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News September 2005
The following are summaries of news stories from the September 2005 print edition of Environmental Finance magazine
Plan emerges for US regional CO2 market
Details have emerged of the proposed ‘cap-and- trade’ scheme to reduce emissions of carbon dioxide from power plants in the north-eastern US. The Regional Greenhouse Gas Initiative (RGGI) would stabilise emissions from around 600 plants at around 150 million tons of carbon dioxide a year, starting in 2009, and then reduce them by 10% by 2020, according to a draft obtained by Environmental Finance.
RGGI is a joint effort by nine states – Connecticut, Delaware, Maine, Massachusetts, New Hampshire, New Jersey, New York, Rhode Island and Vermont – kicked off in 2003 by New York State governor George Pataki. The draft plan will now be circulated to affected utilities and other stakeholders.
Canada unveils latest stage of Kyoto plan
The Canadian government has published proposed rules for a domestic carbon offset system, to encourage greenhouse gas (GHG) emissions reduction projects. By allowing projects that reduce emissions to generate carbon credits, the system is designed to help address a major shortfall in Canada’s efforts to meet its targets under the Kyoto Protocol on climate change.
Credits generated under the scheme could be sold to the Climate Fund, set up in this year’s budget to buy GHG credits on behalf of the government, or to companies covered by the Large Final Emitters scheme, which seeks to reduce emissions from the oil and gas sector, power producers and some mining companies and manufacturers.
NGOs accuse banks of sidestepping environmental policies
NGOs have accused five international banks of “environmental money laundering” following reports that they have arranged a $1 billion bond issue for the Export-Import Bank of China.
Friends of the Earth and the International Rivers Network claim that BNP Paribas, Citigroup, Goldman Sachs, HSBC and Merrill Lynch are behind the bond, alongside Bank of China International, although only Citigroup has confirmed that the deal is taking place.
The NGOs are unhappy with China Exim Bank’s social and environmental record and its lending policies, and suggest that, by issuing the bond, the international banks “will help finance projects which they could not finance directly under their own environmental policies” and will, in effect, be engaging in “environmental money laundering”.
Weather market veterans to launch hedge fund
The former heads of Swiss Re’s New York-based weather desk, Mark Tawney and Bill Windle, are in the process of setting up a weather and energy hedge fund, to be capitalised initially at $150 million. The pair, who left the reinsurance giant in June, have established a Houston-based company, Takara Capital Management, and were expecting to secure initial investment in early September, according to a source close to the company.
The hedge fund – named after the Japanese word for treasure – will focus on relative value trading, exploiting the inter-relationships between weather and energy markets, rather than taking absolute positions in the two assets.
‘Few challenges’ for aviation to join EU ETS – report
Bringing aviation into the EU Emissions Trading Scheme (ETS) “does not appear to pose many challenges”, according to a report* produced for the European Commission. Its inclusion would not significantly affect the competitive position of EU airlines, nor lead to major rises in the price of EU allowances up to 2012, according to Dutch consultants CE Delft, the authors of the study.
The release of the report coincides with the publication of a Commission consultation, which finds overwhelming support for action to mitigate aviation’s increasing contribution to greenhouse gas emissions – from almost 90% of the 198 organisations, and 80% of the 5,564 individuals, that responded.
The August issue of Carbon Finance contains an in-depth feature covering this report.
Climate change a ‘fiduciary duty’ for trustees – Mercer
Pension fund trustees have a fiduciary duty to address the financial risks associated with climate change, according to a new guide*, written by Mercer Investment Consulting, and published by the UK’s Carbon Trust and the Institutional Investors Group on Climate Change.
The report offers advice to trustees on the risks and opportunities posed by climate change. It also examines the definition of fiduciary duty – the duty owed to the pension beneficiary by the trustee – and concludes that, in the case of both private sector and local authority pensions, it is “consistent with fiduciary responsibility to address climate change risk”.
* A climate for change: A trustee’s guide to understanding and addressing climate risk
Questions raised over water markets
New research suggests that major investments in forestry to improve water flows could be misguided – and has raised profound questions over market-based water payment schemes. A four-year study by the UK’s Forestry Research Programme (FRP) challenges the assumption that forested land is necessarily better for water management than grassland, and argues that schemes that make payments to landowners linked to local water flows may be open to “complex litigation”.
“What we’re concerned about are leakages between watersheds. They’re very difficult to measure,” says John Palmer, the UK-based FRP programme manager. “We now think that any [such scheme] should be done on a broader scale.”
Researchers open electronic hurricane market
Meteorologists, other experts and students are now able to make money by accurately predicting where hurricanes will make landfall in the US, thanks to a new electronic futures market started by three professors at the University of Miami. The Hurricane Futures Market will allow participants to invest between $5 and $500 in “securities whose payoff depends on where a given hurricane makes its first landfall”.
The goal of the market is to assess how individuals use hurricane information and is modelled on the predictive success of other futures markets, such as the “prediction markets” for Federal Reserve interest rate policy decisions, movie box-office receipts, Nobel prizes and, most famously, US presidential elections. The assumption is these markets’ accuracy is derived from the wide number of sources that participants use to come to their views.
€60 million for new Impax renewables fund
Impax Group has raised €60 million ($73 million) into a private equity fund targeting renewable energy projects. The UK-based boutique finance group is hoping to raise at least €125 million into its New Energy Fund, which will focus on wind, co-generation, energy-from-waste, hydro and solar, predominantly in Western Europe.
“This is intended to be a very flexible investment instrument, reflecting the fact that developers are in very different places from a financial point of view,” says Ian Simm, managing director of Impax Asset Management, which will manage the fund.
Sydney Futures Exchange mulls water market
The Sydney Futures Exchange (SFE) is considering establishing what it says would be the world’s first futures market in water availability risk.
The SFE proposes developing a series of regional indexes of water availability, with the listing of futures contracts on each regional index providing a mechanism for users to hedge the financial costs of fluctuating water levels.
NSW to trial biodiversity bank
A scheme that would allow developers to offset the effects of habitat destruction by buying credits from a biodiversity bank is to be trialled by the New South Wales environment department.
The revenue collected from various developers in a region would be used to fund offsetting biodiversity conservation projects in the same region.
Summer heat drives NOx prices
Despite a relatively cool start to the summer, recent sustained high temperatures in the Northeast and Midwest helped drive US nitrogen oxide allowance prices as high as $3,000 per ton, surpassing market participants’ expectations.
“We were surprised to see [2005 allowances] go at a premium,” says Peter Zaborowsky, managing director at New York-based brokerage Evolution Markets. “We thought – before the heat-inspired rally – that the 2005s would fall to the level of the 2004s.”
Laggards rewarded by WEEE slippage
Despite the EU’s deadline having passed, implementation of its directive on waste electrical and electronic equipment is far from complete – rewarding companies that have failed to take action, according to a leading lawyer.
Countries were supposed to have set up systems for the collection and environmentally sound disposal of such equipment, funded by manufacturers, by 13 August, but a number have yet to do so.
The delays are something of a blow for companies that have taken early action, says Owen Lomas, UK-based head of the global environmental group at law firm Allen & Overy. “For those companies that have taken this very seriously, it’s frustrating, but others that have been far less diligent are laughing."
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