Will China lead the world towards a global carbon market?

The Carbon Reitirement

Posted August 13, 2010

Emission trading is taking a funny turn.  Having long been the policy mechanism of choice for the governments of developed countries, plans for emission trading schemes are falling by the wayside due to powerful industry lobbies and vocal climate sceptics fuelling public opposition.

In April this year, Australian government finally ditched its proposals for a cap-and-trade scheme, with then Prime Minister Kevin Rudd confirming that the idea will not be revisited until 2013 at the earliest.  The climate legislation had twice failed to win the support necessary to pass through Parliament and on the eve of a third attempt was abandoned by the government in the face of waning public support.

Carbon market “growth” is mainly fraudulent, World Bank report shows >>> carbontradewhatch

 Written by Oscar Reyes
“Global Carbon Market Grows to $144 billion Despite Financial and Economic Turmoil” was the headline with which the World Bank (WB) announced its annual State and Trends of the Carbon Market 2010 survey. Readers of the report, however, will draw a less optimistic conclusion about the strength of the carbon market.

CDM developers confident of post-2012 market - poll >>> Reuters

by David Fogarty David Fogarty – Mon Jun 28, 3:28 am ET

SINGAPORE Reuters – Nearly 70 percent of clean-energy project developers in India believe there will be a post-2012 successor to the U.N.'s Kyoto Protocol climate pact with binding emissions targets, according to a poll.

And nearly 60 percent expect markets in the United States, Japan and Australia will accept tradeable carbon offsets from their projects, the poll by Emergent Ventures India (EVI) said.

EVI, a leading Indian clean energy project developer and advisory firm, polled 63 project developers in May on post-2012 market for offsets under the U.N.'s Clean Development Mechanism and prices for their offsets.

CDM, part of the Kyoto Protocol, rewards investors in projects that cut greenhouse gas emissions in developing countries.

Investors earn offsets called certified emissions reductions (CERs) used by governments or companies in rich nations to meet emissions reduction targets. India is the world's second largest source of CERs after China, and Europe is the top buyer.

The poll found that nearly 90 percent of respondents were very confident or reasonably confident that their CERs would have a market value after 2012, despite growing concerns over the shape or even existance of the CDM after 2012.

The Kyoto Protocol's first phase ends in 2012 and talks on a successor pact have bogged down.

The European Union has also said it might limit CERs sourced from some types of projects and from larger developing nations from 2013, the start of the bloc's tougher third phase of its emissions trading scheme.
UPBEAT
Indian project developers remain upbeat about the market, the poll found, despite the gloom that followed last December's climate talks in Copenhagen.

"The post-Copenhagen negative vibes about the carbon market has been somewhat offset by the recent appreciation of CER prices," EVI says in the poll.

CER futures traded on the European Climate Exchange hit a high of just over 24 euros in July 2008, plunged to 7.35 euros in early 2009 but have stabilised at around 12 to 13 euros over the past year.

Nearly 90 percent of respondents were certain that credits from renewable energy projects would be accepted into the EU's emissions trading scheme from 2013.

Just over 40 percent thought credits from projects that destroy industrial gases, such as HFC-23, might also be allowed, even though their acceptance in the EU's emissions market seems increasing uncertain.

India is primarily a market for CER spot contract trades, but forward contracts were becoming increasingly favoured for post-2012 CERs, EVI said.

"This is being done to hedge the risk that the post-Kyoto Protocol carbon market faces. This makes sense given the carbon market is young, volatile and 2013 onwards seems all the more uncertain," said analyst Zubin Sarkar, who conducted the survey.

Expectations of post-2012 CER prices, though, were modest.

"Considering time value of money and discounting factors, the price expectations for post-2012 CERs by the respondents were moderate with 83 percent expecting a nominal price below 20 euros," the poll found.

It also found that 37 percent of project developers thought now was the best time to sell CERs, while 35 percent felt towards the end of 2012 would be the right time.

JPMorgan Refits EcoSecurities for More Carbon-Market Takeovers >>> Businessweek

June 25 (Bloomberg) -- JPMorgan Chase & Co. is reorganizing EcoSecurities, the carbon-emissions company it bought for $206 million, to pursue further takeovers even as the market for greenhouse gases shrinks.
“It is possible that EcoSecurities will be in a position to make additional acquisitions in this area over the next few years,” said Mark Nicholls, an independent director for the Dublin-based investor in carbon credits. Nicholls served as its chairman from 2005 until the takeover by JPMorgan last December.

“This was not a trading play, not a one- to three-year plan, but a long-term plan by JPMorgan to get into this space, and we are delivering on that plan,” he said in a written response to questions.

Boosting its wager may help JPMorgan strengthen its role in a market that the U.S. Commodities Futures Trading Commission says has the potential to be worth $2 trillion. Before that, EcoSecurities Chief Executive Officer Paul Kelly must ride out a slump in emissions trading after the U.S., the European Union and Australia reined in plans to build carbon markets.

The acquisition “looks to the future, but we don’t know what the future is,” said Gus Hochschild, an analyst at Mirabaud Securities LLP in London. “People are taking options.”

Scale of Business
EcoSecurities has taken stakes in 341 emissions-cutting projects in developing nations, more than any other company under a United Nations-supervised climate change program, data compiled by Bloomberg show.

In return, the company earns tradable credits that may be sold to other investors or to industries that use them as pollution permits. Other UN credit investors include Italian utility Enel SpA and Goldman Sachs Group Inc.

The value of UN-sponsored credits produced last year dropped 59 percent to $2.7 billion as the bureaucrats running the system struggled to process applications, the World Bank said last month.

Kelly, the JPMorgan executive who led the acquisition team and now steers EcoSecurities through the slump, has cut back investment in new projects until the regulatory outlook clears, just as competitors are doing, Nicholls said.

“There’s not enough clarity to continue to be able to invest in the market robustly,” Kelly told a May 26 conference in Cologne.

Curbing Costs
Kelly is also reining in costs.
EcoSecurities also cut jobs, according to three former employees who asked not to be named. Nicholls declined to comment on layoffs. The company had 290 staff in 25 countries at the end of 2008, according to its annual report.

The restructuring meant “significant attrition,” said Abyd Karmali, global head of carbon markets at Bank of America Merrill Lynch, said in a telephone interview. “There are a lot of people on the beach.”

“Most people feel that JPMorgan were buying a portfolio and happened to get 200 people along with it,” said Trevor Sikorski, an analyst at Barclays Capital in London. “We used to have a fairly good relationship with Eco, and we just don’t see them anymore.”

Turning Profit
EcoSecurities earned 255,000 pounds ($378,000) on sales of 60 million pounds in the first half of 2009, in the last report before the takeover. That performance followed six straight years of annual losses.

Even as EcoSecurities made a profit, the UN program for reducing emissions was running into trouble.

The supervisory board suspended TUEV SUED AG from verifying projects in March, the third auditor to be sanctioned in the past two years. That has added to a backlog that has developed as regulators try to determine whether thousands of projects will deliver genuine carbon-emissions savings.

Officials in 2009 approved 684 projects to begin generating credits and have more than 2,900 unregistered projects waiting to be assessed, according to the UN. It takes on average more than three years for projects to earn their first credits after their applications are submitted, the World Bank said.

Climate Talks
UN-led negotiations to secure global limits on carbon dioxide emissions are stalled after world leaders failed to broker a deal at the Copenhagen climate summit in December. The WilderHill New Energy Index of 88 renewable-energy stocks, after surging 40 percent in 2009, has slumped 25 percent this year, more than the 7 percent drop of the MSCI World index.

Other companies are following similar acquisition plans.

EcoSecurities was set up by Brazilian scientist Pedro Moura Costa in 1997. It advised companies in nations such as India and China on how to claim UN credits for cutting emissions, sometimes taking stakes in those projects, and helped them sell the resulting certificates. Polluters in Europe or Japan use UN credits to meet their obligations under climate-protection laws.

Under Moura Costa the company sometimes allowed employees to pursue their interests ahead of profits and the cost structure grew too large, Nicholls said.

“In the early stages it was a bit of a lifestyle company,” Nicholls said. “The overwhelming wish of the independent directors was to try and get profitable. We received a number of approaches and everyone involved a significant cut in the cost base.”

--Editors: Todd White, Reed Landberg

Fires in Amazon Challenge Emission Reduction Program /// Science Daily

ScienceDaily (June 4, 2010) — Fire occurrence rates in the Amazon have increased in 59% of areas with reduced deforestation and risks cancelling part of the carbon savings achieved by UN measures to reduce greenhouse gas emissions from deforestation and degradation.
New research led by the University of Exeter, published on June 4, in Science, analysed satellite deforestation and fire data from the Brazilian Amazon to understand the influence of United Nation's REDD (Reducing Emissions from Deforestation and Degradation) policy on fire patterns in Amazonia. The NERC (National Environment Research Council) funded research shows that fire incidences may increase even with a decrease in deforestation rates.

Amazonian farmers are prone to keeping agricultural land free of new growth by 'slash and burn' methods, usually on a three to five yearly cycle. The extra carbon emitted by the leakage of fires from farms into surrounding forests edges and forest fragments as well as deforestation of forest regrowth, which are not accounted by the Brazilian's deforestation monitoring system may therefore be partially negating carbon savings achieved through the UN REDD programme.

The research suggests that if sustainable fire-free land-management of deforested areas is not adopted in the UN-REDD programme, any carbon savings achieved by avoiding deforestation would be partially offset by increased emissions from fires.

The UN-REDD programme is a multi donor trust fund which provides appropriate revenue streams to the right people, making it worth their while to change their forest resources behaviour. The efficiency of the UN-REDD programme as a climate change mitigation strategy depends upon the stabilisation of deforestation and degradation of the world's largest rainforest, the Amazon.

Dr Luiz Aragão an Environmental Scientist at the School of Geography, University of Exeter said, 'Changes in fire frequency could jeopardise the benefits achieved through UN-REDD as trends in fires are the opposite to trends in deforestation. However despite UN-REDD's vital importance in this region, fire is currently neglected in the emerging UN framework.'

Naturally occurring fires are very rare in the Amazon. Fires are normally caused by humans who farm the land. Burning deforested areas on a three to five year rotational basis improves the nutrients in the soil keeping it fertile and at a level that can produce food. Predications that climate change will create a drier area across the Amazon adds to the concern, as it is a difficult to control the spread of fires in such vast areas. The best option is to stop fires from occurring in the first place.

Dr Aragao explained, 'We need to change the way Amazonian people use and manage their land so that they can do this without fire. They would need financial assistance for machinery, training and technical support to enable them to comply with implementation and maintenance of fire-free management of their land.'

He added, 'By changing land management practices in already deforested areas to fallow management and introducing more diversified and sustainable agricultural practices at a co-operative community level, it is possible to drastically reduce fires and carbon emissions. It would be expensive but it would protect the stability of Amazonian carbon stocks and diversity.'

World Bank Completes Sale of CERs with Morgan Stanley for the Adaptation Fund /// Business Wire

World Bank Completes Sale of CERs with Morgan Stanley for the Adaptation FundMay 7, 2010 1:27 PM

The World Bank as Trustee for the Adaptation Fund completed a sale of 600,000 tons of certified emission reductions (CERs) during the period from April 27 to May 5, 2010. The CERs were sold at an average price of €14.05 per ton.

The World Bank (International Bank for Reconstruction and Development) serves as Trustee for the Adaptation Fund, and conducts CER sales for the Fund. The primary funding for the Adaptation Fund comes from a two percent share of proceeds of all CERs issued under the Clean Development Mechanism. The World Bank sells CERs on behalf of the Adaptation Fund regularly on exchanges and through over-the-counter transactions with approved dealers. Through May 5, 2010 the World Bank has monetized over €67 million worth of CERs.

Morgan Stanley was appointed as the dealer for the sales. The end buyers of the CERs were from Morgan Stanley’s client base which is widely diversified across sectors and regions.

About the Adaptation Fund: The Adaptation Fund has been established by the Parties to the Kyoto Protocol of the UN Framework Convention on Climate Change to finance concrete adaptation projects and programs in developing countries that are Parties to the Kyoto Protocol. The Fund is financed with 2% of the Certified Emission Reduction (CERs) issued for projects of the Clean Development Mechanism (CDM) and with funds from other sources. (Source: www.adaptation-fund.org).

About Morgan Stanley: Morgan Stanley MS is a leading global financial services firm providing a wide range of investment banking, securities, investment management and wealth management services. The Firm's employees serve clients worldwide including corporations, governments, institutions and individuals from more than 1,300 offices in 42 countries. For further information about Morgan Stanley, please visit www.morganstanley.com.

Media:

World Bank
Angela Furtado, Washington D.C.
Afurtado@worldbank.org
or
Morgan Stanley
Jennifer Sala, New York
212-761-2435
jennifer.sala@morganstanley.com
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