News October 2005

The following are summaries of news stories from the October 2005 print edition of Environmental Finance magazine

Katrina prompts calls for cat model caution

Over-reliance on catastrophe modelling may have compounded the losses faced by reinsurers in the wake of Hurricane Katrina, according to Standard & Poor’s.

“Those reinsurers who have placed heavy reliance on these models are likely to have underpriced catastrophe risk,” says a report from the US-based credit rating agency.

“Katrina’s unexpected mix of wind and flood damage has reminded the industry that its experience, and therefore knowledge, of large loss events is limited,” continues the report. “Catastrophe modelling, while to some extent a substitute for experience, has its limitations.”

Hurricane Katrina, which hit the US Gulf Coast near New Orleans on 29 August, resulted in widespread destruction and more than a thousand deaths. A category four storm, and the most expensive natural catastrophe ever, it caused the levees that protect New Orleans to fail, flooding large parts of the city.

Katrina to flatten US environmental protections?

Environmentalists are crying foul over plans in Congress to roll back environmental regulations as part of the US response to last month’s hurricanes. Proposals in both the House of Representatives and the Senate – mirroring a proposal from the Environmental Protection Agency (EPA) – would waive clean air, clean water and other environmental protections to ease pressure on energy supplies following Hurricanes Katrina and Rita.

The Senate proposal – introduced by Senator James Inhofe – would allow the administrator of the EPA to waive any rule or programme under its purview, for a certain period of time.

Similar legislation from the House would go further, relaxing rules concerning the expansion of power plants and oil refineries and opening national parks to energy development, among other things.

Aviation set to join EU ETS before 2012

All flights departing from EU airports could be brought into the region’s Emissions Trading Scheme (ETS) before the end of the scheme’s second phase in 2012, according to Stavros Dimas, the European environment commissioner.

“We are three to four years away from the inclusion of aviation in the ETS,” Dimas said at a press conference on 27 September, announcing the Commission’s plan to pursue emissions trading as the most costefficient and environmentally effective solution to slow the growth in greenhouse gas emissions from aviation.

IPCC, industry back CO2 storage

Burial of carbon dioxide (CO₂) underground, or in deep oceans, could achieve more than half of the emissions reductions necessary to mitigate climate change up to 2100, according to a new report from the Intergovernmental Panel on Climate Change (IPCC).

Most models suggest that the biggest contribution of carbon capture and storage would come from deployment in the electricity sector. But the IPCC says that significant use of the technology would only be economic for CO₂ prices above $25–30/tonne.

Q-Cells set to take largest solar company crown

German solar cell manufacturer Q-Cells looks set to become the world’s largest solar company by market capitalisation, following its initial public offering (IPO) on the Frankfurt Stock Exchange in early October. At the time of going to press in late September, the company had just increased the pricing range for the 6.7 million shares to €35–38 ($42–46) – from €29–34 – potentially valuing it at €1.42 billion.

A number of solar companies have listed in Frankfurt in recent months, with Conergy’s €243 million IPO in March being the previous largest.

Pension funds back greater reach for CDP

Two of the largest pension funds in the US are to fund the Carbon Disclosure Project (CDP) to extend its climate risk survey to the world’s 300 largest electric utilities, in the first of several planned extensions of the landmark investor initiative. The announcement comes as the CDP unveiled the results of its third request for “investment relevant” information on climate risks and opportunities from the components of the FT Global 500 index.

“The future of the CDP will involve more companies, and more depth in the analysis,” CDP chairman James Cameron told a meeting at the London launch of CDP3 in late September.

DJSI returns to North America with new index

In response to what it sees as a growing interest in sustainability among US and Canadian investors, Dow Jones Sustainability Indexes (DJSI) has launched two new indexes focused on North America.

As with DJSI’s other indexes, large listed companies will be rated in terms of sustainability, with the most sustainable, or best-in-class, included in the indexes. The DJSI North America comprises the top 20% of companies in each sector from North America’s largest 600 firms, while the DJSI United States is made up of those companies in the DJSI North America that are US listed.

US sulphur dioxide allowances “overvalued” – ICF

A new study from ICF Consulting predicts that US natural gas, coal, and sulphur dioxide (SO₂) allowance prices will fall from recent highs over the next few years as new supply of these energy commodities hits the markets.

It concludes that SO₂ allowances, which were trading at $885/ton on 27 September, are “overvalued by approximately 40%” and these prices “can only be sustained if about 15,000 [MW] of projected economic SO₂ scrubbers were delayed or never materialize”.

IFC releases final performance standards draft

The International Finance Corporation (IFC) says that its new social and environmental policies have “undergone significant revision” since the last round of public consultation, but environmentalists remain concerned.

“These new standards are really aspirational goals, not standards – there’s no real bottom line,” says Jon Sohn, a senior associate at the World Resources Institute.

Final drafts of the Policy and Performance Standards on Social and Environmental Sustainability – which are to replace the IFC’s existing Safeguard Policies and will be applied to all projects funded by the IFC – were released for a 60-day comment period at the end of September. They will go before its board of directors in January.

NGOs slam REACH votes

Environmentalists have criticised two committees of the European Parliament for passing what they see as weakened versions of the REACH Directive ahead of a Parliamentary vote on the controversial chemicals legislation.

REACH – which stands for Registration, Evaluation and Authorisation of Chemicals – shifts the burden of responsibility for the safety of chemicals from government regulators to their producers.

In mid-September, MEPs in the internal market and consumer protection committee and the committee on industry, research and energy voted in favour of amended versions of the directive. Among the changes made were provisions for lightening the testing regime for substances that are thought to pose a low risk because of the ways they are used, or are produced or imported only in small quantities.

EU unveils clean air strategy

The European Commission has unveiled a revised air quality strategy, which it forecasts will cost €7 billion ($8.4 billion) a year by 2020 – but will generate at least €42 billion/year in human health benefits.

The strategy will target emissions of nitrogen oxides, sulphur dioxide and ammonia – particularly from agriculture and transport – as well as particulate matter and volatile organic compounds.

Novel sustainability criteria underpin new fund, index

A new sustainable investment fund, based on an objective approach to assessing sustainability, is due to be launched later this year by London-based Probus Capital.

The sterling-denominated Probus Sustainable Resource Fund will aim to outperform a new index – the Probus Sustainable 100 – and is targeted at institutional investors.

The new index is based on a novel methodology that involves no negative screening and is based solely on independent third-party certification rather than information submitted by companies themselves.

go to Features October 2005