News March 2007

The following are summaries of news stories from the March 2007 print edition of Environmental Finance magazine

TXU buyers step away from coal

The proposed acquisition of US utility TXU by two private equity firms is being called an “earthquake” in the US power industry, since the new owners will abandon plans for controversial coal plants.

On 26 February, Kohlberg, Kravis Roberts & Co, along with Texas Pacific Group, announced an agreement to acquire the Dallas, Texas-based power company for $69.25/share, or approximately $45 billion. The new owners, based in New York and Fort Worth, Texas, will take the company private, pending shareholders’ and regulators’ approval, which they expect later in 2007.

The big environmental news is the prospective owners’ intention to cancel eight of 11 coal-fired power plants that TXU had planned to build in Texas, representing 9,000MW of capacity.

EIB warns Africa may suffer as Chinese banks move in

Philippe Maystadt, president of the European Investment Bank (EIB), has warned that the bank is losing out on projects in Africa to Chinese lenders that do not apply environmental, social or corporate governance conditions on borrowers.

Both public and private sector projects seeking finance are increasingly opting for deals with Chinese banks, such as the China Development Bank and the China Export Import Bank, to avoid the conditions set by the EIB or other multilateral banks, he told Environmental Finance.

“In principle, it’s a good thing. We welcome that there are new creditors coming to Africa,” he said. But, he added, “They don’t apply the same conditionality: environmental, social, but also governance.”

IFC, State Street to launch emerging markets SRI fund

The International Finance Corporation (IFC) has approved a long-awaited socially responsible investment fund to invest in companies in emerging markets. The IFC claims that the Emerging Markets Sustainability Fund will be the first of its kind, and “is expected to convince private fund managers investing in emerging markets that sustainability policies stand to improve their competitiveness”.

The IFC – the private sector arm of the World Bank – will act as lead investor in the fund, providing up to $20 million of the $100 million that the managers, State Street Global Advisors and Rexiter Capital, are hoping to raise. The managers will use positive screens provided by investment research firm Innovest Strategic Value Advisors, to give “greater weight to companies with strong track records on environmental and social issues”.

Flurry of deals seen in solar sector

In a month that saw a flurry of financings in the solar sector, Q-Cells, Renewable Energy Corporation (REC) and Good Energies have completed a complex multi-billion-euro deal. It sees Switzerland-based Good Energies – an investment company with more than $3 billion in renewable energy assets – selling out of its holding in Norwegian solar company REC, reaping more than $2 billion in cash and shares.

The deal – announced on 4 February – saw Good Energies sell a 12.5% holding in REC to Norwegian conglomerate Orkla, for $1.05 billion, and swapping a 17.9% chunk of the company with Q-Cells, in exchange for a stake in the German solar cell manufacturer that brings its overall holding to 49.6%. Later in the month, Good Energies sold its remaining 4% holding in REC.

EU aims for 25% cut in car emissions

The European Commission has proposed mandatory targets to compel car makers to reduce carbon dioxide (CO2) emissions from new cars by around 25% by 2012.

The proposal aims to force car makers to reduce average emissions from new cars from around 162 grams of CO2 per kilometre to at least 130g/km and claims that “complementary measures”, including an increase in the use of biofuels, would reduce emissions by a further 10g/km.

State dropouts will cut mercury prices, says EPA

The US Environmental Protection Agency (EPA) foresees a healthy trading market for mercury, despite the withdrawal of some big states from its planned programme, and says their absence will actually reduce allowance prices.

Under the Clean Air Mercury Rule (CAMR), the EPA will require a 21% reduction in annual coal plant mercury emissions by 2010 compared with 1999 levels, to 38 tons. By 2018, emissions must fall to 15 tons.

The EPA will establish a trading programme, but a number of states – including Pennsylvania, Illinois and Wisconsin – will prohibit trading, as allowed under US law. Officials in some states say trading is inappropriate for mercury, since it does not disperse, as do other traded pollutants, but causes pollution “hot spots” near plants.

China to refuse loans on environmental grounds

China’s central bank is working on a plan to refuse loans to companies with poor environmental records, under a nationwide system that will factor environmental information into loan applications.

The People’s Bank of China is working with the State Environmental Protection Administration (SEPA) to push through the initiative, according to Su Ning, the bank’s deputy governor. “This will encourage enterprises to think more about the effect their operations have on the environment,” Su said.

Germany backs down on EU ETS

Germany has decided to accept the European Commission’s ruling that it should lower its cap on carbon dioxide emissions for Phase II of the EU Emissions Trading Scheme.

At the end of November, the Commission issued its first round of decisions on 10 national allocation plans (NAPs) put forward by member states for the second phase of the EU ETS (2008–12). It demanded that Germany cut its NAP to 453.1 million tonnes (Mt) a year from 482Mt.

After months of speculation over whether the German government would challenge the decision through the European Court of Justice, the environment ministry issued a statement on 9 February saying that it accepts the restricted NAP.

Goldman exceeds green investment goal

Goldman Sachs invested more than $1.5 billion in renewable energy and clean technologies during 2006, the investment bank said in a report summarising its achievements in the first year of its environmental initiative.

The bank’s Environmental Policy 2006 Year End Report, released in late January, says Goldman Sachs has made “considerable progress” in meeting the objectives of its environmental policy announced the previous year (see Environmental Finance December 2005–January 2006, page 8).

Carbon fever grips Climate Exchange stock

Climate Exchange, the AIM-listed company behind the European Climate Exchange and the Chicago Climate Exchange, was briefly valued at more than £510 million ($1 billion) in February, as its share price hit £12 – up from a listing price of £1.02 in 2003.

The price had fallen back to just over £9 by 21 February, but the run-up in its value reflects growing investor interest in the carbon trading sector following developments in the US.

“My perception is that the driver is the change in the situation in North America,” Neil Eckert, Climate Exchange CEO, told Environmental Finance.

Hurricane trading to hit US exchanges

Reinsurance companies have a new way of transferring catastrophe risk to the capital markets, with the listing this month of futures and options contracts linked to hurricane intensity and property damage.

The New York Mercantile Exchange and Chicago Mercantile Exchange have both developed contracts to provide alternative risk-taking capacity, following 2005’s devastating hurricane season in North America, when hurricanes Katrina, Rita and Wilma were responsible for damage of more than $120 billion.

New climate risk reporting initiative launched

Some of the leading organisations promoting climate change-related corporate disclosure have come together in a new initiative that aims, ultimately, to see carbon firmly embedded within company report and accounts.

Unveiled at the World Economic Forum in Davos in late January, the Climate Disclosure Standards Board (CDSB) plans to “establish a generally accepted framework for climate risk-related reporting by corporations”. Such a framework should allow easier comparative analysis by investors, managers and the public.

go to Features March 2007