News November 2006

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

First offshore wind farm project financing imminent

The first project financing of an offshore wind farm was due to be completed by the end of October, according to bankers involved in the deal. As Environmental Finance went to press in mid-October, Dexia Credit Local, Rabobank and BNP Paribas were close to arranging some €230 million ($290 million) of financing for the 120MW Q7 wind farm off the coast of the Netherlands.

The financing – if successful – could lay the groundwork for an acceleration of the development of offshore wind farms, say analysts. Hitherto, those that have been built, or are under construction, have been financed ‘on balance sheet’, by large energy companies, turbine makers such as GE, or electric utilities, without the involvement of outside investors.

‘Eco-securitisation’ mulled to protect forests

Forum for the Future is carrying out an R&D programme to examine the prospects for “eco-securitisation” to finance sustainable forestry. The project is designed to test the technical feasibility of using securitisation techniques – widely used to repackage and sell on portfolios of mortgages, car loans and even rock musicians’ royalties – to extract value from, and hence protect, the world’s forests.

“There is a need for forests to be managed more sustainably, and for the environmental impacts of deforestation to be addressed,” Alice Chapple, director of sustainable financial markets at the London-based think-tank, told Environmental Finance. “There is also a shortage of long-term assets that could be matched with the long-term liabilities of pension funds, for example.”

Broadly speaking, securitisation involves isolating an asset or pool of assets, against which bonds are issued. The yield from those assets pays the bond coupons.

Doubts raised on CDM credit delivery

The Kyoto Protocol’s Clean Development Mechanism (CDM) is likely to deliver substantially fewer greenhouse gas reduction credits than expected, according to carbon market experts.

Continuing regulatory uncertainty, overly bureaucratic project approval processes, and underdelivery of reductions from projects, mean that up to half of projected carbon credits will not be forthcoming, they say. “From 1.1 billion tonnes potential output, we will only see half of them,” Pedro Moura Costa, managing director of EcoSecurities, a London-listed CDM project developer, told the Carbon Finance 2006 conference in London last month.

Schwarzenegger under fire on emissions trading plans

California governor Arnold Schwarzenegger signed an executive order on 17 October proposing that any future greenhouse gas ‘cap-and-trade’ scheme in the state be linked to other US regional schemes and the EU Emissions Trading Scheme (ETS).

However, the order has been criticised by the speaker of the California Assembly, Fabian Núñez, because he says it includes proposals that were rejected by state legislators when they approved the state’s recent Global Warming Solutions Act.

Núñez, who co-authored the bill, said: “You can’t rewrite a law through executive order. This is totally inconsistent with the intent of the law and with the way that it is written,” according to the San Francisco Chronicle.

As Environmental Finance went to press on 18 October, it was unclear whether the order would be challenged.

Shell, IUCN mulling biodiversity businesses

Energy major Shell and the World Conservation Union (IUCN) are considering establishing one or more “biodiversity businesses”, to help demonstrate the viability of using the private sector, and market mechanisms, to protect biodiversity.

The initiative follows a major scoping study the two organisations carried out earlier this year to look at how to dramatically increase resources available to biodiversity conservation, by making it a viable business proposition.

EU plans stringent measures to slash energy use

Buildings, cars, fridges and water heaters are to be scrutinised by the European Commission as it aims to cut energy use by more than 20% by 2020 and reduce the EU’s annual fuel bill by €100 billion ($125 billion).

EU energy commissioner Andris Piebalgs tabled a plan of 75 “cost-effective initiatives” on 20 October to make Europe more energy efficient over the next six years.

EU promises $100 million for developing world clean energy fund

The European Commission is to create a global risk capital fund worth €100 million to boost energy efficiency and renewable energy projects in developing countries.

Brussels hopes that the Global Energy Efficiency and Renewable Energy Fund (GEEREF) will encourage private investment in such projects.

Renewable energy projects in these countries are struggling to attract private capital, because of relatively high levels of perceived risk.The Commission hopes that the fund will allay these concerns by offering risk-sharing financing options to encourage investments. It intends to kick-start the fund with a contribution of €15 million next year and a total of around €80 million over the next four years.

$10 billion public–private partnership to reap Texas wind

After overtaking California this year as the leading US state in terms of wind power capacity, Texas looks set to cement that lead by initiating a $10 billion public–private partnership to further wind development in the state. In exchange for the construction of new transmission lines by the Public Utility Commission (PUC), eight companies have pledged a total of $10 billion in new wind developments.

Although Texas has the most wind generation in the US at present – 2,370MW compared to California’s 2,323MW, according to the American Wind Energy Association – much of its potential is located far from existing transmission lines, such as in the sparsely populated western areas of the state.

EPA particulate matter standards please no one

The US Environmental Protection Agency (EPA) announced new standards for particulate matter in late September, cutting the daily standards for the smallest particles by nearly half – from 65 micrograms per cubic metre of air to just 35 micrograms in the same volume.

But the agency resisted calls from its own scientific advisory panels to lower annual standards for the tiny particles, allowing them to remain the same despite studies showing substantial health benefits from a lower standard, and eliminating an annual standard for slightly larger particles.

Industry, for its part, has charged that the new rules are gratuitous and could cost as much as $60 billion a year to implement.

France unveils ‘pact’ to save energy

French Prime Minister Dominique de Villepin has unveiled a “national pact for the environment” aimed at encouraging businesses and individuals to invest in energy-saving projects.

Revenue generated from taxfree “sustainable development savings accounts” will be made available from 1 January 2007 to help finance the projects, claimed de Villepin at his monthly press conference in Paris on 4 October.

"The money, about €10 billion [$12.5 billion], will be immediately available for environmental loans,” explained the prime minister. These ‘environmental loans’ will be offered by the banks at attractive rates for people wanting, for example, to install high-efficiency central heating.

MEPs take tough line on REACH

The European Parliament’s Environment Committee has voted to take a tough line on proposed European chemicals legislation, calling for hazardous substances to be substituted with safer alternatives wherever possible.

The issue of substitution “remains the most outstanding and divisive issue” in the proposed REACH directive, according to Cefic, the European Chemical Industry Council. If the substitution principle is adopted, the industry group says, it “would create very serious problems for the whole of European industry” and could encourage producers to move out of Europe.

UK recycling fund binned

A £5.5 million ($10.2 million) government-backed investment fund aimed at growing the UK’s recycling sector is to close after failing to meet its three-year investment target.

“The fund has been constrained by changes in market conditions, including the increasing engagement of commercial funds in the sector. It was also required to operate within [European] state aid restrictions, which included only being able to invest in deals that had already been turned down by commercial equity providers,” said WRAP chief executive Jennie Price.

Investors pledge more action on climate change

A group of leading institutional investors has issued a set of guidelines to encourage standardised disclosure of climate change risks faced by companies. It follows another pledge by an investor grouping to collectively put pressure on companies and governments to reduce emissions of greenhouse gases (GHGs).

The Global Framework for Climate Risk Disclosure was launched on 12 October by 14 organisations responsible for assets totalling several trillion dollars and is intended to help them compare companies and to promote better reporting of these risks.They intend to distribute the guidelines to securities regulators, investors and leading companies that have not responded to previous requests for information.

DuPont eyes $6bn in revenues from new green push

Chemicals giant DuPont expects to generate $6 billion in additional revenues by 2015 as a consequence of its renewed sustainability commitments, it announced in mid- October.

“Our first job is to create value for our shareholders, and sustainability is good for business,” said CEO Charles Holliday, speaking at a meeting in Chicago. “For DuPont, sustainable growth is not a distant goal – it’s about products and services we have in the marketplace right now and products that are moving through our R&D pipeline.”

go to Features November 2006