News May 2006

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

UK, World Bank propose clean energy development funds

UK finance minister Gordon Brown has called on G7 nations to deliver a $20 billion public-private fund, led by the World Bank, to help developing countries invest in clean and efficient energy sources to combat climate change.

He was addressing a 22 April closed session of the World Bank/IMF spring meeting in Washington after flagging his proposal in his 22 March UK budget speech.

Also at the meeting, the World Bank launched a new investment framework for clean energy. The framework was prepared following the G8 Gleneagles Summit and is intended to speed up investment in clean and sustainable energy in developing countries.

Carbon’s allure undimmed for investors

Investor appetite for carbon-related stocks remains undiminished, with listed carbon investment fund Trading Emissions Plc (TEP) tapping the markets for £175 million ($306 million) in April and carbon credit originator Camco International raising £24.9 million in an initial public offering (IPO). However, one proposed Alternative Investment Market (AIM) listing, from start-up CO2 Credit Capital, has been indefinitely postponed.

The TEP fund-raising – which more than doubles its assets under management – was considerably oversubscribed by a combination of existing TEP shareholders, and new investors, says Tom Frost, associate director at Numis, one of TEP’s stockbrokers. “We had to scale everyone back,” he says.

UK, Germany publish EU ETS emissions plans

The UK and Germany have become the first major EU member states to publish draft national allocation plans (NAPs) for Phase II of the EU Emissions Trading Scheme (ETS). In conjunction with rising oil prices, the news helped push EU allowance (EUA) prices above €30 ($37)/tonne of carbon dioxide (CO₂) on 19 April.

The UK published its draft emissions targets for 2008–12 on 28 March. As with its first phase plan – which runs from 2005–07 – the NAP will place the burden of reductions on the electricity generating sector. However, the government has left itself significant room for manoeuvre in the exact level of targets, saying only that it intends to reduce total CO2 emissions in Phase II by between 11 million and 29.3 million tonnes (Mt) a year against projected levels.

Meanwhile, the German draft NAP – published on 12 April – contained firmer targets. It will allocate 495.5 million allowances per year, compared to 499 million allowances in phase I. However, this figure includes installations such as chemical crackers that were excluded from Phase I, making the comparable volume 485Mt and representing a 2.8%, or 14Mt, decrease.

GE finance unit to triple renewables investments

GE Energy Financial Services (EFS) plans to increase its investments in renewable energy from the current $1 billion to $3 billion by 2008, it announced last month.

The company, based in Stamford, Connecticut, is a subsidiary of GE Energy – which manufactures wind turbines, solar panels and power turbines – but operates independently and has financed more projects involving other companies’ equipment, says Kevin Walsh, head of its renewable energy group.

EFS takes equity positions in projects, as well as lending to others, and provides “structured capital” finance. The $1 billion and $3 billion figures include both equity and debt positions.

AES announces clean energy, carbon push

US power giant AES has unveiled plans to invest some $1 billion in clean energy over the next three years – and aims to capture up to one fifth of the Clean Development Mechanism (CDM) market.

"We believe energy prices will level off at higher levels than we’ve seen historically, so there’s a real need to generate electricity from alternative sources," William Luraschi, executive vice president of business development at AES in Arlington, Virginia, told Environmental Finance. "We’ve made disparate efforts in this area,but we decided now is the time to focus on broader market needs," he added.

RAN turns fire on Toronto Dominion

Toronto Dominion Bank’s alleged low environmental standards have turned it into a magnet for projects that inflict damage on the environment, according to a new report.

The Rainforest Action Network (RAN) and ForestEthics “corporate irresponsibility” report warns shareholders that the Canadian bank continues to finance activities that destroy endangered forests and threaten the habitats of endangered species.

A spokesman for the bank referred Environmental Finance to comments made by its chief executive, Ed Clark, at its annual general meeting this March.

He argued that the bank had “a long, long history of being leaders in dealing with the environment”. However, he admitted that the bank could do more to minimise its direct impacts.

‘Minor impact’ on big chemical firms from REACH – Innovest

New European chemicals legislation will only have a “minor” impact on the operating costs of most of the big players, according to Innovest Strategic Value Advisors.

The Registration, Evaluation, and Authorisation of CHemicals (REACH) directive will require all companies that make or import more than one tonne of a chemical substance a year to register on a central database and carry out safety tests.

Innovest interviewed 70 companies that will be affected by REACH, and concluded that it will have a relatively small impact on large capitalisation companies, but it will be “felt more intensely” by mid- and small-cap firms.

New rules likely to boost wetlands mitigation market

Aproposed US federal regulation is set to boost the $200 million/year wetlands mitigation banking market that has sprung up in the US since the mid- 1990s. The Compensatory Mitigation for Loss of Aquatic Resources rules could double the area of wetlands remediated by so-called ‘mitigation banks’ and encourage more ecologically beneficial mitigation, experts say.

Under the Clean Water Act Section 404, any development on a wetland area must be offset by the creation of a replacement wetland area.Around 21,000 acres of wetland, predominantly in the southeast and northwest of the US, are lost to developers, and subsequently replaced, each year.

Biodiversity Convention recognises need for engaging business

Private companies should contribute to meeting tough targets on biodiversity, a recent inter-governmental convention concluded.

In the first decision of its kind under the UN Convention on Biological Diversity (CBD), national governments agreed to engage the private sector in helping protect the world’s ecosystems.

As a consequence, businesses and financial institutions will be factored into biodiversity strategies and action plans, which governments are obliged to develop under the convention.

US states unveil carbon plans

California legislators have introduced a bill to reduce greenhouse gas (GHG) emissions in the state while, on the other coast, environmental regulators in the seven states comprising the Regional Greenhouse Gas Initiative (RGGI) have introduced a draft “model rule” for their carbon dioxide ‘cap-and-trade’ scheme.

On 3 April, Democratic Assembly Speaker Fabian Nuñez and 19 others introduced California’s Global Warming Solutions Act. The act is designed to advance the goals of Republican Governor Arnold Schwarzenegger, who last year called for California to cut its GHG emissions to 2000 levels by 2010, to 1990 levels by 2020 and to levels 80% below those of 1990 by 2050.

Meanwhile, in late March, regulators from Connecticut, Delaware, Maine, New Hampshire, New Jersey, New York and Vermont set out the specific regulatory steps the states must take to implement the December 2005 memorandum of understanding establishing RGGI.

CME, Nymex tie-up to benefit weather traders

The Chicago Mercantile Exchange (CME) and the New York Mercantile Exchange (Nymex) have announced a tie-up that will see the latter’s energy futures and options contracts traded on CME Globex, the Chicago exchange’s electronic trading platform.

The development should make it easier for traders to combine trades in weather derivatives – which are listed on the CME – with energy plays, according to Felix Carabello, the exchange’s director of alternative investments.

“In the OTC [over-the-counter] world, people trade combined products – weather-triggered natural gas contracts, or weather-triggered heating oil plays,” he explains. “Given the exchanges will be working together, it will be easier to access the products and trade them – people will be able to trade [energy and weather] combinations on exchange, rather than OTC.”

Qualified welcome for EIB’s transparency policy from NGOs

A group of NGOs that monitors the transparency of financial institutions has welcomed the European Investment Bank’s (EIB’s) new information policy.

The bank has been criticised for its lack of transparency over its decisions to invest in projects, and for lending money to projects that other financial institutions have rejected because of their impact on the environment.

The policy, which was formally launched last month, introduces the principle that there will be a “presumption of disclosure” for all information held by the EIB, the EU’s financing institution.

ING Group distances itself from Uruguay paper mill

Environmentalists have claimed victory following an announcement by ING Group that it has ended its involvement in financing a controversial $1.7 billion paper mill project in Uruguay.

Botnia, a Finnish paper firm, has already started building two mills by the Uruguay River, which separates the country from Argentina.

But environmental campaigners and community activists in Uruguay and Argentina have been leading protests against the project, which they say will pollute the river and damage the surrounding environment.

go to Features April 2006