Carbon Black Hole gets bigger and better - Financial PR gets into top gear

Four news items relating to the carbon trading market hit the headlines today:

1. The EU energy ministers have rejected the European Commission's proposal to introduce a binding target for renewable energy of 20 % by 2020.

2. The EUA Dec 2007 price for one ETU (= 1 Tonne CO2) reached the lowest price ever of €1.23 = 82 p = 98 US Cents

3. The Chicago Climate Exchange (North America’s only, and the world’s first, greenhouse gas (GHG) emission registry, reduction and trading system for all six greenhouse gases ) has suspended its programme that allowed EU allowances (EUAs) to be used to meet CCX emission reduction compliance requirements – over fears that the CCX would be flooded with cheap credits from Europe - thus knocking back attempts at establishing and developing a "world market in carbon."

4. " Greed is motivating Wall Street to join the fight against global warming." says an article today by Bloomberg

Climate Exchange PLC (issued late '04) shares rose 13% , up 107.50 to 955p (they have been 1237pa and took off in September ) which values the company at £394 Mn. The company has no revenues, no income and a net asset value of £29 Mn but have what is considered (like a Canadian owned Kazakh goldmine) a very good story to justify this phenomenal valuation. The company can be contacted C/O Barings (Isle of Man) Limited, St James’s Chambers, Athol Street, Douglas, Isle of Man IM1 1JE.

The company now own and operate Chicago Climate Exchange("CCX") and Chicago Climate Futures Exchange ("CCFE") and (Trading website here )issued a statement of trading on 22nd January 2007. The highlights of which were ...

"All the key performance indicators showed a substantial increase over the same period in 2005. The political climate in the U.S. has become increasingly receptive and the profile of climate change has been significantly raised. (see below) CCX and CCFE are well positioned to benefit from these circumstances and have been able to achieve significantly increased volumes and liquidity."

In 2006, CCX traded a total of 452.8 Mn Tonnes of CO2 (2005 = 94.3 Mn T) of which 175.9 Mn T (39%) was in futures and 276.9 Mn T 61%) was in Exchange of Futures for Physical ("EFPs") . Average daily volume traded during the year was 1.8 Mn T ... in other words they didn't actually trade (i.e actually buy and sell carbon they merely allowed the trading of promises to deliver (Futures) and and even fancier "derived" product Exchange of Futures for Physical ("EFPs").

On the 20th September 2006 Goldman Sachs Group Inc. agreed to subscribe for 4,174,467 new Ordinary Shares at a price of 293 pence, representing some 10.1 per cent of Climate Exchange on the 9th of February they announced this had increased to 8,352,041 ordinary shares of 1p each in the Company, representing 20.21% of the Company's issued share capital of which roughly half are held as Nominees for their customers. Read about their "Green Biz strategy here.

On 12th February 2007 Cayman Islands based Harbinger Capital Masters Fund 1. Ltd and Harbinger Capital Partners Special Situations Fund, LP announced their interest in 4,287,000 ordinary shares representing 10.4% of the Company's issued share capital.

Glenn Payne, Director of First Reserve Corp., the biggest private equity firm in the energy industry (US$12.5 Bn under management) , says `Giddy returns'' are probable (perhaps he "meant irrational exuberance" ) which will lead to a quintupling of credit values to around $19 per ton of carbon dioxide, from $3.50 now. In April CO2 was trading on the ETS at US$43 and today at US$ 0.92.

Elswhere Bloomberg reports the climate change fever has gripped the New York money jugglers Bankers.

1. Morgan Stanley, 2nd largest securities firm, plans to invest US$3 Mn over the next 5 years $3 billion of programs to cut greenhouse gas pollution or in the credits that result.

2. Citigroup Inc. and Minnesota-based Cargill Inc., the largest U.S. agricultural company,have agreed on a joint venture to buy shares in Sindicatum Carbon Capital Ltd. to generate carbon credits. See the full Business Wire story 13/2/07 here. Deputy Chairman of of SCC is Lord Stone of Blackheath (Votes as a Labour Peer) who spent a lifetime with Marks and Spencer ( he left school with 5 'O' Levels - 1 of them in woodwork) and retired as Joint MD in 1999. See Footnote.

3. First Reserve have contracted with struggling, cash strapped, Tyson Foods Inc. to buy carbon credits generated by cleaning up the methane from its chicken scraps and wastewater ponds which they can then sel on to companies that need to meet state or federal pollution limits.

They have signed similiar contracts with Arkansas truckers, J.B. Hunt Transport Services Inc. and the Boise, Idaho-based Albertson's grocery chain from greenhouse gas reductions replacing truck fuel with biodiesel and installing energy efficient store lighting.

Unbelievably Payne is also quoted, saying " The market in Europe, where greenhouse gas emission caps have been in place for two years, shows how high the value of U.S. credits will climb."

4. As ever the bearded jersey generates heat and excitement and his announcment with Al Gore, inventor of the Internet and responsible for the film, "The Uncomfortable Truth" of a $25 million prize for anyone who can devise better and more efficient ways to reduce and store CO2 helps to keep the pot boiling.

5. Germany's E.ON AG, the world's largest utility, said Feb. 7 that it will acquire credits by investing with banks in projects that curb greenhouse gases in the developing world.

6. Electric generator manufacturers, General Electric Co., and power plant builder AES Corp. of Arlington, Virginia, announced on Jan. 14 (4 pages PDF)that they created a joint venture for carbon emission credits with which they intend to cut U.S. greenhouse gas emissions by 10 million tons each year, creating 10 million credits, ``Our goal is to make this a viable business in a voluntary market and be a leader as it becomes regulated,'' he said. (Which makes you wonder if this remarkable rush for this evanescent market is based on more knowledge of the proposed legislation than has been made public)

“AES is committed to helping address climate change as part of our broader alternative
energy strategy,” said Paul Hanrahan, President and CEO of AES - which is a remarkable thing for the major US producer of coal burning power stations to say in public.

“This initiative will help GE Energy Financial Services double its already sizeable $1.5 billion portfolio of investments in renewable energy projects by the end of 2008, and will contribute to GE’s ecomagination program,” said Alex Urquhart, President and CEO of GE Energy Financial Services. ..Through its Ecomagination program,"

Ecomagination program - Dontcha just love it when they talk not-dirty like this ?

A great deal of this froth of speculation is based on the belief that Congress will approve a law to reduce emissions of carbon dioxide, methane and other gases that cause global warming. Beautiful grandmother and darling of AIPAC, House Speaker Nancy Pelosi, a California Democrat, said last week that ``mandatory action'' is needed to cut emissions in half by 2050. Even the President in his State of the Union address, perhaps signalled a change to the money jugglers when he talked of the need to ..."confront the serious challenge of global climate change'' (6 Buzz words and 2 prepositions in 8 words)

The article headlined the apparent 45% return that Isle of Man based Trading Emissions Plc, made in selling 255,000 credits to the U.K. government at about €14.50 euros a ton which they acquired in late 2005 and early 2006 for less than €10 euros each - when the market price today is € 1.23. A good sale ...or a lousy purchase ?

Speculators, including hedge funds, are replacing industrial companies as the biggest buyers of carbon credits, according to Greg Spencer, chief executive officer of Blue Source, founded only in 2001 - a Salt Lake City-based company that develops greenhouse gas projects (Blue Source has entered into the single largest US-based offset sale to date, at 9 Mn tonnes and has secured under long-term sourcing to the year 2019. ) in which First Reserve Corp have taken a 50% interest . . ``It's more about taking positions in a market that will appreciate significantly over time,'' .

Which sounds an awful lot like gambling ... or rigging the market ?

Footnote
Lord Stone of Blackheath is, amongst many other interests, Deputy Chairman Sindicatum Carbon Capital Ltd., and Director of seriously loss making DealGroupMedia plc, and of the seriously profitable N Brown Group plc which announced on 25th Jan 2007 a return of £89 Mn to shareholders as a special dividend of 27p per share. He is an Advisor to McDonald’s Restaurants, a Governor of the Weizmann Institute of Science and of the European Council of Ben Gurion University, a member of The Israel Britain Business Council and The Labour Friends of Israel , Patron of the enlightened New Israel Fund (see this story re Arab Housing) and has a lifelong interest in the process of creating understanding and toward peace in the Middle East.