News April 2006

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

Fines loom as ETS deadline nears

Up to 15% of the 11,500 industrial installations covered by the EU Emissions Trading Scheme (ETS) could miss the 31 March deadline for submitting verified reports for their 2005 carbon dioxide (CO₂) emissions, according to a leading verification company – potentially exposing them, in some cases, to multi-million euro fines.

Marcio Viegas, business development manager at BVQI, the certification arm of Bureau Veritas, who made the estimate, gives several reasons for firms failing to submit reports on time, including: late accreditation of verifiers by some member states; installations not preparing reports in line with the EU’s monitoring and reporting guidelines, and companies being slow in reporting their emissions and in hiring verifiers.

Developing country weather and cat risk vehicle takes off

The International Finance Corporation (IFC) is understood to be close to reaching agreement on a planned ‘Global Index Insurance Facility’ (GIIF), which would help provide developing countries with weather and catastrophe reinsurance. The IFC is in advanced discussions with a private sector insurance company which would run the $100 million vehicle and provide up to half the risk capital, according to sources.

“The project is moving forward, and we’re in discussions, but it would be premature to make an announcement, or to give any timetable,” says Richard Gyles, principal insurance officer at the IFC, the Washington DC-based private sector arm of the World Bank.

Sign up to revisions or leave, Equator banks warned

Banks that refuse to sign up to a revised version of the Equator Principles will be thrown out of the flagship project finance initiative, says a leading member of the scheme.

The warning comes as Equator members consider key revisions to the voluntary responsible investment standards, which were launched almost three years ago.

“If they don’t join ‘Equator 2’, then they will no longer be members. We’re not offering them a menu of options,” says Richard Burrett, managing director of sustainable development at ABN Amro, one of the principles’ four founder banks.

EU green paper draws mixed reviews

European leaders ended their testy 23–24 March summit in broad agreement on steps towards a common energy policy, but stopped short of proposing detailed solutions. The meeting was largely overshadowed by disputes over cross-border utility mergers and market liberalisation and the outcome was deemed a mixed blessing for the renewable energy sector.

“No specific renewables targets were proposed, which was disappointing,” said Mahi Sideridou, EU policy director of climate and energy at Greenpeace, which has been calling for a mandatory EU-wide target of 25% of primary energy from renewables by 2020. “But they did invite the Commission to propose targets and that is progress … incremental, cautious progress, but still progress,” she noted.

Greens hail US court ruling on NSR, but see new battle

Environmentalists have welcomed a US court’s rejection of a rule they saw as too lax on coal-fired power plants, but are gearing up to fight another proposal from the Environmental Protection Agency (EPA).

The dispute involved the New Source Review (NSR) provision of the Clean Air Act, which says plants that undergo “any physical change” which raises emissions must obtain permits as if they were new plants and add appropriate controls.

A three judge panel rejected proposals to allow utilities to replace up to 20% of a plant's replacement value without applying for a new permit.

The EPA is now planning to change the rules so that the NSR only applies if plant upgrades increase hourly emissions, not annual emissions as is currently the case.

US, Japan lag in finance sector rating

 US banks have performed poorly in Oekom’s latest assessment of the sustainability of the financial services sector – despite a recent raft of new environmental policies and commitments from leading players.

The assessment by the German sustainable investment research firm saw Australia’s Westpac ranked highest, followed by the UK’s Northern Rock, and Swiss bank UBS. It concluded that, overall, “the financial market is increasingly facing up to its responsibilities towards society and the environment”, with the sector performing particularly well on social issues.

US insurance regulators probe climate change

Insurance regulators in the US are forming a task force to investigate the impacts of climate change on the industry and on consumers.

The National Association of Insurance Commissioners (NAIC), based in Kansas City, Missouri, voted in early March to establish the group, which will draw members from various state commissions.Tim Wagner, director of the Nebraska Insurance Department, will serve as co-chair of the task force, along with insurance commissioner Mike Kreidler of Washington state.

World Food Programme closes weather insurance deal

A new humanitarian aid insurance contract bought by the UN World Food Programme (WFP) from French insurer AXA Re, designed to provide cover in the event of an Ethiopian drought, could lead to developing country governments and multilateral institutions turning to the weather market.

The contract provides the WFP with $7.1 million in contingency funding if rainfall between March and October this year drops significantly below historical averages – pointing to the likelihood of widespread crop failure and potential famine. The deal has attracted the attention of the financial community and several developing country government, according to AXA.

Investor pressure benefits biodiversity – Insight

Engagement by Insight Investment with companies to improve their protection of biodiversity has led to measurable improvements in performance, according to a new study from the UK-based asset manager.

The results are shown in Insight’s second biodiversity benchmark – carried out with conservation group Fauna & Flora International – which measured 36 extractive and utility companies’ “management of biodiversity as a business issue”.

The results show an overall trend of improvement among the 22 companies involved in the process for the second year. The average score for oil and gas companies benchmarked in 2004 was 48%, but this rose to 56% in 2005. Similarly, the average score for mining companies rose from 46% to 51% and for utilities from 62% to 66%.

EDF chosen to help green London’s power supply

EDF Energy has been chosen to drive forward a series of sustainable energy projects all over London, in a joint venture with the capital’s Climate Change Agency.

The utility, which currently runs three power stations for London, will own 81% of the equity in a new energy services company (Esco), which will be created by mid-year to finance the projects.

London gets its electricity via the national grid with a current mix of about 40% gas, 33% coal, 19% nuclear and 4% renewables. “The big difference in the new scenario will be that there will be more small combined heat and power (CHP) and renewable energy sources. A lot of investment will be done by the London Esco,” said EDF
spokesman Jonathan Levy. London has 175MWe of CHP and needs a further 175MWe by 2010 to meet national targets.

More companies making progress on climate change – Ceres

A growing number of companies are addressing climate change issues, though many – including the most vulnerable – are still pursuing a ‘business-as usual’ strategy, according to Ceres, a coalition of investors and environmental organisations promoting sustainable development.

The Boston-based organisation released results on 21 March from its first study of 100 companies’ responses to climate change. It assigned scores on a 100-point scale, using five criteria: board oversight; management performance; public disclosure; accounting for greenhouse gas (GHG) emissions; and strategic planning.The information was obtained from company interviews, securities filings, third-party questionnaires and other sources.

Ceres named ‘leaders’ and ‘laggards’ in each industry sector. In the oil and gas sector, these were BP with 90 points and ExxonMobil with 35; in chemicals,DuPont (85) and PPG (21); in metals/ mining, Alcan and Alcoa (both 74) and Newmont (24); in electric power, AEP and Cinergy (both 73) and Sempra Energy (24); and in the automotive sector, Toyota (65) and Nissan (33).

Investment and investors pile into ‘cleantech’

Clean technology – or ‘cleantech’ – has become the fifth-largest venture capital (VC) investment category, ahead of semiconductors, according to figures from the Cleantech Venture Network (CVN). A record $502 million of VC was invested in cleantech companies during the last quarter of 2005 in North America, representing an 18.1% increase over the previous quarter, and up 59.8% year on year, CVN said.

“We are very pleased to see that this is the sixth consecutive quarter of increasing venture investment in the cleantech sector, moving it to the fifth-largest VC investment sector behind biotechnology, software, medical, and telecommunications,” says Nicholas Parker, chairman of Cleantech Capital Group, CVN’s parent.

US EPA proposes benzene trading scheme

The US Environmental Protection Agency (EPA) has proposed a trading programme for benzene, as part of a larger effort to reduce emissions of “mobile source air toxics” (MSATs).

These include benzene and other non-methane hydrocarbons (NMHCs), such as naphthalene, acrolein, acetaldehyde, formaldehyde and 1,3-butadiene. MSATs are suspected to cause cancer, and benzene, emitted primarily by road vehicles, is a known carcinogen, the EPA says.

In addition, MSATs are volatile organic compounds (VOCs) which combine with nitrogen oxides to form ground-level ozone. Several new rules would apply to MSATs.

The Fuel Programme would take effect in 2011, requiring refiners to meet an annual average benzene content in gasoline of 0.62% by volume, as opposed to 0.97% at present. (California would be exempt because it already imposes a more stringent standard). Refiners could average, bank and trade their benzene levels across the US.

go to Features April 2006