News March 2006

The following are summaries of news stories from the March 2006 print edition of Environmental Finance magazine

Carbon buyers look east

The anniversary of the entry into force of the Kyoto Protocol last month was marked with the first steps towards establishing its Joint Implementation (JI) system. This market mechanism could unlock hundreds of millions of tonnes of carbon emissions reductions from, among other countries, Russia and Ukraine, analysts say.

But, while carbon market specialists welcomed the first meeting of the JI Supervisory Committee, and are enthusiastic about the mechanism’s potential, they are already raising concerns about a lack of funding for the committee.

MGM close to landmark carbon credit deal

Carbon project developer MGM International is finalising negotiations to sell a portfolio of carbon credits representing some 40 million tonnes of carbon dioxide reductions. The Latin America-based company – working with investment bank Morgan Stanley – is hoping to reach agreement with several buyers by early March for this first tranche of the MGM Carbon Portfolio. It brings together certified emission reductions from 8–10 Clean Development Mechanism projects, predominantly in Latin America.

Price negotiations were still under way as of mid-February, but the portfolio is likely to be worth some €400 million–500 million, making it one of the largest carbon deals concluded.

IFC Board approves new standards

The International Finance Corporation (IFC) announced the final approval of its revised social and environmental standards last month, ending a process that has been wracked by controversy. The revised standards are expected to be reflected in changes in coming weeks to the Equator Principles, a voluntary set of project finance guidelines.

The new Performance Standards introduce a number of additional requirements to IFC’s lending criteria. For example, large companies in the developing world applying to the IFC for a loan will now have to report on their greenhouse gas emissions.

Other additions include stronger safeguards on biodiversity protection, the introduction of grievance mechanisms for workers and local communities, new measures on the use of security services, and guarantees for community health and safety.

VC heavyweight eyes ‘greentech’ investments

California-based venture capital heavyweight Kleiner Perkins Caufield & Byers (KPCB) has launched a $100 million initiative to invest in companies pioneering environmental technologies.

The $100 million is to be invested as part of KPCB’s most recent fund, the $600 million KPCB XII. KPCB’s announcement follows on the heels of Boston-based RockPort Capital Partners close of a $261.15 million fund, RockPort Capital Partners II, most of it also destined for ‘cleantech’ companies.

BP, Edison plan $1 billion hydrogen power plant

BP and Edison Mission Group (EMG) plan to develop a power plant in California that will burn hydrogen from petroleum coke and sequester the associated carbon dioxide emissions in oil wells – a plant that the companies believe is the first of its kind in the world.

The partners will spend about $1 billion if they proceed with the project, according to EMG spokesman Charlie Parnell. They will analyse the economics of the project over the next year and make an investment decision in 2008, aiming to start operating in 2011.

Cleantech Group launches Amex-listed index

The American Stock Exchange (Amex) has begun listing the second ‘clean technology’ equity index in as many months, with the launch in February of the Cleantech Index, created by the Cleantech Capital Group, formerly the Cleantech Venture Network. The index, comprising 75 US-listed companies, follows hot on the heels of a global clean energy index launched by Wildershares and New Energy Finance (see Environmental Finance, February 2006, page 8).

“The Cleantech Index will provide investors with a vehicle to diversify into the emerging ‘cleantech’ investment category while helping bring greater liquidity to publicly traded cleantech companies,” says Nicholas Parker, Cleantech Capital chairman.

‘Fractured’ approach likely for sustainability reports

Concerns are growing that it may be impossible for a company adequately to address the diverse concerns of NGOs and institutional investors in a single sustainability report.

“Most sustainability reporting is written for civil society rather than the investment community,” George Dallas, a corporate governance specialist at ratings agency Standard & Poor’s, told a consultation meeting in London organised by the Global Reporting Initiative.

The financial community needs “a more targeted message,” said Dallas, adding that he expects to see more “fractured reporting” to meet the needs of different groups of stakeholders. More sustainability reporting within financial reports would also be welcome, he suggested.

Investors continue to warm to carbon

Econergy International has become the latest company specialising in carbon credits to float on London’s Alternative Investment Market, placing 60 million shares (out of an issued share capital of 87 million) last month at £1.00 ($1.74) each, raising some £55.5 million after fees.

Also last month, Tudor Investment Capital, one of the world’s leading hedge funds, announced that it has taken a substantial equity stake in Camco International, a Clean Development Mechanism project developer. The size of the shareholding, and the price paid for it, have not been disclosed.

Econergy plans to use most of the proceeds of the listing for developing clean energy projects in which it is a shareholder, says CEO Tom Stoner. The company’s activities include: consultancy and investments in the clean energy sector, particularly in Latin America and the Caribbean; fund management, and carbon emissions brokerage.

EU pushes biofuels up agenda

Mandatory targets could be introduced for biofuels, EU farm commissioner Mariann Fischer Boel suggested last month when she launched a new EU strategy aimed at increasing the amount of transport fuel produced from organic material.

The Biofuels Strategy was billed by the European Commission as “ambitious”, but it does not, so far, establish clear targets, suggesting instead a review of current legislation.

Fischer Boel said soaring oil prices and the need to meet Kyoto targets for reducing greenhouse gas emissions meant the time was right to “stimulate demand for biofuels”, and that it was important that Europe did “not miss the boat for the second generation of biofuels”, such as those derived from cellulose.

UBS launches biofuels index

Switzerland’s UBS and Lausanne-based Diapason Commodities Management have joined forces to launch the first commodity-based biofuels index. The launch – due this month – is in response to investor interest in an expected rise in the value of the commodities that go into making the two major forms of alternative fuel – ethanol and biodiesel – such as sugar, corn, wheat, rapeseed and canola, the companies say.

Interest in biofuels is growing dramatically, in response to concerns about global warming and energy security. Global ethanol production has grown from almost zero in the 1970s to 10.2 billion gallons/year today.

CME offers snowfall futures

With impeccable timing, the Chicago Mercantile Exchange (CME) announced that it is to begin listing snowfall contracts – just before a record-breaking snowstorm hit the US Northeast.

The snowfall futures and options – announced on 9 February – were due to begin trading on 26 February. Contracts will initially cover snowfall in New York and Boston, and will trade on a monthly basis from October through April.

The CME Snowfall Index defines daily snowfall as the total at a particular location between 12:01 am and 12:00 midnight, as reported by Earth Satellite Corp. Monthly snowfall is the sum of daily snowfall values over the month.

States, Feds come together on Australian climate plan

Australia’s Prime Minister John Howard and state and territory leaders have ordered the preparation of a national framework for the take-up of renewable and low-emission technologies as part of a climate action plan agreed this month. Meeting as the Council of Australian Governments, the leaders also instructed federal and state environment and industry ministers to fast-track their joint investigation into ways to improve and streamline greenhouse gas emissions reporting procedures.

The case for “urgent action” on climate change is stronger than ever, leaders said in a conference communiqué. The new action plan aims to accelerate progress by building on areas where there is policy agreement between the two levels of government, the communiqué says.

EIB commits to a greener future

The European Investment Bank plans to increase its focus on renewable energy and climate change issues this year. In its new Corporate Operational Plan for 2006–08, it says the two carbon funds on which it is working “should be fully operational and have started to develop their project portfolio,” in 2006.

It also pledged to continue working towards its 2010 goal of increasing its lending for renewable energy up to 50% of its total financing for new electricity generation in the EU.

The EIB is working with the European Bank for Reconstruction and Development and the World Bank on two separate carbon funds that aim to help companies and sovereign states to meet their emissions obligations under the Kyoto Protocol by buying emission reduction credits.

go to Features March 2006