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News December 2002 – January 2003
Breakthrough for EU emissions trading scheme 
A mandatory European Union-wide greenhouse gas (GHG) emissions trading scheme has taken a significant step forward, following agreement among the EU’s 15 member governments. But the details of the directive to establish a ‘cap-and-trade’ scheme remain up for debate, with the European Parliament likely to oppose parts of the deal at its second reading of the directive, due in the first quarter of 2003.
In a 9 December meeting of the European Council – comprising the EU’s environment ministers – a common position was agreed on the directive, which will impose GHG caps from 2005 on around 5,000 industrial installations, accounting for more than 40% of EU emissions of carbon dioxide.
ABP unit launches SRI fund
An asset management subsidiary of ABP, Europe’s largest pension fund, has launched a global socially responsible investment fund based on research from Innovest Strategic Value Advisors. ABP has invested €150 million ($151 million) in the fund, which its manager, Loyalis Financial Services, is marketing to pension funds worldwide.
The Global Sustainability Fund aims to outperform its benchmark, the MSCI World Index, by an average of 0.75% annually over a three- to five-year investment horizon. It uses a ‘best-in-sector’ approach to choose listed equities that are expected to outperform financially and in environmental and social terms, while closely tracking the risk, sector and geographical weightings of the benchmark.
Slovakia closes first Kyoto allowance sale
Slovakia has sold allowances equivalent to 200,000 tonnes of carbon dioxide (CO2e) to a Japanese trading firm, in what is believed to be the first trade of government-allocated greenhouse gas emission allowances under the terms of the Kyoto Protocol.
The Slovak Environment Ministry did not disclose the name of the counterparty, nor the allowance price, but sources say it is in line with other recent trades in the carbon market, which have been around $5 tonne/CO2e.
UK to launch landfill trading scheme
The UK government has announced plans to introduce what it believes will be the first trading scheme for landfill permits, to help it comply with the European Union’s 1999 Landfill Directive at least cost. It has also announced a near tripling of the UK landfill tax in the next 10 years to meet the stringent EU targets.
The trading scheme, outlined in the Waste and Emissions Trading Bill, is designed to reduce the amount of biodegradable municipal waste sent to landfill to 35% of 1995 levels by 2020, as set out in the EU Directive. A government spokesman says the scheme is likely to be up and running by 2004.
Canada plans cap on carbon costs
The Canadian government says it will cap the cost to its domestic businesses of reducing their greenhouse gas emissions at C$15 ($9.65) per tonne of carbon dioxide equivalent. But, despite this unprecedented attempt to lessen the cost burden to industry, many leading industrialists remain dissatisfied.
“This is policy on the fly,” says Pierre Alvarez, president of the Canadian Association of Petroleum Producers. “There are many miles yet to go,” such as how emission reductions will be allocated between different industry sectors, he notes.
Environmentalists slam new US emissions rules
Environmentalists have attacked the Bush administration’s long-awaited changes to the New Source Review (NSR) programme, accusing it of undermining efforts to control emissions from power plants.
Under the Clinton administration, the Environmental Protection Agency used the NSR to insist that generating companies should install costly pollution-cutting technology when upgrading ageing power plants. Utilities argued that this discouraged environmentally-beneficial plant improvements and a number of them are fighting NSR-related lawsuits dating back to 1999. Some incurred billion-dollar fines under this legislation for making changes to their plant without fitting new emission control systems.
Japan makes strides towards emissions trading
Japan is moving closer to introducing greenhouse gas (GHG) emissions trading, with a range of initiatives at city, regional and national level.
The Mie prefecture – a region of central Japan with a population of around 2 million – is poised to begin a GHG trading simulation in January.The prefecture has chosen about 30 companies, mainly from the manufacturing sector, to trade ‘virtual carbon credits’, says Takehiko Naganuma, a member of the climate change policy division in the Ministry of the Environment.
Meanwhile, the Tokyo metropolitan government has announced its own far-reaching climate change strategy, which includes plans for an emissions trading scheme for the capital.
The national government is gradually catching up with Tokyo’s progress, says this observer. It is already discussing the design of a national GHG registry, will shortly begin training ‘operational entities’ to certify emission reductions, and is expected to reform its coal tax in the next fiscal year, he says.
Sustainability reports ‘favour quantity over quality’
The quality of companies’ social and environmental reports “appears to have reached a plateau”, according to a new study from SustainAbility, a UK-based consultancy. It also finds that reports have dramatically increased in size, reducing their accessibility and transparency. And it says the provision of environmental information is declining as companies increase their coverage of the social and economic aspects of sustainability.
Trust Us: the 2002 Global Reporters’ Survey of Corporate Sustainability Reporting examined 100 sustainability and corporate social responsibility reports from around the world and subjected 50 to “in-depth benchmarking”.
ICAP expands in emissions, weather
London-based ICAP, the world’s largest interdealer broker, is expanding its activities in the growing markets in weather derivatives and emissions.
In a statement accompanying the group’s half-year results on 27 November, group CEO Michael Spencer said “we intend to make further acquisitions in the energy market to build a leading global business”.
The statement followed the purchase of 165-strong APB Energy, a Louisville, Kentucky-based broker for a likely $30 million. APB claims to be the leading electricity broker in the US and is also active in the gas, coal and weather markets. It has offices in Norway and the Netherlands as well as the US.
UK emissions trading service launched
A company promising to help smaller firms with greenhouse gas (GHG) emissions targets buy allowances in the UK GHG market has been set up. Launched in late November, in association with UK climate change consultancy EcoSecurities and Marsh, the world’s largest insurance broker, Climate Change Services (CCS) offers an aggregation service to supply small volumes of GHG allowances to UK firms.
“Small- and medium-sized companies are having a struggle getting to grips with the market,” says Charles Bretton, a director at CCS. Many of them require only small volumes of allowances, he says, which makes them unattractive to existing GHG brokers.
SO2 price seen slow to recover
US sulphur dioxide (SO2) allowance prices are unlikely to recover before the second half of 2003, due to cash flow problems at electricity generators, regulatory uncertainty, and an excess of existing allowances, according to market participants.
Under the terms of the Clean Air Act, large US utilities are required to purchase allowances for every ton of SO2 they emit above a declining cap set by the US Environmental Protection Agency.
Entergy-Koch to quote new Nordic weather contracts
Entergy-Koch Trading (EKT) plans to begin making markets in weather derivatives linked to two new Scandinavian weather indexes. The indexes, which were developed with the Swedish Meteorological and Hydrological Institute and broker Svensk Kraftmäkling, track the average of temperatures in 12 cities in Norway and Sweden, and precipitation in the major hydro-electricity producing areas of the two countries.
“The Scandinavian energy market is very highly exposed to weather – both to temperature and precipitation,” says Mark Callaway, London-based director of origination at EKT, a Houston-based energy trading firm.
SRI can pay, says WestLB
Investors can improve their returns if they use sustainability criteria for stock selection, says German investment bank WestLB. Concerns from some investors that excluding ‘sin stocks’ (such as oil and gas companies) from their investment universe could lead to lower returns, are “clearly not supported by the present data,” it argues in a recently released report.
SRI: Sustainability pays off says the ‘sustainability factor’ can boost returns by up to 2.1% per year. Using sustainability filters can add value “regardless of whether one is a value investor, a growth investor, or an investor opting for the small, mid, or large-cap style,” and is not necessarily riskier than other methods of active stockpicking, says the report.