FEATURE - Brokers blaze trail for new greenhouse gas market
NEW YORK - Big business brokers in trading rooms at staid Wall Street addresses may be doing more to cut pollution than protesters at the Earth Summit in Johannesburg, South Africa.
Take Benedikt von Butler, a broker at Evolution Markets LLC in Manhattan, who is one of a new breed of environmental financiers at natural gas, bonds, and coal brokerage firms.
Brokers like von Butler create markets out of 30 types of air pollution - from sulphur dioxide (SO2), a component of acid rain, to carbon dioxide (CO2), a gas scientists say warms the Earth by trapping solar heat in its atmosphere.
In emissions trading, companies who have cut pollution by more than agreed targets can sell \"credits\" to other companies that are still polluting more than they should.
A variety of regulators set the targets. The U.S. Environmental Protection Agency set limits on acid rain components SO2 and nitrogen oxide (NOx). For CO2, Oregon, Massachusetts and New Hampshire have passed reduction laws.
But most CO2 trading is spurred by the prospect of international caps such as those outlined by the Kyoto Protocol, which aims to reduce greenhouse gas levels to near-1990 levels by 2012.
\"Sometimes companies decide to trade because they fear future regulations; they need to cover the risk which can be potentially devastating,\" said Neil Cohn, a greenhouse broker at Manhattan\'s Natsource LLC, a company set up in the 1990s to broker natural gas.
President George W. Bush has rejected the pact saying it would result in job losses, but all 15 European Union members and Japan have ratified the plan.
The SO2 market, at $4 billion a year and growing, is the oldest and most successful. The U.S. Environmental Protection Agency capped SO2 emissions of 200 of the nation\'s biggest utilities in 1990. Soon 2000 utilities will be capped - by even tighter emissions limits. Brokers profit on the deals and emissions have been reduced well beyond legal limits.
The youngest market kicked off in April after British regulators required utilities to generate 3 percent of their electricity from renewable sources such as wind farms.
In the morning, von Butler telephones British utilities to look for demand. In the afternoon, he calls green projects in Latin America who provide supply.
The British utilities only manage 2.8 percent renewable generation. \"It\'s a chronically short market,\" he said.
Whether they work on Wall Street or through Web trading platforms like CO2e.com
, a Cantor Fitzgerald company formed with PricewaterhouseCoopers, emissions brokers create value for pollution by linking industries such as utilities, oil refiners, cement, paper and glass makers with similar firms in their industry who invest in emissions reduction equipment.
\"Some people think emissions trade means you are paying to pollute, which really isn\'t true,\" said Peter Zaborowsky, Evolution Markets\' managing director. \"You\'re basically financing emissions reductions elsewhere.\"
Brokers also link buyers with global green projects that reduce emissions such as Blue Source LLC, which has sequestered CO2 deep into the ground at oilfields since 1999, both reducing CO2 levels and retrieving hard-to-get oil. Landfills that create electricity by burning methane, a potent greenhouse gas formed by rotting garbage, also provide supply.
\"If I\'m an aluminum manufacturer or a utility, I don\'t want to spend my time in India, China and Latin America finding little projects to invest in and having risks involved,\" said Natsource\'s Cohn.
\"I would want to deal with someone that\'s going to cover this for me at a cost and probably create a lower cost portfolio than I could ever do on my own,\" he said.
Globally, Natsource now has more than 50 greenhouse brokers.
GREENHOUSE BATTLE OVER KYOTO AND ON THE HILL
At the Earth Summit in Johannesburg this week and next, delegates will discuss methods of reducing emissions, but on Capitol Hill in Washington, D.C., a battle is also brewing.
Bush\'s Clear Skies Act, introduced this month, proposes further market-based initiatives for SO2, nitrogen oxide and mercury emissions but not for CO2.
Senator James Jeffords, the independent from Vermont who chairs the Senate environment committee, has stated that he prefers a bill that regulates greenhouse gas.
Companies have lined up to manage their risks. Liabilities including potential shareholder lawsuits blaming industries for global warming problems have created a whole category of insurance.
DOLLARS AND CENTS
The world\'s top reinsurance company Munich Re , estimates that global warming impacts could cost $300 billion annually by 2050.
Trading in carbon emissions could grow somewhere between $75 billion and $145 billion annually according to the world\'s No. 2 reinsurer Swiss Re .
CEO Jacques Dubois said: \"The way we deal with climate change and substantial emissions reductions ultimately turns into a financial issue, and the problems associated with environmental disaster quickly become measured in dollars and cents.\"
A few companies, including DuPont Co. , acknowledged possible consequences if the Kyoto Protocol passes in their financial statements. Other companies, such as the world\'s No. 2 energy company BP , have started trading emissions within their company.
Swiss Re this summer hosted an emissions trading conference in New York with the Coalition of Environmentally Responsible Economies (CERES), a Boston-based group of environmentalists and investors.
\"It was great because it was a dry business conference - people in suits talking emissions trade,\" CERES spokeswoman Nicole St. Clair told Reuters. \"Emissions trading has finally gone mainstream.\"
Some 200 million metric tons of CO2 have traded since 1992, brokers said. Brokers and companies do not reveal how much money they make on deals. But CO2 brokers said credit reductions for CO2 run between 50 cents and $2 per metric ton per year. By 2012 the price will rise to $5 to $9 per ton as the markets mature and regulations broaden, they said.
This summer, CO2e.com
brokered the largest CO2 deal to date: 6 million tons of CO2 equivalent. In that deal, Ontario Power Generation bought credits from Blue Source.
\"All sorts of people have been laid off on Wall Street,\" Evolution\'s von Butler said. \"Five years ago this job didn\'t exist. We\'re hiring people, so that\'s encouraging.\"
Evolution, which also trades over-the-counter coal, has 15 environmental financiers on its staff.
Story by Timothy Gardner
REUTERS NEWS SERVICE
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