News December 2005-January 2006

The following are summaries of news stories from the December 2005-January 2006 print edition of Environmental Finance magazine

Montreal sees uptick in carbon market confidence

Industry, environmentalists and government negotiators have lauded a breakthrough at the Montreal climate change talks that will see twin-track discussions take place on the future of the international climate change regime.

Late-night negotiations saw parties to the Kyoto Protocol on climate change agree to meet in May for the first in a series of workshops on future greenhouse gas emissions reduction targets for most industrialised countries, to follow the first 2008–12 Kyoto target period.

And the US – which has pulled out of the Protocol – agreed at the eleventh hour to participate in a “dialogue on longterm cooperative action” under the Framework Convention on Climate Change, Kyoto’s parent agreement, to which it remains a signatory.

Industry welcomes CDM deal

A deal in Montreal on improving the functioning of the Clean Development Mechanism (CDM) was welcomed by the industry group leading calls for its reform. “This decision represents real progress and a proper foundation for implementing CDM projects,” said Andrei Marcu, president of the International Emissions Trading Association.

The CDM allows projects in developing countries that reduce greenhouse gases to earn carbon credits. Despite high hopes for the mechanism, project developers and carbon buyers have complained of a cumbersome project approval process, and an underfunded regulatory body, the CDM Executive Board.

The CDM deal provided for $13 million in funding over 2006–07 for the Board, compared to less than $5 million in 2005. It also put in place a levy on credits generated by CDM projects (of $0.10 per tonne of reductions up to 15,000 tonnes, then $0.20/t) to make the Executive Board self-financing by 2008.

California plans for emissions cuts as RGGI wobbles

A split has emerged in a landmark effort by nine northeastern US states to control emissions of greenhouse gases (GHGs). However, on the other side of the country, California has published draft proposals on how it plans to meet governor Arnold Schwarznegger’s June commitment to cut the state’s GHG emissions drastically. On 15 December, the nine states planning to set up the Regional Greenhouse Gas Initiative were due to publish a memorandum of understanding fleshing out the details of the cap-and-trade scheme, which is to apply to around 600 power plants.

But, on 8 December, Massachusetts governor Mitt Romney said his state would impose its own carbon dioxide regulations on six large coal- and oil-fired power plants. Beginning in 2007, these generators must cap emissions at the 1997–99 average, and will be subject to further reductions later.

Meanwhile, on 8 December, California’s Environmental Protection Agency (EPA) published a draft report outlining how to meet Schwarzenegger’s targets of reducing the state’s GHG emissions to 2000 levels by 2010, 1990 levels by 2020 and by 80% below 1990 levels by 2050.

REACH makes it through first EU readings

The long-running effort to introduce a new chemicals testing regime in the EU has cleared a major hurdle, with both the European Parliament and Council of Ministers conducting first readings of the REACH Directive. However, a second reading will be needed next year as amendments made by the two institutions differ.

REACH – which stands for Registration, Evaluation and Authorisation of Chemicals – will require chemicals producers to prove that their products are safe, necessitating the testing of thousands of chemicals already in use.

Goldman Sachs launches environmental policy

Goldman Sachs has won plaudits for its new environmental policy – which was introduced without the high-profile campaigns that have forced other major US banks to address their environmental and social impacts.

Its ‘environmental policy framework’ acknowledges the importance of “a healthy environment” as a “foundation for a sustainable and strong economy” and includes calls for urgent action by governments on climate change.

China’s new green power target lights up Beijing meet

China has increased its renewable energy target to 15% of consumption by 2020 – up from 10% – providing one of the few concrete outcomes of the Beijing International Renewable Energy Conference.

The November intergovernmental conference – which followed on from Renewables 2004 in Bonn and the 2002 World Summit on Sustainable Development in Johannesburg – sent a “strong signal” for increased green energy production around the world, according to the European Renewable Energy Council (EREC), but the concluding ‘Beijing Declaration’ was too weak for Europe’s renewable energy industry, EREC's policy advisor said.

Bovespa launches first Latam SRI index

Ethical investment in Latin America received a major boost on 1 December with the introduction of the region’s first tradable index of socially responsible companies. Launched by Bovespa, the São Paulo-based stock exchange, the Corporate Sustainability Index tracks 40 Brazilian stocks.

The list includes well-known Brazilian companies such as power firm Eletrobrás, cosmetics company Natura, Banco do Brasil and Unibanco. Two petrochemical companies, Braskem and Copesul, also make the list.

Senior XL staffers start new weather shop

Two former senior executives at XL Weather & Energy (XLW&E) have set up a new weather risk management company, as part of the White Mountains Insurance Group. Marty Malinow and Scott Edwards, respectively senior managing director and chief financial officer at XLW&E, expect Galileo Weather Risk Management, “a monoline weather derivatives company”, to be operational at the start of 2006.

“Based on the White Mountains balance sheet, I would expect that we will have the capacity to take on some of the larger and longer tenor risks in the market,” says Malinow, based in New York. He declined to comment on the amount of capacity available to Galileo Weather.

Biofuels in takeover talks after securing additional £71m

Biofuels Corporation, which is building the UK’s largest biodiesel plant in northern England, is in takeover talks with D1 Oils, another UK-listed biodiesel company.

The 6 December news came hard on the heels of Biofuels renegotiating its banking facilities with Barclays. Details of the new facilities were announced on 2 December and trading in the company’s shares on London’s Alternative Investment Market re-commenced on the same day, after being suspended on 17 November.

Chinese solar firm plans $300m NYSE listing

Chinese solar power firm Suntech Power Holdings is planning to list on the New York Stock Exchange, looking to raise $340 million–395 million. The offering of 26,360,000 American Depository shares – for between $13 and $15/share – values the company above $2 billion.

The company claims to be one of the world’s top 10 manufacturers of solar photovoltaic cells, for a range of applications both in China and abroad. It plans to use around $100 million of the proceeds to pre-pay for raw materials; around $40 million to expand its manufacturing facilities; and $20 million on R&D.

Chinese companies face improved environmental disclosure rules

China’s environment agency is developing a regulation to foster greater environmental disclosure by companies – a move that might help prevent incidents such as the ham-fisted efforts by government officials to cover up and downplay November’s massive benzene spill into the Songhua river.

Changhua Wu, China country manager for consultancy ENSR Environmental Services, says the draft regulation on Management Methods of Environmental Information Disclosure is being circulated for comment. She says the benzene spill “will be a catalyst” for speeding up development of the new regulation.

Carbon market, lawyers shrug off UK legal victory

Despite an initial sell-off in the EU carbon allowance market, traders – and lawyers – have largely shrugged off the UK government’s court victory against the European Commission over its national allocation plan (NAP).

On 23 November, the Luxembourg-based Court of the First Instance ruled that the Commission was wrong to refuse to consider an amended version of the UK’s NAP, which sets out carbon dioxide emissions targets for the first phase of the EU Emissions Trading Scheme, which runs from 2005 to 2007.

BP doubles clean energy commitment

BP is to double its investment in clean energy and establish a new alternative energy division. Under the banner of BP Alternative Energy, the UK-based oil giant plans to spend up to $8 billion over the next 10 years.

Over the next three years, BP intends to spend $1.8 billion globally in “broadly equal proportions” on solar power, wind, hydrogen, and combined cycle gas turbine technologies.

Confusion as UK axes OFR

An array of organisations have expressed confusion and anger at the unexpected scrapping of a requirement for large UK companies to publish Operating and Financial Reviews (OFRs) – including information on social and environmental issues, where material.

Finance minister Gordon Brown announced that he planned to abolish the new reporting regulations, as part of a bid to reduce red tape, in a speech to the Confederation of British Industry at the end of November. The first OFRs were to have been published in April.

The announcement was condemned by many organisations, among them the Chartered Institute of Management Accountants, an international association for accountancy professionals: “The drive to reduce the burden of red tape on business is a laudable one, but we believe wholeheartedly in the value of the OFR,” said Charles Tilley, its chief executive.

Reinsurers issue cat bonds

Two reinsurers have issued catastrophe bonds in recent weeks to cover themselves against European windstorms and other natural disasters.

The larger of the two cat bonds protects catastrophe risk insurer PXRE, via a special purpose vehicle, Atlantic & Western Re. This $300 million bond was arranged by Goldman Sachs and comprises two types of note. The first type, of which $100 million was issued, covers losses from European windstorms and US hurricanes. The other ‘class B’ notes cover these risks plus losses from Californian earthquakes.

Munich Re, meanwhile, has issued a €110 million ($131 million) bond to cover it against European windstorm losses. Named Aiolos after the Greek god of the winds, the bond covers the period from 18 November 2005 to 31 March 2009 and is similar to another bond which expired in 2003, says the reinsurance giant.

European corporate renewable energy group launched

Four major European companies have come together to help develop the corporate market for renewable energy. British Telecom, cement producer Holcim, retailer Ikea and packaging company Tetra Pak are forming a European Green Power Market Development Group, mirroring a similar US initiative.

Unveiling the European group at the UN climate change convention in Montreal in late November, US environmental think-tank the World Resources Institute announced that the US group’s renewable energy purchases and projects have reached the equivalent of 360MW, or the capacity of a coal-fired power station.

go to Features December 2005-January 2006