Monday, March 31, 2008

JP Morgan acquires UK based ClimateCare

UPDATE 2- LONDON/NEW YORK, March 26 (Reuters) - JPMorgan has acquired the UK-based carbon offsetting company ClimateCare, the U.S. investment bank said on Wednesday.

Carbon offsetting allows countries and companies to fight climate change by paying for others to cut planet warming gases on their behalf, and is catching on among the public wanting to offset emissions voluntarily.

Investment banks including Citigroup , Morgan Stanley and Merrill Lynch have all recently bought stakes in developers of emissions-cutting projects but JPMorgan said it was the first case to buy a developer outright.

"We have a very healthy (offsets) pipeline both from the build-out of our own team and from ClimateCare, sufficient to match what we want to do in the next 12 to 18 months," said Bruce Tozer, global head of environmental markets.

JPMorgan declined to comment on the value of the deal or the amount of carbon offsets ClimateCare had developed.

Investment banks like carbon markets both to trade in these often volatile markets and to sell emissions permits and offsets to corporate clients facing voluntary or legally binding emissions targets.

BOOMING
Global carbon markets are booming, growing 80 percent to 40 billion euros ($62.94 billion) last year according to researchers Point Carbon, and that may continue because all remaining U.S. presidential candidates support a U.S. federal carbon trading market to match a European scheme.

But the European Union has said its demand for carbon offsets from developing countries, through a U.N.-run scheme under the Kyoto Protocol, depends on all countries agreeing a post-2012 successor to Kyoto in talks scheduled to end next year.

"(The EU) did increase uncertainty regarding post-2012 demand. It does potentially increase the risks on demand for CERs and ERUs," Tozer said, referring to U.N. jargon for offsets traded under the Kyoto scheme.

"The EU does strongly support purchases from less developed countries, and ClimateCare's presence in Africa plays into that," he added, referring to an EU proposal that new offset projects are only accepted from least developed countries after 2012.

ClimateCare has an office in Kenya and has been active in the unregulated voluntary carbon market worth about $400 million last year, and which has had its own critics because it operates outside rules under official government and U.N.-led schemes.

"We and ClimateCare have been actively involved in bringing greater transparency," said Tozer, referring to new voluntary carbon market standards.

JPMorgan said it had made the acquisition through its investment bank and that its environmental markets group would initially operate under the JPMorgan and ClimateCare brands.

In 2007, JPMorgan hired more than 50 new marketing, sales and trading professionals in commodities and would hire at least as many in 2008, the bank said. ClimateCare has 40 staff.
(Reporting by the New York Equities Desk and Gerard Wynn in London; editing by James Jukwey)

((gerard.wynn@reuters.com; +44 207 542 2302)) ($1=.6355 Euro)
Keywords: CARBON/JPMORGAN

Merrill Lynch and Societe Generale launch global carbon indexes

UPDATE 1- LONDON, Mar 26 (Reuters) -

U.S. investment bank Merrill Lynch and France's Societe Generale both launched global carbon indexes on Wednesday to track the international carbon markets, which were worth some $60 billion last year.

The indexes will allow investors to access the world's carbon markets, including the European Union's emissions trading scheme and carbon trading markets under the United Nations' Kyoto Protocol.

"The (Merrill Lynch indexes) come in response to strong demand from our institutional, asset management, and wealth management clients who seek exposure to the rapidly growing global carbon market," Abyd Karmali, managing director and global head of emissions markets at Merrill Lynch, said in a statement.

The European Union Allowances (EUAs) and U.N.-approved certified emissions reductions (CERs) are currently the most traded greenhouse gas credits, making up more than 99 percent of global market activity.

The research arm of Merrill Lynch said its MLCX Global CO2 Emissions Index will weigh EUAs and CERs at 71 percent and 29 percent respectively.

"The weightings of the new MLCX Global CO2 Emissions Index are based on liquidity of the underlying instruments, a crucially important element for investors looking to gain exposure to a new and fast-growing market," Francisco Blanch, Merrill Lynch's head of global commodities research Francisco Blanch, said.

Societe Generale's SGI-orbeo Carbon Credit Index, launched with joint-venture orbeo, will weigh the two types evenly.

SGI-orbeo is a joint venture between Societe Generale and chemicals group Rhodia .
(Reporting by Michael Szabo; Editing by Jane Merriman)

Four nations in race to be first to go carbon neutral

Iceland, New Zealand, Norway and Costa Rica are all hoping to turn their economies green, but the challenges they face are formidable
By Geoffrey Lean and Bryan KaySunday, 30 March 2008

It's the race for the greenest of the laurels, the contest for the ultimate ecological accolade. Four countries are competing to be the first of the world's 195 nations to go entirely carbon neutral.
They make a disparate line-up of runners, comprising the world's most northerly and southernmost independent countries, its third largest oil exporter, and a state that long ago dispensed with its army.

The starting pistol was fired last month in Monaco – better known for its gas-guzzling Grand Prix than for such a determined race in the other direction – at the annual meeting of the Governing Council of the United Nations Environment Programme.

Iceland, New Zealand, Norway and Costa Rica formally signed up to go zero carbon, joining the Climate Neutral Network launched at the meeting. Achim Steiner, UNEP's executive director, calls it "an idea whose time has come, driven by the urgent need to address climate change and the abundant economic opportunities emerging for those willing to embrace a transition to a green economy."

He spells out the diverse challenges facing each of the contenders. Norway's main issue, he said, was "emissions from oil and gas", whereas most of New Zealand's pollution came from agriculture. Iceland's "central challenge" was "transport and industry, including fishing", while Costa Rica faced the special circumstances of being a developing country.

In fact one UN member state already claims to have beaten then all. The Vatican announced last September that it was becoming the world's first – but is widely held to have cheated. It said that it was winning the prize by offsetting its entire emissions for 2007 though planting trees to restore an ancient forest in Hungary.

But critics say that the true champion will have to achieve carbon neutrality at home – and point out that the Holy See has failed to count the carbon emitted by its travelling officials, or emissions from its buildings outside the Vatican City.

All the main contenders get much of their energy from renewable sources. Iceland has gone the furthest, already achieving almost complete carbon neutrality in heating buildings and in electricity generation. Its greatest asset is disclosed in the name of its capital city, Reykjavik, which means "bay of smokes", referring to the plumes rising from its hot springs. Such geothermal energy now heats it and much of the rest of the country.

Only 1 per cent of its homes are heated by fossil fuels, and 99 per cent of its electricity is generated by geothermal and hydroelectric power. "But we have not entirely kicked our carbon habit", writes its Environment Minister, Thorunn Sveinbjarnardottir, in the forthcoming issue of UNEP's magazine, Our Planet.

"Our fishing fleets and our cars are still running on fossil fuels. Our car fleet is one of the biggest, per capita, in the world. And Icelanders tend to like big cars, as any visitor to our country will soon notice." The country will give people discounts to buy eco-friendly vehicles and fit fuel cells to fishing boats, aiming to reduce its relatively small national emissions of carbon dioxide by 75 per cent by 2050.

On the other side of the world, New Zealand's Prime Minister, Helen Clark, has already set her country the goal of being the world's first carbon-neutral country. It aims to generate 90 per cent of its energy from renewable sources by 2025, and to halve its transport emissions per head by 2040. But the country has a particular problem with agriculture, which accounts for half its emissions of greenhouse gases.

Norway has set an even more ambitious target, aiming for carbon neutrality by 2030, despite being the world's third largest oil exporter. It already gets 95 per cent of its electricity from hydroelectric power, and heavily taxes cars and fuel: a 4x4 costs four times as much as in the United States. And it is planning to capture and store carbon in old North Sea oil fields. But Frederic Hauge – the head of Bellona, the country's largest environment pressure group – is sceptical. "We are a nice little country of petroholics and that has made us lazy", he says.
On paper at least, the poorest of the four countries is in the lead – Costa Rica plans to reach its goal by 2021. It has just released a plan of action, which relies heavily on planting trees to soak up emissions. Last year it planted five million of them, a world record, and the banana industry – the country's largest exporter – has promised to go carbon neutral. However, its number of cars has increased more than five-fold in the past 20 years and its air traffic more than seven-fold in just six, making its task far harder.

Texas: Reliant stands to gain from forest preservation giftEffort provides useful practice in carbon trading

March 27, 2008, y TOM FOWLER
Copyright 2008 Houston Chronicle

Reliant Energy's $300,000 gift to help preserve coastal forests near Houston also will help the company get ready for a future fixture of the power business — carbon trading.

The donation to the U.S. Fish and Wildlife Service will buy more than 1,100 acres in an area known as the Columbia Bottomlands, which stretches across Brazoria, Matagorda, Fort Bend and Wharton counties. The area includes some of the largest remaining tracts of old-growth forests in the southern United States.

Under the deal, Reliant gets the rights to "carbon credits" that will be created by the forest's ability to draw up to 154,000 tons of the greenhouse gas carbon dioxide from the atmosphere.
While it has no immediate plans to sell the credits, Reliant can use them on one of the carbon markets now operating in the U.S. or in a future market that many expect will be created by federal climate change laws in the coming years.

"Our interest is less in the credits themselves than in the opportunity to learn how to do more projects like this and get familiar with carbon markets today and in the future," said Dave Freysinger, a senior vice president in charge of generation operations for Reliant.

Electricity retailing giantReliant is best known in Texas as the state's largest electric retailer, selling power generated by other companies to millions of customers. But it also owns and operates 16,000 megawatts of power plant capacity in nine other states. About 4,600 megawatts of that comes from coal-fired plants, which have the highest CO2 emissions among power plants. Reliant generates the rest with natural gas.

As the largest stationary sources of CO2, power producers likely will face the most direct effect from proposed federal legislation aimed at reducing greenhouse gas emissions.

The plan with the most support so far would set a cap on the amount of CO2 emissions a company is allowed per year and then reduce the cap over time. Companies could cut their emissions by shutting plants and improving technologies or develop projects that reduce CO2 in the atmosphere.

The largest CO2 credit trading market is a mandatory program in Europe launched several years ago under the Kyoto Protocol, an international climate treaty the U.S. did not sign, said Emilie Mazzacurati, a senior analyst with research firm PointCarbon.

Despite early problems, the market is running fairly well, she said, with about $60 billion in transactions per year.

The U.S. has several voluntary markets in place or starting up soon, Mazzacurati said, but they have relatively low carbon reduction goals.

"They're not very ambitious, so companies can reach the goals without too much effort," she said.

They're still useful to help companies get comfortable with creating and trading carbon offsets, however, as Houston-based Waste Management has discovered. The landfill operator is a charter member of the Chicago Climate Exchange, a marketplace created in 2002 to providing a framework for buying and selling carbon offsets.

"It provides a consistent set of rules and uses third-party verification of the offsets, which is important for buying and selling any commodity," said Kerry Kelly, director of federal public affairs at Waste Management.

The company captures methane — considered a more environmentally damaging greenhouse gas than CO2 — at 108 of its landfills and burns it to generate nearly 500 megawatts of power.
Through third-party certifications those projects create carbon credits the company trades on the Exchange.

Since the existing U.S. markets are voluntary, prices for carbon credits are generally lower than they're expected to be under any federal regulations. They have traded at $1 to $5 per ton, but studies have put the price at $20 to $50 per ton under laws proposed in Congress, Mazzacurati said.

Other preservation efforts

Reliant's work on the Columbia Bottomlands isn't its first such effort. In addition to more than a dozen nature and wildlife preservation projects around the country, in 2003 it paid $160,000 to plant 162,000 seedlings on land in Smith County, a project expected to help remove more than 200,000 tons of CO2 from the atmosphere.

Such projects don't absorb all that CO2 at once, but capture the gas over many years.
"You need to protect the land in perpetuity to let forests recover and allow carbon to be permanently removed from the atmosphere," said Mike Lange, a wildlife biologist with the U.S. Fish and Wildlife Service who has been working on preserving the Columbia Bottomlands. "It is easy to plant a tree, but for carbon sequestration to work, the land that tree is planted on must be protected permanently."

Investor buys Guyana forest's rain and carbon

Thu Mar 27, 2008 4:32pm GMT
LONDON (Reuters) - The British-based investment firm Canopy Capital said on Thursday it had bought a share in the rain-making potential of a chunk of Guyanan rainforest bigger than the Mediterranean island of Mallorca.

The move is a novel twist in an investor frenzy to make money from the prospect of climate change that has also seen businesses snap up permits to emit greenhouse gases and invest in low carbon-emitting technologies.

Perhaps more lucratively, the company has also bought rights to the carbon -- a heat-trapping gas when released into the atmosphere -- stored in the forest's timber.

Canopy Capital is betting that global climate talks due to end next year in Copenhagen will agree a successor to the Kyoto Protocol that includes a legal format for paying developing countries to preserve their forests.

Deforestation contributes 20 percent of total greenhouse gas emissions. Scientists say the effects of global warming could reduce rainfall, and make it more irregular.

"It's a new asset class," said Hylton Philipson, Canopy Capital's director and a former investment banker.

"If you fly over the forest, you can see there's no cloud coming off the cleared land."
"I think there's a real appetite out there (for this type of investment)," he said.
The company said it would fund a "meaningful" chunk of the $1.2 million annual management budget for the 371,000 hectare (917,000 acre) Iwokrama reserve.

Pressure is growing for tropical countries such as Indonesia to be able to sell carbon offsets to rich countries in return for not destroying their remaining forests and so prevent more carbon entering the atmosphere. The concept is known as "avoided deforestation".

Philipson hopes to sell the carbon storage and other rights at a profit within 18 months.
"I would seriously hope to put something together of real value between now and Copenhagen with appeal to the wider investment community," he said, adding that the reserve would receive 80 percent of any profit.

"There is a road planned from Manaus to Georgetown that goes slap through the reserve. If you can generate income from standing trees, maybe people won't chop them down."
(Reporting by Gerard Wynn; Editing by Kevin Liffey)

Air New Zealand Offers Carbon Offsets, Starts Environment Fund

By Gavin Evans
March 27 (Bloomberg) -- Air New Zealand Ltd., the nation's biggest carrier, is offering customers carbon credits to offset emissions from their travel and is investing in forest planting to reduce its own pollution.

Customers will be able to purchase credits, initially sourced from a New Zealand wind farm owned by TrustPower Ltd., Chief Executive Officer Rob Fyfe said in a statement e-mailed to Bloomberg today. The company will also fund a three-year tree planting program to help offset emissions from staff travel.

Air New Zealand promotes the country's clean environmental image to fill international services which account for about two-thirds of its revenue. It is buying fuel-efficient jetliners to cut emissions and fuel costs and will this year test biofuels in a joint study with Boeing Co. and Rolls-Royce Group Plc.

Customers ``will now be able to make a conscious choice about whether or not to take positive steps toward helping our environment,'' Fyfe said in the statement.

Offsetting emissions on a flight from Auckland to Wellington will cost NZ$4.50 ($3.60), rising to NZ$13.70 for a Christchurch to Sydney service and NZ$88.10 on an Auckland to Los Angeles trip, the airline said.

Customers can also donate to an environmental trust which the airline is underwriting with an initial NZ$450,000 donation and will support with ongoing contributions. the fund's first project is a native forest restoration on 100 acres of land on Mangarara Station in Hawke's Bay.

To contact the reporter on this story: Gavin Evans in Wellington at Gavinevans@bloomberg.net Last Updated: March 26, 2008 17:34 EDT

Friday, March 28, 2008

Possible carbon tariffs could have an impact on growth: report

Jacqueline Thorpe, National Post Published: Thursday, March 27, 2008


Tariffs on carbon emissions could shift manufacturing back to more efficient countries like Canada, say financial experts.

The West's next weapon in the fight against global warming may be a carbon tariff on imports from the developing world, a strategy that could have a profound impact on the global economy, a new report argues.

Not only will new charges for carbon emissions trim growth in developed countries, but carbon tariffs could boost inflation and reverse the march toward offshoring as manufacturers who have relocated to countries like China move to more energy-efficient environments back home, CIBC World Markets said in a report released yesterday.

"As OECD countries begin to tax their own economies by charging growing fees on carbon emissions, their tolerance for the carbon practices of their trading partners will diminish rapidly -- particularly when the painful cuts made by North America, Western Europe and a handful of other OECD countries are dwarfed by the emission trail spewing from China and the rest of the developing world," Jeff Rubin, chief economist at CIBC WM said the report with Benjamin Tal.

"The response is likely to involve a carbon tariff -- an equalizing force that will tax the implicit subsidies on the carbon content of imports that come from carbon non-compliant countries."

In an interview, Mr. Rubin said it looks increasingly likely the United States will join Europe in imposing a charge on carbon emissions either through a tax or a "cap and trade" system where companies are allowed to emit a certain amount of carbon but must pay to go over the limit.

"If you look at the McCain platform, the Obama platform or the Clinton platform, irrespective of who captures the White House, the next administration is going to impose a price on carbon," Mr. Rubin said.

That would be the precursor for the United States to attempt to impose a carbon tariff on developing world imports, he said. In effect, a carbon tariff would be similar to a countervailing trade duty, imposing a charge for unfair energy subsidies that Chinese exports reap from their cost-free carbon emissions, Mr. Rubin said.

At US$45 per tonne of CO2 -- about the going rate under current European trading schemes -- such a tariff would raise roughly US$55-billion a year from Chinese exports to the United States or equivalent to an average 17% tariff, almost six times bigger than the current 3% effective tariff on Chinese goods.

"At least initially, before other carbon compliant sourcing can be found, it will be U.S. consumers who will have to bear the bulk of the tariff burden in higher import prices," Mr. Rubin wrote. Based on China's share of U.S. imports alone, that would raise the annual U.S. consumer price index by more than 0.6 percentage points.

Canada would likely face a similar increase and costlier goods prices would hit growth as well.
Mr. Rubin estimates U.S. efforts themselves to curb emissions will shave 0.6 percentage points off growth in real gross domestic product per year for the next five years, and that is if emissions are only cut by 10%.

The inflationary impact may be mitigated however, if North American industries shift production back home, a trend Mr. Rubin fully expects to materialize as companies try to escape the tariff and improve their energy efficiency.

"Throw US$40-$50 per tonne carbon costs into an environment of triple-digit oil prices and you suddenly redefine the meaning of competitiveness," he wrote. "In a whole swath of manufacturing industries, ranging from chemicals to primary metals, energy costs and their carbon trail, not labour costs, will soon become key."

Ultimately, a carbon tariff could reverse current trade and offshoring patterns, Mr. Rubin said.
Mr. Rubin notes efforts to decarbonize in advance economies come as carbon emissions are skyrocketing in the developing world, particularly China, which relies heavily on coal for energy.
As of 2006, China surpassed the United States as the single largest carbon emitter in the world and today it already emits 9% more than the United States, accounting for over a fifth of global emission.

Breakneck economic growth and the absence of environmental emissions have been key drivers but in its manufacturing-intensive economy, energy use as a share of GDP is also four times greater than the services-based U.S. economy.

China is also not energy efficient, producing a third more CO2 emissions per unit of energy than the United States, largely because it relies on coal for two-thirds of its total energy needs.
"There are more coal plants in China today than there are in the United States, the U.K. and India combined," Mr. Rubin and Mr. Tal write. At is current rate of one new coal plant per week, it will see 30 more coal plants built before the "green" Olympic games this summer. Plans call for 560 new coal-fired generation plants by 2012.

"You can't have the OECD making a long-term commitment to decarbonize their economy and have the developing world...rapidly carbonize their economies," Mr. Rubin said. "It makes absolutely no sense. The savings the [OECD] makes on their own emmssions are going to be dwarfed by the rate of growth...in the developing world."

Possible U.S. carbon tariff may affect growth: report

Jacqueline Thorpe, National Post Published: Friday, March 28, 2008


The West's next weapon in the fight against global warming may be a carbon tariff on imports from the developing world, a strategy that could have a profound impact on the global economy, a new report argues.
Not only will new charges for carbon emissions trim growth in developed countries, but carbon tariffs could boost inflation and reverse the march toward offshoring as manufacturers who have relocated to countries such as China move to more energy-efficient environments back home, CIBC World Markets said in a report released yesterday.
"As OECD countries begin to tax their own economies by charging growing fees on carbon emissions, their tolerance for the carbon practices of their trading partners will diminish rapidly -- particularly when the painful cuts made by North America, Western Europe and a handful of other OECD countries are dwarfed by the emission trail spewing from China and the rest of the developing world," Jeff Rubin, chief economist at CIBC WM, said in the report with Benjamin Tal. "The response is likely to involve a carbon tariff -- an equalizing force that will tax the implicit subsidies on the carbon content of imports that come from carbon non-compliant countries."

In an interview, Mr. Rubin said it looks increasingly likely the United States will join Europe in imposing a charge on carbon emissions either through a tax or a "cap and trade" system, where companies are allowed to emit a certain amount of carbon but must pay to go over the limit.
"If you look at the McCain platform, the Obama platform or the Clinton platform, irrespective of who captures the White House, the next administration is going to impose a price on carbon," Mr. Rubin said.

That would be the precursor for the United States to attempt to impose a carbon tariff on developing-world imports, he said. In effect, a carbon tariff would be similar to a countervailing trade duty, imposing a charge for unfair energy subsidies that Chinese exports reap from their cost-free carbon emissions, Mr. Rubin said.

At US$45 per tonne of carbon dioxide -- about the going rate under current European trading schemes -- such a tariff would raise roughly US$55-billion a year from Chinese exports to the United States or equivalent to an average 17% tariff, almost six times bigger than the current 3% effective tariff on Chinese goods.

"At least initially, before other carbon-compliant sourcing can be found, it will be U.S. consumers who will have to bear the bulk of the tariff burden in higher import prices," Mr. Rubin wrote. Based on China's share of U.S. imports alone, that would raise the annual U.S. consumer price index by more than 0.6 percentage points.

Canada would likely face a similar increase, and costlier goods prices would hit growth as well.
Mr. Rubin estimates U.S. efforts to curb emissions will shave 0.6 percentage points off growth in real gross domestic product per year for the next five years, and that is if emissions are only cut by 10%.

The inflationary impact may be mitigated however, if North American industries shift production back home, a trend Mr. Rubin fully expects to materialize as companies try to escape the tariff and improve their energy efficiency.

"Throw US$40-$50 per tonne carbon costs into an environment of triple-digit oil prices and you suddenly redefine the meaning of competitiveness," he wrote. "In a whole swath of manufacturing industries, ranging from chemicals to primary metals, energy costs and their carbon trail, not labour costs, will soon become key."

Ultimately, a carbon tariff could reverse current trade and offshoring patterns, Mr. Rubin said.
Mr. Rubin notes efforts to decarbonize in advance economies come as carbon emissions are skyrocketing in the developing world, particularly China, which relies heavily on coal for energy.

As of 2006, China surpassed the United States as the single largest carbon emitter in the world and today it already emits 9% more than the United States, accounting for over one-fifth of global emissions.

Breakneck economic growth and the absence of environmental emissions have been key drivers, but in its manufacturing-intensive economy, energy use as a share of GDP is also four times greater than the services-based U.S. economy.

China is also not energy efficient, producing a third more carbon dioxide emissions per unit of energy than the United States, largely because it relies on coal for two-thirds of its total energy needs.

"There are more coal plants in China today than there are in the United States, the U.K. and India combined," Mr. Rubin and Mr. Tal write. At its current rate of one new coal plant per week, it will see 30 more coal plants built before the "green" Olympic games this summer. Plans call for 560 new coal-fired generation plants by 2012.

"You can't have the OECD making a long-term commitment to decarbonize their economy and have the developing world … rapidly carbonize their economies," Mr. Rubin said. "It makes absolutely no sense. The savings the [OECD] makes on their own emissions are going to be dwarfed by the rate of growth … in the developing world."

jthorpe@nationlpost.com

Possible U.S. carbon tariff may affect growth: report

Jacqueline Thorpe, National Post Published: Friday, March 28, 2008


The West's next weapon in the fight against global warming may be a carbon tariff on imports from the developing world, a strategy that could have a profound impact on the global economy, a new report argues.
Not only will new charges for carbon emissions trim growth in developed countries, but carbon tariffs could boost inflation and reverse the march toward offshoring as manufacturers who have relocated to countries such as China move to more energy-efficient environments back home, CIBC World Markets said in a report released yesterday.
"As OECD countries begin to tax their own economies by charging growing fees on carbon emissions, their tolerance for the carbon practices of their trading partners will diminish rapidly -- particularly when the painful cuts made by North America, Western Europe and a handful of other OECD countries are dwarfed by the emission trail spewing from China and the rest of the developing world," Jeff Rubin, chief economist at CIBC WM, said in the report with Benjamin Tal. "The response is likely to involve a carbon tariff -- an equalizing force that will tax the implicit subsidies on the carbon content of imports that come from carbon non-compliant countries."


In an interview, Mr. Rubin said it looks increasingly likely the United States will join Europe in imposing a charge on carbon emissions either through a tax or a "cap and trade" system, where companies are allowed to emit a certain amount of carbon but must pay to go over the limit.
"If you look at the McCain platform, the Obama platform or the Clinton platform, irrespective of who captures the White House, the next administration is going to impose a price on carbon," Mr. Rubin said.


That would be the precursor for the United States to attempt to impose a carbon tariff on developing-world imports, he said. In effect, a carbon tariff would be similar to a countervailing trade duty, imposing a charge for unfair energy subsidies that Chinese exports reap from their cost-free carbon emissions, Mr. Rubin said.


At US$45 per tonne of carbon dioxide -- about the going rate under current European trading schemes -- such a tariff would raise roughly US$55-billion a year from Chinese exports to the United States or equivalent to an average 17% tariff, almost six times bigger than the current 3% effective tariff on Chinese goods.


"At least initially, before other carbon-compliant sourcing can be found, it will be U.S. consumers who will have to bear the bulk of the tariff burden in higher import prices," Mr. Rubin wrote. Based on China's share of U.S. imports alone, that would raise the annual U.S. consumer price index by more than 0.6 percentage points.


Canada would likely face a similar increase, and costlier goods prices would hit growth as well.
Mr. Rubin estimates U.S. efforts to curb emissions will shave 0.6 percentage points off growth in real gross domestic product per year for the next five years, and that is if emissions are only cut by 10%.


The inflationary impact may be mitigated however, if North American industries shift production back home, a trend Mr. Rubin fully expects to materialize as companies try to escape the tariff and improve their energy efficiency.


"Throw US$40-$50 per tonne carbon costs into an environment of triple-digit oil prices and you suddenly redefine the meaning of competitiveness," he wrote. "In a whole swath of manufacturing industries, ranging from chemicals to primary metals, energy costs and their carbon trail, not labour costs, will soon become key."


Ultimately, a carbon tariff could reverse current trade and offshoring patterns, Mr. Rubin said.
Mr. Rubin notes efforts to decarbonize in advance economies come as carbon emissions are skyrocketing in the developing world, particularly China, which relies heavily on coal for energy.


As of 2006, China surpassed the United States as the single largest carbon emitter in the world and today it already emits 9% more than the United States, accounting for over one-fifth of global emissions.


Breakneck economic growth and the absence of environmental emissions have been key drivers, but in its manufacturing-intensive economy, energy use as a share of GDP is also four times greater than the services-based U.S. economy.


China is also not energy efficient, producing a third more carbon dioxide emissions per unit of energy than the United States, largely because it relies on coal for two-thirds of its total energy needs.


"There are more coal plants in China today than there are in the United States, the U.K. and India combined," Mr. Rubin and Mr. Tal write. At its current rate of one new coal plant per week, it will see 30 more coal plants built before the "green" Olympic games this summer. Plans call for 560 new coal-fired generation plants by 2012.


"You can't have the OECD making a long-term commitment to decarbonize their economy and have the developing world … rapidly carbonize their economies," Mr. Rubin said. "It makes absolutely no sense. The savings the [OECD] makes on their own emissions are going to be dwarfed by the rate of growth … in the developing world."


jthorpe@nationlpost.com

Carbon tariff trade war?

Terence Corcoran, Financial Post Published: Tuesday, March 25, 2008

As world financial markets struggle through credit risks, looming currency crisis and talk of recession/depression, along come an assortment of politicians and economists set to pile on another round of global downers: carbon taxes and a possible carbon trade war.

A European Union summit agreement two weeks ago to slash carbon emissions by 2020 ended with a veiled threat. If the rest of the world doesn't match Europe's carbon tax and control regimes, "appropriate measures" can be taken by the EU, the final summit statement said. The phrase "appropriate measures" hasn't been defined yet, but French President Nicolas Sarkozy thinks Europe should impose a carbon tariff on goods imported into Europe. If steel arrives from China or America, countries that have no carbon taxes in place, then Europe should tax the steel.
European governments love a good excuse to build trade barriers. Carl B. Hamilton, a Swedish MP and economics professor, warns in a letter to the Financial Times that EU-initiated carbon trade barriers "could provoke a global trade war between the EU on the one hand and countries such as the United States, China, India and Brazil on the other."

Risks of carbon protectionism are rising elsewhere. Two Canadian economists, Thomas Courchene and John R. Allan of the Institute for Research on Public Policy, write in the latest issue of the institute's magazine, Policy Options, that "carbon tariffs" offer a solution to the inevitable "free rider" problems that will flow from national and local carbon tax regimes.
The free rider problem is twofold. First, if Canada or Europe imposes carbon taxes, companies based in non-carbon-tax countries will have a competitive advantage. Second, Canadian companies hit by Canadian taxes will have an incentive to build new plants in non-tax jurisdictions. The way to fix these two problems, Messrs. Courchene and Allan say, is to impose a carbon tariff on imports. As they put it:

A national carbon tariff or a carbon import tax [would be] levied on the carbon footprint of all imports from all countries (including on the carbon emissions components relating to the logistics compnent, especially shipping, throughout the supply chain). Consistency ... would require that it be applied to all domestically produced and consumed products.

Fitting these tariffs into the world trading system would be a piece of cake. "So long as the national environmental policies do not discriminate arbitrarily between foreign and domestic products, or between products imported from different trading partners, there should be no problem." Well, that was easy to say, but what it means in practice is another matter.
Tracking carbon inputs in any product is an impossible task, a nightmare of measurement and calculation that would require a massive bureaucracy at the World Carbon Trade Measurement Agency and tie up carbon trade negotiators for decades, assuming no trade war intervenes to crash the world trade system. An example is beer: Canadian beer would benefit if European beer faced a carbon tax on transport costs from Europe. But Canadian beer might use hops and other inputs that have to be transported across Canada. What kind of electricity and water sources are used in each location? Would carbon tariffs become a protectionist policy favouring Canadian beer?

In Ottawa, the Liberals appear to be leaning toward a carbon tax plan. As the Liberal economic strategist, M.P. John Mc-Callum would know that Canada is in no position to impose a carbon tax in isolation. It would impose a burden on Canadian industries and hit the country's competitiveness. Even the National Round Table on the Economy and the Environment only endorsed a carbon tax if it were part of an international effort. Canada cannot impose a carbon tax on its own, unless Mr. Mc-Callum intends to follow the advice of Tom Courchene and John Allan. If the Liberals want a carbon tax, they will have to adopt, like the EU, compensating threats of trade action against non-carbon tax nations.

Before we go too far on this, we might want to remember the story of the U.S. Smoot-Hawley Tariff. Back in 1931, at the beginning of the Great Depression, Congress whipped up a tariff bill to protect U.S. industry and farmers. It raised existing tariffs from 40% to more than 50%. The tariff on Canadian wheat jumped 40%. The trade-crippling law hit the world economy and is widely credited with exacerbating the Depression.

Well, you might say, no carbon tariff is going to be that severe. But who can say? To hit carbon emission reductions targets set by governments, carbon taxes are going to have to run to US$200 or US$300 a tonne, equal to more than 75¢ on a litre of gasoloine. That's bad enough, but doubly dangerous if imposed in the context of a global trade war and worldwide financial crises.

Another option, of course, is to have the United Nations impose a global carbon tax that it would collect and redistribute. There's a name for that kind of global measure: the Tobin tax. That's what the carbon tax effort is all about, if anybody wants to look it up.

China: Possible carbon tariffs could have an impact on growth

Prices could rise but manufacturing may flock back to developed world

Jacqueline Thorpe, National Post Published: Thursday, March 27, 2008


Tariffs on carbon emissions could shift manufacturing back to more efficient countries like Canada, say financial experts.


The West's next weapon in the fight against global warming may be a carbon tariff on imports from the developing world, a strategy that could have a profound impact on the global economy, a new report argues.


Not only will new charges for carbon emissions trim growth in developed countries, but carbon tariffs could boost inflation and reverse the march toward offshoring as manufacturers who have relocated to countries like China move to more energy-efficient environments back home, CIBC World Markets said in a report released yesterday.


"As OECD countries begin to tax their own economies by charging growing fees on carbon emissions, their tolerance for the carbon practices of their trading partners will diminish rapidly -- particularly when the painful cuts made by North America, Western Europe and a handful of other OECD countries are dwarfed by the emission trail spewing from China and the rest of the developing world," Jeff Rubin, chief economist at CIBC WM said the report with Benjamin Tal.


"The response is likely to involve a carbon tariff -- an equalizing force that will tax the implicit subsidies on the carbon content of imports that come from carbon non-compliant countries."
In an interview, Mr. Rubin said it looks increasingly likely the United States will join Europe in imposing a charge on carbon emissions either through a tax or a "cap and trade" system where companies are allowed to emit a certain amount of carbon but must pay to go over the limit.


"If you look at the McCain platform, the Obama platform or the Clinton platform, irrespective of who captures the White House, the next administration is going to impose a price on carbon," Mr. Rubin said.


That would be the precursor for the United States to attempt to impose a carbon tariff on developing world imports, he said. In effect, a carbon tariff would be similar to a countervailing trade duty, imposing a charge for unfair energy subsidies that Chinese exports reap from their cost-free carbon emissions, Mr. Rubin said.


At US$45 per tonne of CO2 -- about the going rate under current European trading schemes -- such a tariff would raise roughly US$55-billion a year from Chinese exports to the United States or equivalent to an average 17% tariff, almost six times bigger than the current 3% effective tariff on Chinese goods.


"At least initially, before other carbon compliant sourcing can be found, it will be U.S. consumers who will have to bear the bulk of the tariff burden in higher import prices," Mr. Rubin wrote. Based on China's share of U.S. imports alone, that would raise the annual U.S. consumer price index by more than 0.6 percentage points.


Canada would likely face a similar increase and costlier goods prices would hit growth as well.
Mr. Rubin estimates U.S. efforts themselves to curb emissions will shave 0.6 percentage points off growth in real gross domestic product per year for the next five years, and that is if emissions are only cut by 10%.


The inflationary impact may be mitigated however, if North American industries shift production back home, a trend Mr. Rubin fully expects to materialize as companies try to escape the tariff and improve their energy efficiency.


"Throw US$40-$50 per tonne carbon costs into an environment of triple-digit oil prices and you suddenly redefine the meaning of competitiveness," he wrote. "In a whole swath of manufacturing industries, ranging from chemicals to primary metals, energy costs and their carbon trail, not labour costs, will soon become key."


Ultimately, a carbon tariff could reverse current trade and offshoring patterns, Mr. Rubin said.
Mr. Rubin notes efforts to decarbonize in advance economies come as carbon emissions are skyrocketing in the developing world, particularly China, which relies heavily on coal for energy.
As of 2006, China surpassed the United States as the single largest carbon emitter in the world and today it already emits 9% more than the United States, accounting for over a fifth of global emission.


Breakneck economic growth and the absence of environmental emissions have been key drivers but in its manufacturing-intensive economy, energy use as a share of GDP is also four times greater than the services-based U.S. economy.


China is also not energy efficient, producing a third more CO2 emissions per unit of energy than the United States, largely because it relies on coal for two-thirds of its total energy needs.


"There are more coal plants in China today than there are in the United States, the U.K. and India combined," Mr. Rubin and Mr. Tal write. At is current rate of one new coal plant per week, it will see 30 more coal plants built before the "green" Olympic games this summer. Plans call for 560 new coal-fired generation plants by 2012.


"You can't have the OECD making a long-term commitment to decarbonize their economy and have the developing world...rapidly carbonize their economies," Mr. Rubin said. "It makes absolutely no sense. The savings the [OECD] makes on their own emmssions are going to be dwarfed by the rate of growth...in the developing world."


jthorpe@nationlpost.com

Thursday, March 27, 2008

Trading Emissions builds carbon credit portfolio London

27 March: UK-based carbon investment company Trading Emissions (TEP) expects to be issued with 5 million carbon credits by the UN by the end of April 2009, from a contracted portfolio of 53 million – up 2 million in the last three months.

Including deals that are under negotiation, TEP’s portfolio holds 65 million certified emission reductions (CERs), each representing a one-tonne cut in carbon dioxide, close to its promise to deliver 66 million credits during 2008–12.

Announcing its interim results today, the company booked a notional pre-tax profit of £74 million ($148 million) in the six months to 31 December 2007 – up from £3 million in the same period last year.

On this basis, TEP valued its shares at £1.84, higher than the £1.14 at which they were priced on 25 March. The company said it will take action to address this undervaluing by the market, which it believes to be a short-term anomaly that will be corrected once the company starts generating cash from its carbon sales.

In January, the company bought back almost 7 million shares. “If the share price remains significantly undervalued then share buy-backs make sense,” said Simon Shaw, chief executive of EEA Fund Management, the investment advisor to TEP.

He added that the problems at other listed companies in the carbon sector, such as Dublin-based AgCert which is presently seeking protection from its creditors, was unfairly reflected in TEP’s valuation. Its share price received a slight boost upon publication of the results, climbing 3.5% to £1.18 at the close today.

TEP’s strategy is to avoid selling credits forward and conditions in the CER spot market are “not yet optimal for large-scale disposal", the company said, citing delays in establishing the International Transaction Log – the link between national carbon credit registries. It has been issued 1.9 million CERs by the UN and has entered deals to sell 724,000 CERs before the end of April 2009, including swapping CERs for allowances in the EU Emissions Trading Scheme.
The firm is also turning its attention towards the US, where there is a “strong likelihood of a mandatory cap-and-trade scheme passing through the legislature during 2009”. In January 2008, TEP put a further $10 million into a carbon credit investment fund managed by US-based Element Markets. TEP has also built up its stake in project developer Environmental Credit Corp to 76%; this firm has launched a subsidiary, Ag Carbon Management, specifically to develop methane capture projects at agricultural sites in the US.

JPMorgan buys carbon offset firm ClimateCare London,

27 March: US investment bank JPMorgan has bought ClimateCare, one of the oldest carbon offset providers, to strengthen its carbon credit origination business.

The two parties did not disclose the value of the transaction, but it will see UK-based ClimateCare’s 40 staff around the world joining JPMorgan’s 11-strong environmental markets team. The US bank will assume ClimateCare’s portfolio of projects, origination capacity and existing book of business.

As part of the acquisition, ClimateCare’s project sourcing arm, Pioneer Carbon, will become part of the newly combined business. The group will initially operate under both the JPMorgan and ClimateCare brand names.

Mike Mason, founder of ClimateCare, said: “After building up this business for over a decade, becoming part of JPMorgan is exactly what ClimateCare needs in order to grow rapidly and achieve its goal of having the biggest impact possible in tackling climate change.”
ClimateCare, which counts flooring manufacturer Interface, Land Rover and the UK’s major political parties among its clients, specialises in supplying carbon offsets to the voluntary market. It has a particular focus on higher-quality projects with a social component in addition to their emissions reduction potential.

However, it has been moving into the mandatory markets, developing projects that qualify under the Kyoto Protocol’s Clean Development Mechanism (CDM). According a ClimateCare spokesman, the company has a pipeline of some 8 to 10 million tonnes of carbon dioxide or equivalent, all accredited “to leading standards”, such as the Gold Standard, the Voluntary Carbon Standard and the CDM.

The company, which is based in Oxford, UK, has field offices in Kenya, Turkey, Mauritius and Chile.
Updated 27 March 2008

Merrill Lynch, SocGen launch carbon indexes

London, 27 March: Investment banks Merrill Lynch and Société Générale (SocGen) have both announced the launch of carbon indexes, following similar moves by Barclays Capital and UBS.
Both indexes will track prices for EU allowances (EUAs) and certified emission reductions (CERs), with a weighting of 71:29 in the Merrill Lynch Global CO2 emissions index and an even 50:50 split for SocGen’s. Merrill Lynch is also offering a separate EUA index and CER index.
The US investment bank will source EUA prices from the London-based European Climate Exchange (ECX), while the CER index will be an average of closing prices from three brokerages, which the bank will call every day. The three brokerages are yet to be decided upon, said Francisco Blanch, head of global commodities research for Merrill Lynch.
“We try to move towards exchange-traded markets when we can,” he told Environmental Finance, as it is more transparent and “better for the client if he can see closing prices on an exchange”.

The indexes will roll in February every year, to the following year’s vintage, said Blanch – meaning that the indexes right now are based on December 2009 prices.
Meanwhile, SocGen has teamed up with Paris-based emissions trading company Orbeo, which the bank owns jointly with French chemicals firm Rhodia, to launch its SGI-Orbeo Carbon Credit Index. This index will track the “first nearby” vintage in both the EUA and CER futures contracts, starting with the December 2008 contracts on the ECX, said Emmanuel Fages, analyst and business developer for Orbeo, with both contracts holding an equal weight in the index.

“It is very simple,” said Fages of the index. "It will track one maturity," with the most liquidity – which tends to be the front December, he said.
The bank will target “traditional fund managers” for investment in the index, such as pension funds and hedge funds, said Fages.

Sunday, March 23, 2008

Australia carbon monitoring technology and forest for developing countries

February 18, 2008
AUSTRALIAN technology for measuring carbon emissions from diminishing forests is to be made available to developing countries in cooperation with a group created by former US president Bill Clinton.The Clinton Climate Initiative has selected the CSIRO-developed National Carbon Accounting System (NCAS) as the platform for a global rollout, Climate Change Minister Penny Wong said today.

The global system would assist in recognising sustainable forest management and reforestation and would be adapted to meet the individual needs of developing nations, Senator Wong said. "An internationally-accepted carbon monitoring and accounting system is critical to integrating forests into the global carbon markets," she told the launch of the partnership in Canberra. "This can play an important role to alleviate poverty in developing countries through encouraging and providing a mechanism to reward sustainable management."

About 20 per cent of global emissions come from deforestation and forest degradation.

The NCAS uses remote sensing, satellite images, greenhouse-gas accounting methods and modelling of environmental changes to monitor and account for emissions from land-based sectors.

Clinton Climate Initiative representative Ira Magaziner said the organisation and the Australian government had agreed to make the world-leading technology freely available. "Not to try to wall it off or get commercial gain from it, because this is a public good - something that the world needs, that we all need," Mr Magaziner told the function. "We hope over the next few years to deploy systems around the world that will begin that process and capture that CO2 and that carbon in the air that we need to capture."

Old growth forests for carbon storage - Australia, Tasmania

Peg Putt MP
Monday, 28th January 2008

For Comment: State Parliamentary Offices of the Tasmanian Greens, (03) 6233 8300
The Tasmanian Greens today are unsurprised that a bleak outlook is forecast for Tasmania’s woodchip industry, even if Gunns’ pulp mill is built, and that pulp sales from the mill would also have to compete with low priced pulp from low cost South American producers, trends the Greens have repeatedly pointed out from their market analysis, now also reported by URS Australia in a consultancy to the Federal government (reported in today’s Australian newspaper).

Greens Opposition Leader Peg Putt MP said that taxpayer subsidisation of Forestry Tasmania had masked to a degree the fact that international markets are moving away from low quality native forest woodchip, and that in the era of action on climate change the best opportunity to make money from Tasmania’s native forests is to restore them to old growth to capture carbon and the dollars that will flow as carbon credits.

Ms Putt said that over recent years the big woodchippers had externalised risks associated with the market trend away from native forest woodchips onto forest contractors, not all of whom could survive, but that the woodchip companies and governments had played politics with the issue and put their energy into blaming conservationists for a trend actually precipitated by the establishment of massive hardwood eucalypt plantations in South America and south-east Asia.
“There is a bleak outlook for Tasmania’s native forest woodchip industry because higher quality plantation eucalypt is now available in large volumes at competitive prices from South America and south-east Asia, a trend that has been entirely predictable for years but has been masked by taxpayer subsidisation of Forestry Tasmania and the industry, together with the ideological determination to blame conservationists rather face up to reality,” Ms Putt said.

“Market trends mean that even if the pulp mill is built it will not be a panacea and contractors reliant on logging native forests for woodchip will continue to go out backwards, it’s dishonest of the government and of Gunns to lead people on about this and disgracefully blinkered that we don’t recognise the value in economic as well as environmental terms of restoring these forests to old growth instead.”

“Even the pulp mill will struggle to sell its product in competition with low cost producers, and we are very concerned that Tasmanian taxpayers will be locked into increasing subsidisation of Gunns pulp mill, which will end up as the monopoly buyer of woodchip dictating terms that suit the company’s bottom line.”

“The money generated from forests into the future will increasingly be through carbon capture, that is by retaining and restoring old growth forest and benefiting from carbon credits.”

“Tasmania has to break the stranglehold of the loggers on decision-makers if we are to be genuinely the clean, green and clever state, and if we are to stop throwing taxpayers dollars at an industry that is going down the gurgler because the rest of the world has moved on,” Ms Putt said.

Vatican Climate Forest in Hungary

TISZAKESZI, Hungary: This summer the cardinals at the Vatican accepted an unusual donation from a Hungarian start-up called Klimafa: The company said it would plant trees to restore an ancient forest on a denuded island by the Tizsa River to offset the Vatican's carbon emissions.
The young trees, on a 15-hectare, or 37-acre, tract of land that will be renamed the "Vatican Climate Forest" will in theory absorb as much carbon dioxide as the Vatican makes through its various activities in 2007: driving cars, heating offices, lighting St. Peters Basilica at night.
In so doing, the Vatican announced, it would become the world's first carbon-neutral state.
"As the Holy Father, Pope Benedict XVI, recently stated, the international community needs to respect and encourage a 'green culture,' " said Cardinal Paul Poupard, head of the Pontifical Council for Culture, who took part in a ceremony marking the event at the Vatican. "The Book of Genesis tell us of a beginning in which God placed man as guardian over the earth to make it fruitful."

The Vatican, which has recently made an effort to go green on its own by installing solar panels, sought to set an example by offsetting its carbon emissions. Hungary, whose government scientists are consulting on the project, will take over large swaths of environmentally degraded, abandoned land restored as a native forest. That will have a beneficial effect on the climate there, and provide jobs in a economically depressed area, as well.

Klimafa, an 18-month-old company, gets the Vatican's seal of approval and a lot of free publicity for its first project. In addition to the Vatican's 15 hectares, several European governments as well as Dell, the computer maker, have purchased carbon offsets, which will be backed by tree planting on the 225-hectare island.

"It seems so obvious, but no one was doing it," said David Gazdag, a former medical doctor who brokered the project, with backing from his San Francisco parent company, Planktos International.

But creating and selling carbon "offsets" or "credits" is still a novel concept for both business and science, and many controversies remain. The calculation for tree planting in particular is complicated.

Planting forests is only "a partial solution, and a temporary one," said Laszlo Galhidy, forestry officer for the environmental group WWF Hungary, although he praised the project as a useful step.

Young forests - dominated by growing trees - soak up lots of carbon dioxide, but once the forests mature, they absorb far less, he said.

Also, "carbon credits" are not a hard currency like a euro or a Hungarian forint, but something far more nebulous, like a stock market future. There is no scientific system for predicting the exact carbon absorbing capacity of a project like the Vatican Forest, whose trajectory depends on rainfall, temperature and how fast trees grow.

Finally, man increases his polluting activities faster than he can offset them.

"Planting forests will only compensate for a small fraction of emissions, even if you cover all of Hungary in young trees," Galhidy said. Gazdag acknowledges that carbon offsetting is not an exact science. "People have only been thinking about offsetting for about 10 years," he said.
But he and others say that market mechanisms created by the Kyoto Protocol and the European Union at least force polluters to pay in some form for the emissions they create.

Kyoto and the European Union's Cap and Trade scheme set emissions targets for countries or large companies. Those that exceed their allowances - emitting too much carbon - need to purchase "carbon credits" from countries or companies that do not need their allotment or from companies like Klimafa that create credits through green projects like planting trees.
On the EU market, carbon credits are trading at about €21, or $28; one credit counters one ton of emitted carbon dioxide. Klimafa says its donation to the Vatican is worth about €100,000.

Some U.S. companies, like Dell, voluntarily purchase credits as a sign of their environmental commitment even though there is currently no U.S. law that requires them to do so.
Within Europe, the EU scheme allows for a much needed transfer of money from the more developed countries of Western Europe to the new economies of the East. Countries and companies in the West tend to exceed their allowance, whereas Eastern countries tend to have excess credits to sell since so many polluting Communist-era factories have been shut.

Also, many of the former Eastern Bloc countries had to decommission farmland to join the European Union in accordance with EU agricultural policy. In Hungary, as in other new member states, huge tracts of marginal fields have been repurchased by the government from farmers and are readily available for reforesting.

The island that will host Klimafa's first eco-restoration project, originally called "Forest Island," was cleared in the Middle Ages, though it is on a flood plain and has always been risky to farm.
Klimafa is also negotiating for nine more projects in Hungary as well as others in Bulgaria and Romania.

The island is now a mix of tangled weeds, wetlands, a lake and a few fields of corn that farmers are planting illegally even though they no longer own the land. Much of the island is a jumble of goldenrod and amorpha fruticosa - a tree-like weed that grows like wildfire.

The plant "doesn't sequester much, and it is not stable since it has little biodiversity since it is mostly two or three species," said Gergely Torda, a plant biologist from the Hungarian Academy of Sciences, who is consulting on the project. "It is deforested enough that you pretty much have to start from scratch to restore the native forest."

He scans the land as a blank canvas, describing plans for what will be planted where.
Later this year, Klimafa will begin clearing the weeds, using local labor, and then start environmentally sensitive planting of saplings that are native and will thrive in the local environment. These include willows, beeches, ash, certain poplars and oaks. The growing forest will absorb 10 times the carbon that the land currently absorbs, and will be self-sustaining, Torda said.

Klimafa has been given the right to restore the land by the Bukk National Park, which owns it; costs will be covered by carbon credit purchases.

Torda notes that it will take 50 to 150 years to produce a mature forest. Once that happens it will be less effective, since mature forests contain decaying trees that release CO2, as well as growing trees that absorb it. Also, there are pitfalls that will need to be avoided. Too much plowing, for example, releases carbon from the soil, which reduces the beneficial effect.

In some carbon credit projects, for example in Indonesia, the draining and plowing of peatland to make way for tree planting released so much carbon (peat is rich in the element) that it canceled the effect of the later planting of palm trees, according to Wetlands International. But the soil on the Hungarian island now is dry and low in carbon.

The world of carbon credits is filled with untested projects. For example, Planktos, Klimafa's San Francisco-based parent company, plans to seed an area in the Pacific with iron to stimulate the growth of carbon-eating algae.

After the Vatican agreement was announced, Monsignor Melchor Sánchez de Toca Alameda, an official at the Vatican's Council for Culture, told the Catholic News Service that buying credits was like doing penance: "One can emit less CO2 by not using heating and not driving a car or one can do penance by intervening to offset emissions, in this case by planting trees," he said.

But some critics derided the Vatican for planting trees rather than trying to rein in energy use in Rome. The Vatican did not have to pay anything for the Klimafa program, although the donation is only for 2007, and does not cover air travel.

Just last week, the Vatican began sponsoring low-cost flights for pilgrims from Rome to holy sites like Lourdes ("More convenient than a 22-hour train ride!" one priest said on Italian television.) Plane travel is hugely polluting.

Volkswagen Forest in the US

AUBURN HILLS, Mich. — It's a novel idea for an automaker — and one that is bound to make environmentalists like Al Gore happy. Volkswagen has announced it will plant an actual forest to help atone for the carbon footprint of its vehicles. Volkswagen of America said it is introducing a new environmentally friendly program to offset the "carbon footprint" of people who buy new VWs from September 1 through January 2, 2008. The program is run in partnership with Carbonfund.org, a nonprofit organization that supports renewable energy, energy efficiency and reforestation projects to reduce carbon dioxide emissions. VW said it plans to reforest land in the Lower Mississippi Alluvial Valley in Northern Louisiana, a place it describes as "a wetland ecosystem that had been largely converted to farmland." The company said it will achieve a total carbon reduction estimated at more than 372,000 tons of carbon dioxide from the planting of more than a quarter-million native trees in what it's calling the Volkswagen Forest. This "is the first time a car company and its community of owners have mobilized on this scale to offset carbon emissions and reduce their climate footprint," said Eric Carlson, Carbonfund.org executive director. VW also said it will partner with Carbonfund.org to offset carbon emissions at a vehicle test-drive program at the Teva Mountain Games and for an upcoming Clean Diesel marketing tour.

Carbonfund.org reforestation projects US and Central America

Reforestation

Rivas, Nicaragua Owner/Developer: Paso Pacifico Certification: Climate Community & Biodiversity Alliance** Tropical dry forests are one of the planet’s most threatened ecosystems. In Partnership with Carbonfund.org, Paso Pasifico is engaging private reserve owners and small-scale farmers in restoring abandoned pastures to native forest that will offset 150,000 tons of carbon dioxide. The newly restored areas will also form habitat corridors for wildlife, while providing jobs and eco-tourism opportunities for the local population.



Tensas River Valley, Louisiana Owner/Developer: Trust for Public Land/U.S. Fish & Wildlife Service Certification: Environmental Resources Trust* Besides sequestering carbon dioxide, this 1,100-acre project will help restore native bottomland hardwood species to Louisiana and protect over 400 species of mammals, birds, reptiles, and fish. The nearby Tensas River Refuge consists of nearly 70,000 acres of bottomland hardwoods and oxbow lakes. The reforestation project will help restore watersheds and habitats including those of the Louisiana Black Bear. This type of habitat once covered 25 million acres of the Mississippi Alluvial Valley.
*The Environmental Resouces Trust has been selected to certify this project **This project is designed to meet the Climate, Community and Biodiversity Gold Standard and is currently undergoing verification by Rainforest Alliance/SmartWood™.

Carbonfund.org supports reforestation projects in the U.S. and around the world that “sequester,” or remove, carbon dioxide from the atmosphere. Worldwide deforestation is a major contributor to global warming. Reforestation projects capture CO2 and store it in the trees’ mass and in the soil. Reforestation projects play a vital role in absorbing emissions and providing time to transition to a new energy future.
All our projects meet or will meet the Climate, Community and Biodiversity Alliance (CCBA); Voluntary Carbon Standard (VCS); Environmental Resources Trust (ERT); or United Nations Framework Convention on Climate Change (UNFCCC) Joint Implementation (JI) standards.
Below are some of the reforestation projects Carbonfund.org is supporting:

Friday, March 21, 2008

US simulation on the economics of climate change

As Congress and the Administration once again consider policies to reduce emissions of the greenhouse gases. (Greenhouse gases contribute to global warming by absorbing solar radiation. The main ones are carbon dioxide, methane, nitrous oxide and water vapor. Some industrial chemicals, such as CFCs (chlorofluorocarbons) and HCFCs (hydrofluorocarbons) are also greenhouse gases.)


Humans increase atmospheric carbon dioxide mainly by burning carbon fuels. responsible for global warming. (The average surface temperature of the world rose by about 1 degree Fahrenheit during the last century. The latest report of the Intergovernmental Panel on Climate Change predicts a further increase of 2 to 6 degrees in this century, even if greenhouse gas concentrations in the atmosphere are stabilized at twice the pre-industrial level. This warming would be accompanied by rising sea levels, more intense storms and droughts, heat waves, melting glaciers and other effects. , the potential cost of such policies to the American economy again becomes a critical issue.)


Some of those who oppose mandatory cuts in carbon dioxide emissions fear that the resulting rise in energy prices would impose serious costs on the economy, undermining prospects for growth. On the other side, many of those advocating government policies requiring emission reductions point to the availability of many opportunities to raise energy efficiency. (Energy efficiency is the ratio between the energy input of a device, such as an automobile, and its useful output, such as mechanical energy.)


Improved technologies, such as hybrid engines in vehicles, combined cycle electric power plants and compact fluorescent light bulbs, have demonstrated improvements in energy efficiency. and to expand the use of renewable energy. (Renewable energy sources provide just over 6 percent of total energy used in the United States. The main sources are hydroelectric power, biomass burning, wind, geothermal and solar energy.)


Some renewable energy sources, such as wind and solar power, are increasing at more than 20 percent per year., concluding therefore that any economic impacts would be modest, at worst.

What should we believe? Since the United States has not yet initiated any national policies to reduce greenhouse gas emissions, experience provides little guidance.


Predictions, both optimistic and pessimistic, are all based on simulations. (Policy simulations use economic models to predict how the economy would evolve under a set of baseline assumptions, and then predict its evolution under those assumptions plus the adoption of the policy in question, such as a tax on carbon fuels. The simulation then ascribes the difference in these two projections to the effects of the policy. performed using macro-economic models)


(Macro-economic models describe the inter-related functioning of an entire economy, including its linkages to other economies. Many such models identify several producing sectors (e.g., industr, agriculture, energy) and consuming sectors (e.g., households, government, exports) and include equations describing their economic behavior and linkages.)


Some types of macro-economic models assume that economic behavior adjusts efficiently to price incentives; others assume a continuation of past trends. that attempt to show how the U.S. economy works. Any such model is just a coherent set of assumptions about the structure and functioning of the economy, based on past performance. Naturally, any model’s predictions depend entirely on the assumptions imbedded in it — how could it be otherwise?
Because the various models


(The 27 macro-economic models in the meta- analysis were constructed by various academic and research institutions in Europe and the United States. Descriptions of the models can be found in Robert Repetto & Duncan Austin, The Costs of Climate Protection: A Guide for the Perplexed, World Resources Institute, Washington, DC, 1997; and Terry Barker, M.S. Qureshi & J Koehler, The Costs of Greenhouse Gas Mitigation with Induced Technological Change: A Meta-Analysis of Estimates in the Literature, Tyndall Centre For Climate Change Research, Cambridge, England, July, 2006. used for the purpose differ in their assumptions, they project different economic impacts even for the same targets and timetables of emissions reductions.




(The meta-analysis was based on more than 1,400 policy simulations performed with the various models. It used statistical regression analysis to ascribe differences among models in the predicted economic cost of a given percentage reduction of greenhouse gas emissions to differences among models in specific assumptions. Though some of the models related only to the U.S. economy, others to the world economy, the meta-analysis found that both sets of models produced the same results. (Barker, page 35) This presentation refers to the U.S. economy. synthesizing all the available models reveals what the crucial assumptions are and how changing those assumptions affects the predicted economic costs of reducing greenhouse gas emissions by specific percentages


(The percentages chosen for this presentation are 20 and 40 percent below the baseline level of emissions. below the business-as-usual path.


(Each model projects a unique growth trajectory of emissions in the absence of any policy to reduce them. These trajectories reflect different model assumptions about rates of growth of population, technological progress, energy efficiency, and other key underlying variables. Thus, the same percentage reduction in emissions from the baseline represents different quantities in the different models. by 2030.


Surprisingly, only a handful of key assumptions account for most of the differences among model predictions


(The seven assumptions described below accounted for 80 percent of the variance in the projected costs of cutting emissions by 40 percent below the baseline by 2030. of the economic costs of reducing emissions. Those key assumptions


(The seven crucial assumptions are expressed in binary (yes = 1 and no =0) form and enter the meta-analysis with coefficients that represent, across all models, the quantitative effect of that assumption on the predicted economic impact of reducing emissions. are explained here. You, as a visitor to this site, can decide for yourself what assumptions are more realistic. Then, based on this choice of preferred assumptions, you can see how reducing greenhouse gas emissions is likely to affect the economy’s gross domestic product.


(Gross Domestic Product is the aggregate value of all goods sold in the economy, net of raw materials, intermediate products, and components. It represents final sales to consumers and government and for exports and investment purposes. and its growth rate.)

Book Industry Undergoing Green Transformation

March 19, 2008

The U.S. book industry emits over 12.4 million tons of carbon dioxide into the atmosphere each year, or approximately 8.85 pounds of carbon for the average book (.89 lb), with most of the impact connected to forest carbon loss, according to a new report, from the Green Press Initiative and Book Industry Study Group.

The report-Environmental Trends and Climate Impacts: Findings from the U.S. Book Industry-also reveals an industry in the midst of a positive environmental transformation.

The book industry’s use of recycled fiber has increased six-fold in the past few years, and many companies in the book business are developing environmental policies and setting goals to increase their use of recycled and certified paper, improve impacts on forests, reduce energy consumption, and lessen their overall carbon footprint.

Approximately 45 percent of publishers now have meaningful environmental policies in place, with concrete goals and timelines. In fact, four of the top 10 publishers-including Random House, Scholastic, Simon & Schuster, and Thomas Nelson-have joined 160 smaller publishers in making significant public commitments in this arena. In addition, a solid majority of respondents (more than 220) have endorsed the Book Industry Treatise on Responsible Paper.

Merrill Lynch is investing in forest protection

With all the gloomy news coming these days from Wall Street, it's great to see that when it comes to the environment, Wall-Street is still bullish. I'm talking about the news on Merrill Lynch new investment of $9 million to finance a project to protect 750,000 hectares of forest in Indonesia.

Dana Mattioli reported last week on the Environmental Capital blog of Wall Street Journal about the new green deal. Firstly, let's make one thing clear - this is not a donation or anything like that. It is an investment that according to the article is supposed to generate Merrill annual proceeds of $432 million over the next 30 years.

The expected income will come from in carbon financing, which means that someone will pay Merrill to offset polluting activities elsewhere with the amount of carbon dioxide that won't be emitted (3.4 million tons of carbon dioxide every year) because of the fact that the trees will be kept alive and won't be cut down.

Carbon financing based on forest protection wasn't permitted under the Kyoto Protocol, but as we reported in the past, it was discussed in the U.N.’s Bali meeting in December last year, and though it is not approved yet, there's a good chance it will be part of the post-Kyoto program that will replace in 2012.

Although carbon financing is far from being proven as an efficient and beneficial solution, I am very supportive of adding the forest protection into the program. Unfortunately, economic forces are the ones leading most of the deforestation and therefore it might be that economic forces may be the best realistic remedy.

I believe that Merrill will be followed by many other institutional financiers that will see an opportunity in protecting forests. For many forests this involvement will make the difference between deforestation and conservation.

Thursday, March 20, 2008

The Nature Conservancy Hails CalPERS Move to Invest in the Ultimate Growth Fund: Sustainable Forestry

The Nature Conservancy Helps Pension Fund Craft Environmentally Sound Policy
San Francisco, CA — February 19, 2008 — The Nature Conservancy congratulated the California Public Employee Retirement System (CalPERS) for its vote today to adopt a trend-setting forest investment policy that requires certified sustainable forest management and positions CalPERS to profit from the rapidly emerging global market in forest carbon credits.

“This leading-edge policy will direct $2.4 billion in CalPERS investments toward environmentally friendly forest projects. That level of investment provides a strong incentive to the global timber industry to engage in certified sustainable timber management,” said Mike Sweeney, Executive Director of the California Chapter of The Nature Conservancy. “Good forest management provides healthy returns – for investors and for the planet.”

The Nature Conservancy began to work with CalPERS in the early stages of this new policy. “CalPERS is a savvy institutional investor. What it does can influence other institutional investors and the timber industry,” said Louis Blumberg, director of The Nature Conservancy’s California forest and climate policy program. “We were able to offer our experience with sustainable forestry and certification and to help create a policy that strengthens the institution’s long term asset while protecting forests lands.”

The vote today by CalPERS Board of Trustees creates sustainable management standards for its Forestlands Investment policy, part of a new inflation-linked assets class. The new standards require timber managers to use ecologically sustainable logging practices in order to foster long-term and steady growth of both forest and financial returns.

"Investing in forests is an important move to guard against inflation and the management practices are essential to make sure our assets are standing for generations to come," said Russell Read, chief investment officer for CalPERS.

The move by CalPERS, the nation’s largest public pension fund, continues California’s precedent-setting leadership role in fighting global warming and comes at a time when the economic benefits of forests are expanding as the result of growing worldwide demand for protecting the environmental health of the planet.

In October 2007, California became the first state to adopt emissions reductions standards that confidently account for the natural climate benefits of forests.

Forestry experts at The Nature Conservancy point out that by requiring independent, third-party certification for its forest investments, CalPERS will gain access to increasing consumer markets favoring sustainable forest products and green building materials, and keep CalPERS ahead of new regulatory actions.

Once owned chiefly by publicly-held companies, forests were managed primarily for their lumber value. Pressure from Wall Street and stockholders has recently compelled forest product companies to cut trees prematurely in order to meet short-term quarterly earnings goals.

Today’s forests are increasingly viewed by financial experts, including CalPERS, as a hedge against inflation. In other words, as trees grow, so does their value. Sustainably managed forests offer steady return potential over the long term and perform well when other assets are affected by inflation.

In addition to the income from timber harvests, sale and trading of offsets from new carbon markets, such as those developing from California’s Global Warming Solutions Act (AB 32), the European Trading System under the Kyoto Treaty, and the robust voluntary carbon market, offer the potential to generate a steady stream of cash from well-managed forests.

California: Brown calls on feds for carbon offset standards



SACRAMENTO -- After warnings of rampant fraud and abuse, California's Attorney General Jerry Brown is calling on the feds to regulate the unwieldy frontier of retail carbon offset sales.The national market for carbon offsets is expected to reach $100 million within the next four years -- with an estimated 80 percent of the offset market going to companies attempting to reduce their carbon footprint.

The market is rife with problems.

There are no government standards for quantifying emissions from offset projects, there are no guarantees that a company isn't double-selling their credits or claiming credits for practices that are already required by law. Adding to the potential for fraud, most of the organizations that purchase the credits have little understanding of the process."It's important for consumers to know exactly what they are getting," Gareth Lacy, Brown's spokesman told LNL. "Carbon offsets are an important tool."As green businesses become more popular, so do carbon offsets.

The credits are marketed to those who hope to zero-out their carbon emissions. An individual may buy credits to offset travel for a business trip or vacation. A company may buy offsets to claim their business is "carbon neutral."The offsets act like shares in a company that undertakes projects like reforestation or building renewable energy projects. A single, working individual who puts 7.53 tons of carbon dioxide into the atmosphere a year may offset that impact by buying $113-worth of carbon credits, whereas a large corporation may spend millions."The Federal Trade Commission must set clear guidelines for the sale of carbon offset credits," Brown said in a recent statement. "As more Americans try to offset their carbon emissions, the danger grows that some individuals will attempt to manipulate the system. Consumers must feel confident that they actually get what they pay for-real carbon reduction offsets."

But absent a national system, a successful voluntary system is taking shape in California.The California Climate Action Registry counts 332 of the state's largest corporations and public agencies as its members. First created by legislation in 2001, the registry was formed by a group of CEOs to voluntarily report their greenhouse gas emissions. On Tuesday, the Los Angeles-based organization created a stringent set of protocols regulating offsets.The registry just certified its first forest renewal project last month and one of California's three investor-owned utilities, Pacific Gas and Electric (PG&E), recently purchased $2 million in carbon offsets, some of which were derived from the project.

The two forest projects are the 24,000-acre Garcia River Forest in Mendocino County, owned and managed by The Conservation Fund and the 2,100-acre Van Eck Forest in Humboldt County, managed by Pacific Forest Trust. Both projects follow the registry's "forest protocols" whose requirements include a permanent conservation easement be placed on the forest, third party verification and sustainable management techniques that go above "business as usual."

According to the registry, California's foresting laws are some of the strictest in the world."These two forest projects clearly demonstrate that (the registry's) forestry protocols can be used in the fight against global warming," said Gary Gero, the interim president of the California Climate Action Registry.Later this year, Congress is expected to debate legislation under which businesses and other organizations would likely be "credited" for offsetting their carbon emissions.

The FTC has yet to respond to Brown's request.

Wednesday, March 19, 2008

Lehman Brothers and US position on Climate Change

TOKYO, March 17 (Reuters) - Signs the United States will soon respond to global warming and a new climate pact now under discussion are set to drive the carbon market further in the next two years, Lehman Brothers said on Monday.

Several states in the United States, the world's biggest emitter of carbon dioxide, have recently moved to choose carbon trading, instead of carbon taxation, paving the way for Washington to take similar moves.

"I'm fairly confident that no later than 2010 you'll see a passage of substantial climate change legislation in the United States," Theodore Roosevelt, Lehman's council on climate change chairman, said at a news conference in Tokyo.

"You'll see that the United States wants to take increasingly a global role in climate change leadership," he added -- becoming a driver for U.N.-led talks on a new framework to fight climate change when the Kyoto Protocol expires in 2012.

"When the United States comes out of the gate, that is to me not if but when, that opens the possibility of a serious dialogue between the United States and China, and Japan and other countries (on) how we're going to do this," Roosevelt said.

In addition to signs of a shift in the United States, John Llewellyn, Lehman's senior economic policy advisor, noted a revised carbon trading scheme is in place in Europe, while several exchanges in Asia, including the Tokyo Stock Exchange [TSE.UL], have recently expressed an intention to create trading platforms.

"These developments in this region will of course further boost the importance of carbon trading," Llewellyn said.

Lehman has already moved into what may be the world's fastest-growing market, with its global carbon trading operations based in London, in line with other investment banks.
In November, the International Emissions Trading Association, an industry body, said carbon trading would double to at least $60 billion in 2007. Global carbon market traded volumes were worth less than $1 billion in 2004.

Britian: Businesses will buy pollution permits from 2010

LONDON, Mar 13 (Reuters) - Energy-intensive businesses in Britain including supermarkets, banks and hotel chains will have to buy pollution permits from 2010 under a new government emissions trading scheme, Environment Secretary Hilary Benn said on Thursday.

The Carbon Reduction Commitment (CRC), which also includes all central government departments and local authorities, is a mandatory scheme that will help Britain cut greenhouse gas emissions by four million tonnes by 2020, the equivalent of taking one million cars off the road.

"The Government has to show it is serious about reducing CO2 emissions. This means the public sector improving the energy efficiency of its buildings - and doing this quickly," Benn said in a statement.

The CRC will be implemented under the UK's Climate Change Bill, currently going through Parliament.

Emissions trading sets and allocates a fixed quota of carbon credits, each allowing the bearer to pollute the equivalent of one tonne of carbon dioxide. Participants are then free to trade credits among themselves based on their individual energy demands.

The European Union initiated emissions trading in 2005 among its member states in an attempt to help them reach their goals under the U.N.'s Kyoto Protocol, which expires in 2012.

The EU scheme currently covers large installations including coal plants and cement factories, which make up half of the 27-nation bloc's total emissions.

The CRC will target smaller businesses and public sector organisations that do not qualify for the EU trading scheme, but whose annual half-hourly metered electricity use is above 6,000 megawatt hours.

The roughly 5,000 entities that fall into this category account for around 10 percent of the UK economy's total carbon dioxide emissions.

Britain's emissions in 2006, the latest figures available, were 652.3 million tonnes of CO2, already well within its Kyoto target of a 12.5 percent reduction of 1990 levels. But Britain has also committed to a further EU-wide goal to reduce 1990 levels by 20 percent by 2020.
"It won't be easy for all organisations...to cut their emissions quickly even though they'll be saving taxpayers' money in the long run by reducing energy bills," Benn said.
The UK government also announced 30 million pounds ($61.07 million) in interest-free loans for energy efficiency projects that will help businesses cut their energy use.

Montreal Exchange - CO2 Market -

TORONTO, March 14 (Reuters) - Montreal Exchange said on Friday that it plans to launch a futures market for Canadian carbon dioxide emissions on May 30, subject to regulatory approval.

The Montreal bourse, which runs Canada's market for interest rate, index and equity derivatives, plans to run the Montreal Climate Exchange as a joint venture with the Chicago Climate Exchange.

The two partners announced their plan to launch Canada's first exchange-traded carbon emissions contract in July 2006, and based on previous statements they had hoped to have it up and running before now.

The federal government gave more details about its emissions regulations earlier this week.

"The government of Canada has provided greater regulatory certainty regarding intensity-based emissions reduction targets and the definition of a single compliance standard for tradable credits," Luc Bertrand, president and chief executive of the Montreal Exchange, said in a statement.

"This will enable emitters to more accurately forecast their individual intensity-based reduction targets and exposures."

The exchange said it expects to get approval for the carbon futures contract from Quebec's financial markets regulator "in the near future."

The Montreal Exchange is in the midst of being acquired by Toronto Stock Exchange parent TSX Group .

On Thursday, a senior TSX Group executive said the type of carbon emission caps chosen by the federal government may shrink the potential market for trading credits and put the country out of step with other nations.

"Intensity-based" caps limit pollution as a percentage of industrial output, so absolute emissions can rise if a company's output rises.

The federal government's system could have limited compatibility with emissions trading in other jurisdictions, Rik Parkhill, interim co-chief executive of TSX Group, said in a speech in Calgary.

"An intensity-based system in Canada, apart from being potentially incompatible with other, larger and more liquid markets, could be smaller and less efficient for intensity-based trading than for a system based on trading under a strict cap," Parkhill said.

He also said a national market for carbon emissions would be preferable to a patchwork of provincial regimes.

The provinces of British Columbia and Manitoba are working with a coalition of western U.S. states to develop a regional trading market for carbon emission credits. Ontario and Quebec have also expressed interest in the idea. Details of the system are expected to be completed this fall.

"A national market that is compatible over time with the U.S. and Europe will make it easier to facilitate carbon reductions by emitters at competitive transaction costs," Parkhill said.