News November 2003

The following are summaries of news stories that appeared in the November 2003 print edition of Environmental Finance magazine

Dutch builders re-enter weather market

ABN Amro is understood to have placed a further tranche of ‘frostday’protection, referenced to freezing temperatures at Amsterdam’s Schipol airport. The deal, which closed at the end of September, is believed to be the same structure, and for the same counterparty, as a " 500 million- plus, five-year hedge the Dutch bank sold in 2001 – thought to be the largest ever weather derivatives transaction.

The contract was sold to the administrators of a ‘cold weather risk fund’, which protects Dutch construction workers and their employers against interruptions to work caused by freezing temperatures..

National allocation plans chaotic’, says industry

T he majority of EU member states are on course meet the deadline for allocating carbon dioxide (CO2 ) emission allowances to companies under the planned EU Emissions Trading Scheme, according to the European Commission. But industry is expressing frustration over what it sees as a chaotic process and expects key deadlines to slip.

Noel Morrin, international environment director at cement giant RMC, says,“Chaos reigns … It’s an incredibly complicated task, it’s not surprising it is beginning to fray around the edges.”

AEP dominates CCX carbon auction

The Chicago Climate Exchange (CCX) began its life with an auction in late September that saw 2003 and 2005 vintage greenhouse gas (GHG) allowances fetch average prices of $0.98 and $0.84 respectively. Each allowance represents one tonne of carbon dioxide.

Since then, brokers Natsource, Evolution Markets, Carr Futures and Refco have joined the voluntary GHG reduction exchange as members and ‘liquidity providers’.

Ohio-based energy giant, American Electric Power (AEP), bought most of the 100,000 of this year’s allowances and 25,000 of the 2005 allowances available at the auction, which was designed to help provide the market with price information. Other successful bidders included Baxter International, Dupont, Ford, Manitoba Hydro and Stora Enso North America.

TXU renewables payments on the table

The administrators failed energy company TXU Europe are to make interim payments to holders of Renewable Obligation Certificates (ROCs), partially redressing a £23.6 million ($39.9 million) shortfall funds meant to help boost renewable energy in the UK.

But lobbying continues redraw the Renewables Obligation (RO) to prevent further bankruptcies hitting renewable energy operators. While some participants say the market is recovering from news of the shortfall, which emerged in August, others argue that it has dented investors’ confidence the sector.

EBRD enters carbon market

he European Bank fo Reconstruction and Development (EBRD) has entered the carbon credits market fo the first time, with the establishment of a € 32 million ($ million) fund to buy greenhouse gas (GHG) emission reduction allowances for the Dutch government.

Also in late October, Dutch government agency Senter Internationaal issued fourth ERUPT (Emissions Reduction Unit Tender Programme) tender, which also aims to source GHG emission reduction credits from Joint Implementation (JI) projects.

Norwegian government axes agreement with Caring Company

N orway’s finance ministry has terminated agreement with Sweden’s Caring Company, which had been providing ethical research for the Nkr775 billion ($110.9 billion) Petroleum Fund.

The ministry questioned Caring Company’s screening approach, and disagreed with the research firm’s recommendations that some companies should be dropped from the fund, it announced national budget proceedings last month.

Caring Company suggested the exclusion of three companies Marriott International, the world’s largest hotel chain, for connection to a child prostitution case; and Chartered Semiconductors and its sister company Singapore Technologies Engineering their involvement in the production of land mines.

Japanese data system ‘halves weather contract premiums’

A weather data system that electronically ‘cleans’ large amounts data has been introduced to the Japanese weather market by Tokio Marine and Fire Insurance.The new system, which the firm says is the first its kind, will cut weather contract premiums by half and should allow contracts to be offered that better match customers’ weather exposures, it says.

The Automated Meteorological Data Acquisition System (AMeDAS) sources weather data from more than 1,300 unmanned stations across Japan, up from 150 stations under Tokio Marine’s old system. The AMeDAS data is then electronically cleaned, to fill in any gaps, and is then made instantly available to users via TokioWeather, the insurer’s internet-based weather derivatives platform. The system, developed by Japan’s Meteorological Agency, provides historical data going back at least 20 years.The product was rolled out last month to Tokio Marine’s partner banks.

UN moves to boost clean energy finance

he United Nations is launching an initiative to support and encourage the financial sector to factor environmental considerations into energy sector investment decisions.

The new programme –the Sustainable Energy Finance Initiative (SEFI) – is joint venture between the energy unit and the Finance Initiatives (FI) division of the UN Environment Programme, and the Basel Agency for Sustainable Energy, a Swiss nonprofit organisation. It was launched by UNEP executive director Klaus Toepfer at the UNEP FI Global Roundtable in Tokyo in late October.

Eurosif publishes first SRI data for Europe

Around € 336 billion ($395 billion) of institutional assets in Europe are invested using some kind of socially responsible investment (SRI) process, according to the first attempt to calculate the size of Europe’s SRI market.

The European Sustainable and Responsible Investment Forum (Eurosif) collated national SRI data from eight countries (Austria, France, Germany, Italy, the Netherlands, Spain, Switzerland and the UK) for its report*, released in October. Data was supplied by national social investment forums, with the European Commission funding the project, says.

Renewable energy due diligence service launched

Three consultancies have launched a renewable energy due diligence service to support financial sector investment in renewable generation and clean energy technologies.

The service, offered by Enviros in the UK, Netherlands-based Tauw and Denmark’s COWI, is response to declining investment in the sector by global power firms, the companies say. The new service will offer advice on the technical, commercial, social and environmental risks of new projects and on investments in clean energy companies.

Investment banks turn attention to EU ETS

The investment banking community is ramping up its analysis of the possible impacts on equity and power prices of the planned European Union greenhouse gas (GHG) Emissions Trading Scheme (EU ETS).

UBS, Credit Suisse First Boston (CSFB) and Citigroup have produced such reports in recent weeks, while a Deutsche Bank study has questioned whether the scheme will start on time in 2005.

New Zealand Super Fund sets out ethical stance

New Zealand’s newlyestablished Superannuation Fund will avoid investing in companies contravening certain international agreements, or which act inconsistently with standards set by “responsible members of the world community”.

The independent board administering the fund will appoint an international screening agency or agencies to offer guidance on the choice of securities in which it invests. The appointment is expected to be announced before the end of the year, a spokesman for the fund says.

UK blue-chips sign up for carbon management

ifty UK blue-chip companies – including 16 in the FTSE 100 – are imminently to announce their participation in a £2.5 million 4.2 million) government-funded programme to examine the likely financial impacts of carbon constraints on their business.

The Carbon Management Programme – sponsored by the Carbon Trust – see them work with consultants to assess, and ultimately manage, the effects of controls on their emissions of greenhouse gases (GHGs).

“Companies are increasingly seeing that carbon has a cost, and becoming an important part of their business,” says Phil Brown, head of carbon management at the Carbon Trust, which is funded by the UK government to help move the UK towards a low-carbon economy. “They’re trying to quantify that, and generate momentum, to deal with it in future.”

Slow start for CME Euro weather contracts

he first European weather derivatives have traded on the Chicago Mercantile Exchange (CME), with 10 futures contracts referenced to temperatures in Berlin changing hands on 22 October. But brokers say that data issues, the currency in which the contracts are denominated, and regulatory approval processes are hampering trading in the new contracts.

The CME launched weather futures referenced five European cities – Amsterdam, Berlin, London, Paris and Stockholm – on 3 October, offering monthly heating degree day (HDD), seasonal HDD, and monthly and seasonal cumulative average futures. They complement the CME’s existing weather contracts referenced to 15 US cities.

go to Features November 2003