbestos compensation trial in the US have settled out of court – suggesting that claims could be set to continue rising.
The companies were defending a case in West Virginia, brought by around 8,000 people who claim to have been exposed to asbestos. Four companies – ExxonMobil,Dow Chemical’s Union Carbide subsidiary, chemicals firms Amchem and John Crane, an engineering firm – continue to fight the case.
Tight supply drives up UK emissions prices
A lack of supply of greenhouse gas emission allowances is pushing up prices in the UK Emissions Trading Scheme – with some buyers fearing that prices could rise much higher. In late September, allowances for 2002 traded above £12 ($18.70) per tonne of carbon dioxide or equivalent – up from around £5 at the scheme’s launch in April.
However, brokers and government officials expect significant supply to enter the market soon, as participants complete the verification of their emission baselines – the levels of emissions against which reductions are measured – which will allow them to begin selling allowances.
‘Room for improvement’ on banks’ green risks
Barclays, Credit Suisse and Lloyds TSB are among the most advanced of Europe’s largest banks in their approach to environmental credit risk assessment (ECRA), according to a survey by ISIS Asset Management, the newly created UK fund management giant.
The survey, published in late September, involved detailed analysis of 10 major banks in which ISIS has an equity stake. It concluded that there is much room for improvement by all 10, although they have all embraced ECRA and believe that environmental risks can directly impact bank profitability.
Emerging market turmoil kills REEF fund
A pioneering renewable energy, energy efficiency and carbon fund has fallen victim to the economic downturn in emerging markets, and particularly to worsening sentiment towards their electricity sectors. The $65 million Renewable Energy and Energy Efficiency Fund for Emerging Markets has been wound up, after making just one small investment, it emerged at the Earth Summit.
“Within the last quarter, the investors decided to wind up the private equity fund, due to changes in the market environment and the difficulties in developing renewable energy projects,” says Dana Younger, of the environment and social development department of the International Finance Corporation.
‘$5 million cost’ for GRI reports
It could cost a company $5 million to meet all of the Global Reporting Initiative’s (GRI) social, economic and environmental reporting requirements when issuing a report for the first time, said Björn Stigson, president of the World Business Council for Sustainable Development, and a member of the GRI’s board of directors.
The estimate – made at the World Summit on Sustainable Development the day before the launch of the revised GRI Sustainability Reporting Guidelines – highlights the cost barriers that small- and medium-sized enterprises face in meeting these guidelines. They call for extensive reporting on social and environmental indicators and for often costly management systems to generate the information.
Summit boost for Kyoto Protocol
The Kyoto Protocol received more than its share of the limelight at the Earth Summit – despite its absence from the Summit’s formal agenda. Both Canada and Russia made public statements that move them closer to ratification, and China used the Johannesburg Summit to announce that it had ratified the climate change treaty.
On 3 September, Russian prime minister Mikhail Kasyanov told the plenary of the Summit that “we consider that ratification will take place in the very near future” – subsequently telling the Reuters news agency that it could ratify this year.
Russia’s is the swing signature. Without it, the Kyoto Protocol would collapse, following the decision by the US administration last year not to ratify.
The day before Kasyanov’s remarks, Canada’s prime minister Jean Chrétien told the Summit he would put ratification of the Protocol to a vote in Canada’s lower house, which is expected to back the treaty.
Carbon and forest fund aims for $250 million
Sustainable Forestry Management (SFM) has unveiled details of its plans to raise up to $250 million for a sustainable forestry and carbon fund, with a first $100 million closing expected by the end of the year.
“The idea is to deploy capital to produce attractive returns and develop a gold standard position in the carbon emissions market,” says Alan Bernstein, SFM chief executive, “but to do it from the perspective of restoring degraded ecosystems".