News April 2007

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

World Bank plans avoided deforestation carbon fund

The World Bank is developing a carbon fund specifically to help countries preserve forests, in anticipation that forestry will become a large-scale source of carbon credits, according to president Paul Wolfowitz.

In a speech on 13 March, Wolfowitz said 20% of global greenhouse gas emissions result from poor land management, especially deforestation. The Bank has proposed a Pilot Forest Carbon Facility that will reward efforts to avoid deforestation with carbon finance.

Bank of America praised for environment plan

Environmental groups are praising Bank of America for its $20 billion, 10-year environmental programme, and hope it will put pressure on its competitors to follow.

Under the programme outlined in March, the Charlotte, North Carolina-based bank will provide corporate and investment banking to help clients develop clean technologies and projects. It will also establish a carbon trading desk, to help clients obtain offsets.

EU targets raise questions

EU heads of state have committed to cut greenhouse emissions by at least 20% and ensure that 20% of EU energy comes from renewable sources by 2020.The targets – agreed at a summit last month – were broadly welcomed as a step in the right direction towards combating climate change, but it remains unclear how the renewables target will be reached and what impact it will have on energy markets across the EU.

There was firm opposition from several countries to plans to set binding targets for renewables. Outgoing French president Jacques Chirac, supported by the Czech Republic, Bulgaria and Slovakia, argued that the EU should instead pledge to produce 40–45% of its energy from “low-carbon sources”, including nuclear power, by 2020. And many Eastern European countries, whose renewables technology is less advanced than in Western Europe, expressed concerns at the cost of meeting an ambitious renewables target.

First ‘green’ bond index launched

JPMorgan and Innovest Strategic Value Advisors have launched what they say is the first bond index to factor in climate change risks.

The index is based on the JPMorgan US Liquid Index (JULI). Each month, Innovest calculates a ‘carbon beta score’ for almost every issuer on the index, and ‘tilts’ the JULI accordingly – for example, slightly overweighting bonds from an auto-maker that has reduced emissions from its fleet compared with other car manufacturers.

Bingaman proposes 15% US renewables goal

The US Congress is to consider bills to establish a national Renewable Portfolio Standard (RPS), with a key senator proposing a 15% share of renewable power by 2020, while a House of Representatives bill aims at 20%.

More than 20 states already enforce RPS mandates, which require utilities and electricity marketers to include rising percentages of alternative energy in their supply mixes.

But state RPS systems vary in the resources they permit, which affects the value of “renewable energy certificates” – issued to renewable energy generators, and sold to utilities to show they have met RPS targets. This hampers development of renewables, say national standard advocates. Opponents say a national standard would penalise regions without renewables resources.

First trade struck in Phase III allowances

The first trade in carbon dioxide allowances for delivery in the EU Emissions Trading Scheme (ETS) after 2012 has been completed, according to the parties involved.

The deal was between investment bank Morgan Stanley and RNK Capital, a US-based fund manager and project developer, and was brokered by Evolution Markets. The transaction involved 50,000 EU allowances (EUAs) for delivery in 2013, priced at €20.05 ($26.26) a tonne.The parties declined to say who was buying or selling.

Shipping sets sail for emissions trading

The shipping industry must act now to reduce its carbon emissions, otherwise it risks being saddled with strict regulations in the future, according to UK transport minister Stephen Ladyman.

“Too many people have hidden behind the fact that shipping is a relatively clean way to transport goods,” he told a conference in London on 14 March, organised by industry group Shipping Emissions Abatement and Trading.

MissionPoint closes $335m fund

MissionPoint Capital Partners has raised $335 million into a new private equity fund to invest in companies involved in clean energy and environmental finance, exceeding its $250 million target. MissionPoint Capital Partners Fund I will provide at least $10 million and typically $30 million in growth equity or buy-out finance for expansion stage companies in North America and Europe.

“We’re seeing tremendous amounts of interest in the environmental markets in the US – there’s a real sense of being on the edge of a massive opportunity,” said Martin Whittaker, a director at the Connecticut based fund.

US-Brazil biofuels pact ‘irrelevant’

US biofuel sources have rejected as largely irrelevant a US/Brazilian agreement last month to co-operate on biofuels, because the US refuses to abolish its $0.54/gallon ($0.14/litre) duty on imports of ethanol.The US State Department stressed: “This initiative does not include discussion of US trade, tariffs or quotas.”

The day after the agreement was struck, World Bank president Paul Wolfowitz called for such import duties to be lifted. “Barriers to international trade in ethanol need to be tackled,” he told a meeting in London.

S&P warns on car sector emissions targets

Mandatory emissions targets “pose a real risk to European auto-makers’ financial performance and creditworthiness”, according to a research note from Standard & Poor’s. The ratings agency says that European Commission proposals to limit carbon dioxide emissions to 130g/km (see Environmental Finance, March 2007, page 8) will require car-makers to invest heavily and is likely to encourage a shift towards smaller, lower-margin vehicles.

The note cites industry estimates that it will cost €600– 3,000 ($800–4,000) per vehicle to meet the new standards – while average profitability levels of 1–3% equate to less than €500 per vehicle for most volume manufacturers.

G8 promises ‘Stern Review’ on biodiversity

The G8 is to conduct an assessment of the economic costs of biodiversity loss, on the model of the recent Stern Review on climate change, following a meeting of G8+5 environment ministers in Potsdam in Germany last month.

“The clear message of this meeting is that we must jointly strengthen our endeavours to curb the massive loss of biological diversity,” said Germany’s environment minister Sigmar Gabriel. “It was agreed that we must no longer delete nature’s database, which holds massive potential for economic and social development.”

Big US coal burners look to CO2 capture

Two of the largest coalburning electric utilities in the US – American Electric Power (AEP) and TXU – plan to capture and sequester carbon dioxide, using different technologies.

For Dallas,Texas-based TXU, the move follows the February decision to cancel 6,800MW of standard coal plants. That decision was taken by Kohlberg Kravis Roberts & Co and Texas Pacific Group, private equity firms that are seeking to acquire TXU for $45 billion.

But in March, TXU and the prospective buyers began planning two integrated gasification combined cycle plants.These units gasify coal, allowing for the extraction of carbon dioxide (CO2) and other pollutants, then burn the cleansed gas for power production.

AEP announced its own plans last month to capture carbon from existing plants. “With Congress expected to take action on greenhouse gas issues in climate legislation, it’s time to advance this technology,” stated CEO Michael Morris.

Spain to require environmental insurance

Spanish firms will be obliged to make financial provision for environmental damage, under plans announced last month to implement the EU Environmental Liability Directive (ELD).

The plans released by Spain’s environment ministry, which are yet to be voted on by parliament, cover all designated wildlife sites and species in Spain – not just the ‘Natura 2000’ sites identified by the European Commission.

“The Spanish have decided to embrace the full principles of the directive and implement it with a degree of enthusiasm,” said Tony Lennon, European manager of environmental solutions at insurance firm Chubb Europe, based in London.

Bank rules paralyse response to environmental critics

Banks are powerless to defend themselves against accusations of financing environmentally-damaging projects, because banking rules prevent them disclosing the names of their clients, according to HSBC’s environment adviser.

The situation was recently highlighted following accusations from NGO Banktrack last month that HSBC is supporting Malaysian forestry firm Samling with a listing on the Hong Kong Stock Exchange. Banktrack claims Samling is guilty of unsustainable forestry practices, meaning that HSBC is breaching its own guidelines for dealing with the forestry sector.

When contacted by Environmental Finance, HSBC said it was not able to comment, or even confirm it was involved – despite publiclyavailable documents showing the bank helped arrange the listing.

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