Amplified Green

Equity analysts divide into three distinct groups based on their climate change perspective, according to a new report from independent research firm Verdantix.

The survey, entitled Equity Analysts Link Climate Change And Company Valuation shows that there are virtually equally sized groups of climate change believers, sceptics and cynics. Believers represent 30% of analysts. These guys already include climate change factors like regulations and risks in their financial models. Sceptics, comprising 28% of the research participants, think that climate change will have a material impact on profitability within 2 to 5 years. Cynics, comprising 30% of analysts, doubt climate change will ever impact valuations.

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Commercial hemp is a plant that scientists tout as having wonderful capabilities to combat climate change. The plant is outlawed in most countries including the US, but the EU subsidizes industrially grown hemp.

Commercially grown hemp has less than 1% tetrahydrocannabinol (THD), the psychedelic substance in ‘real’ cannabis. Most countries that shy away from growing it say they are fearful that farmers will also start growing the THD rich cannabis. Other than in the EU, the crop is grown in Canada, China, Russia and Australia.

Hemp takes in more carbon dioxide than any other plant and what’s more, hemp grows at an amazingly rapid speed. Wood made from hemp has 3-4 times the productivity of trees for paper manufacturing. And because it grows so fast, hemp can be used to solve the large-scale clearing of land and forests around the globe.

Various activists in the US are lobbying to get the crop reinstated. It was outlawed in the 1950s but Henry Ford ran his first car on hemp based fuel. Perhaps soon the activists will have their way. Already, the controlled substances act was amended last year to exclude industrial hemp from the legal definition of marihuana. The Campaign for the Restoration and Regulation of Hemp informs farmers and interested parties about the positive effects hemp has.

The applications of the crop for the energy industry are manifold and hemp is a way more powerful crop than rapeseed and other ethanol producing crops, without producing any harmful effects for the environment. Only one acre of hemp yields 1,000 gallons of methanol. Also, hemp can be used to create alternatives to coal, fuel oil, acetone, ethyl, tar pitch and creosote.

In the food sector hemp is also in strong demand. In 2004, the US alone imported $12 million worth of the stuff for the food sector. And the US healthcare market used $30 million worth of hemp.

Companies involved in offsetting their carbon footprint have access to over twenty tools to calculate their emissions, most of which have been launched in the last year. So far, the voluntary carbon offsetting market is dominated by European players. Reviews of their efforts have not been all too positive, so US companies following in their footsteps do best to avoid the pitfalls.

The main criticism centers on what´s left out of the equasion. Companies embarking on greening up their business practices are faced with a daunting task and most go about it the `easy way´ at first. There´s the option to simply offset carbons on the Chicago Climate Exchange, the European Climate Exchange or on the newly established NYMEX venture, the Green Exchange. Businesses have access to these exchanges if they wish to reduce their overall greenhouse gas emissions by as little as 1%.

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The British capital markets watchdog, the Financial Services Authority, has released a report warning that many emissions trading companies make false claims about their green credentials.

The FSA says that the integrity of the carbon trading market is under threat. The information that carbon emissions traders relay to clients often has a truth content that’s lower than you’d expect. In many cases there’s also no clarity over the regulations involved, a lack of credible data. Investors are also frequently offered climate change related products that are totally unsuitable for their goals. (more…)

European carbon traders are eagerly awaiting benchmark numbers on European greenhouse gas emissions during 2007. European countries ought to have submitted the data in a central system yesterday but many failed to meet the deadline.

That is why the Brussels authorities in charge of the central system have not yet released the information on the Community Independent Transaction Log (CITL), the central system. The numbers are key because they allow market traders to know the right level of demand for the instruments they trade.

EU regulations mandate that energy-intensive companies involved in carbon offsets submit one emissions permit for every ton of carbon dioxide emissions they create. The permits are called EU Allowances (EUAs) and since 2005 there’s been a healthy trade in them. Traders have created futures and options derived from the EUAs. Volumes as well as the prices on the European Climate Exchange have been going through the roof in the past year. During March 2008, almost 120 million tonnes EUAs were traded, an increase of 61% compared to March 2007.

Reuters interviewed a Deutsche Bank analyst, Mark Lewis, about his expectations for the 2007 emissions levels. Lewis expects 2007 carbon dioxide emissions to be between 2,180-2,220 million tons. 2007 levels were between 2,100-2,140 million tons.

The 2008 permit supply is 2,083 million tons, which means there’s a shortage of supply. EUA prices will likely rock once the data is released. Lewis estimates the price is likely to go up to 35 euros per ton during 2008-12. Last Friday, EUA futures contracts were trading down 14 cents at 22.12 euros ($34.87).

During the first phase of the carbon market (2005-2007) trading was characterized by an oversupply of permits which caused the carbon price to fall.

The UK has independently already released its estimates for 2007 emissions levels. Government officials published provisional figures showing UK emission levels reached 639.4 million tonnes, which was 2 percent lower than the 2006.

The authorities in charge of CITL reported that not enough data had been submitted for them to release it. At least 80% of the data entered for the 2006 emissions needs to have been reported before the numbers will be released. This is so the markets don’t trade on false information.

CITL announced that it won’t ‘give public access to installation-level verified emissions data today [April 1]‘. Instead, the data will be released as soon as enough submissions have been registered to make the 80% grade.
The officials in charge will release the numbers until at least 80% of the data that was submitted in 2006 has been entered.

Angelique van Engelen writes http://Amplifiedgreen.wordpress.com, a blog about micro green options, macro perspectives.

A wonderful case study of a company offsetting its carbon footprint was recently published on Ecosystemmarketplace.com. The website analyzes how TetraPak UK, the packaging company, goes about offsetting its carbon footprint by investing in Ugandan trees.

TetraPak UK started its carbon management program in 2003 and sought outside help to create a computer-based monitoring system. The Edinburgh Centre for Carbon Management ECCM, consulted on devising a program that calculates the company’s annual carbon footprint based on real production data.

In the first year of the program’s inception, 2004, TetraPak UK had managed to reduce their carbon emissions (11,780 tons) by 13% compared to 2001 levels. The company self imposed a 15% target for 2005 (below 2001 levels). Almost all, 80%, of TetraPak UK’s offsets are purchased in Uganda –including Beatrice’s carbon–while the remaining 20% comes from bio-mass and solar energy projects in India and Sri Lanka.

Beatrice Ahimbisibwe is a widow, single mother, and school-teacher. According to Ecosystemmarketplace.com, when she first signed a contract to sell carbon sequestration credits from her small parcel of land, ‘her neighbors thought she was crazy’. They showed distrust as well. None of them had ever heard of carbon dioxide, let alone who would want to pay for ‘offsetting’ it. “You are giving away your land for nothing. One day [the buyers] just come and take it.”

Good for Beatrice, she didn’t believe them. She signed a deal with ECOTRUST, a Ugandan NGO which has a variety of international organizations as clients. The trees that she planted on land she was not using benefit the environment and provide her with extra income after she had filled in applications with signatures of family members and provided proof of ownership.

Then Beatrice cleared and planted one hectare of her land with native species of trees, which generate 57 tons of carbon sequestered over ten years (assuming the trees survive) and is paid US$8 per ton, for a possible total of $456 over 25 years. The contract allowed Beatrice to use any wood pruned from the trees and, after some 15 years, she’s allowed to use/sell the wood.

We’ve landed in an era that environmentalists 40 years ago could only dream about. It ain’t science fiction but these days the game’s all about timing nevertheless. As companies embark on going green, there’s a need for guidance on what makes production processes green. Banks and credit institutions appear to be taking over from governments in setting benchmarks.

For a long time the onus has been on government institutions to stimulate businesses to ‘green up’. But the agenda appears to have been hijacked by credit institutions. So if you’re interested in environment matters and are not so familiar with the boys in the pin striped suits, you might soon be. Even though the world is largely ruled by official policy makers, politicians have a knack for being too slow when it comes to the environment.

Complaints environmentalism might have been declared dead by Michael Shellenberger and Ted Nordhaus (authors of The Breakthrough) but let’s not drop the donkey just yet.

True, the Wallstreet is putting much-needed momentum in the efforts to reduce greenhouse gas emissions, all the more so because the Yanks will want to outcompete European efforts. But a nasty side effect of competition is that it’s too ruthless for balanced judgements on what is fair. The European financial markets have been involved in environment based products for much longer and have developed a competitive edge that will be difficult to beat.

Last week, the Green Exchange, started trading. The new exchange, part of the New York Mercantile Exchange (NYMEX) will have a hard time competing with the European climate exchange. Last year, $62 billion (E40 billion) worth of carbon credits were traded in Europe, which was a massive hike of 80% compared to the year before.

In the absence of practical regulations aimed at reducing corporations’ carbon emissions, trading carbons might be one way of getting the rule structures in place. But this is where the business gets tricky. The funds that invest in these carbons are imposing their own requirements of what makes a carbon neutral business.

And it’s the Wild West all over; invent a common sense bunch of rules and shout loud in the industry and to shareholders and you won’t even have to market your fund. Now that sensible humans no longer risk their personal reputations if they take global warming threats seriously, the free for all is really taking off. Everybody involved knows that there is no such thing as a non-ulterior motive in the investment business. And many awkward situations arise.

The run on everything green is massively driven by oil prices. At the moment there are some 75 environmental funds compared to only a few three years ago. These are mostly hedge funds (derivatives contracts funds).

Skepticism voiced from within the world of finance itself underline that these funds are merely investment opportunities which are cleverly marketed. But they don’t necessarily resolve any of the world’s problems. The same banks that run the environmental hedge funds have dual policies in place; on the one hand their fund management department will invest in ‘ethical’ companies that have been subjected to rigorous research and the corporate finance department will finance the very companies that are responsible for heavy handed pollution, often without any ethical issue questions asked.

True, the ratings agencies are going to provide new ratings on how green a company is and link their credit risk to global environmental issues. All that is great, but who mandates the rules? Who assures that these assessments are implemented in a fair way? When regulation is left up to the finance industry itself, conflicts of interest easily arise.

One high profile official of Duke Energy, the US power company, recently complained to The Economist that the same banks that stipulate new rules on funding of (polluting) power-plants are failing to tighten loan terms for the power plants’ parent companies.

One finance expert and climate change skeptic, Steve Milloy of the Free Enterprise Action Fund, claims the banks’ environmental initiatives are “at best greenwashing, and at worst value-destroying”.

Theoretically it’s of course up to the government legislators to eke out the rules. But, as so often, reality by-passes politics. Climate change is increasingly seen as a major risk and due to the European finance sectors’ longer track record, the Americans are jumping on the bandwagon now with reckless abandon.

“Corporate boards have a ‘fiduciary duty to analyze risk’, according to Mindy Lubber a fund manager responsible for $5 trillion worth of ethical funds who recently spoke at the Wall Street Journal’s ECO:nomics conference. She argued that the way forward is by getting the market to put a price on carbon so that companies can take the lead to limit emissions. Lubber bets on the prospect that a technological revolution will result from this type of herding, something that’s very much alive in the Green IT sector itself, judging from the address by a Sun Microsoft Systems official at a Vancouver conference yesterday.

Steve Milloy, who shared the stage with Lubber, said that this ain’t nothing but hot air. He believes that so-called social activists are simply by-passing the government and going directly to the corporate sector with a bunch of false claims. The result, he said, is that companies are failing to really execute change. He also has little time for the few initiatives in Capitol Hill and slagged off the Lieberman-Warner Bill as ‘an economy killer’ on a par with ‘Don Quixote technology’ wind turbines.

The need for proper guidelines was underscored last month, when a group of the 40 top institutional investment houses (with combined funds of $1.5 trillion) officially requested that the US Congress introduce a mandatory national policy to reduce greenhouse gas emissions by up to 90% below 1990 levels by 2050.

If anything is clear from the viewpoints of these two people who both make investment decisions every day that affect the world in ways we have yet to discover, it is that there’s a huge dichotomy between opinions and investment styles. The strange thing is that both are supported and can carry the day even in a total absence of regulations. But both the experts know that the winner is no longer automatically the one that makes the most money. This is where real values take on a new kind of meaning.

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It appears that most Asian companies attempting to ‘green up’, start off in their IT departments. A survey of businesses and consumers published today in Korea IT News reveals that green IT has ‘commercial value beyond the conceptual level’, but that companies have yet to wholly embrace eco friendly strategies.

“The concept of Green IT is emerging as a substantial market for producers and consumers”, reports Korea IT News. The paper’s survey into green IT values included over 140 business representatives and more than 600 consumers about eco friendly IT. Some 52.9% of all respondents said that they will choose a green IT product if its price is 5% more expensive than non-environmental product. And half of all surveyed people said that they will buy a green-IT product at a price that is 10% higher.

Company efforts to improve their green status are focused on commissioning their IT departments to develop energy-saving technology and to incorporate eco-friendly parts into electronics. Of 142 business employees, 15% said that their companies have an exclusive team for green IT and 33% said that their companies were considering such plans.

“Still, many companies did not implement the enterprise-wide eco-friendly strategies. Only 20% of respondents said that they established the environmental management system and 11% said that they provide the green IT education to employees”, according to the newspaper.

The main two factors about large scale plans to reduce greenhouse gases are the costs involved and the speed of implementation. European leaders appear to have opted to give speed priority and despite the fact that they baulk over costs involved, they said last Friday that they will stick to the goals they set themselves.

Europe’s agenda has yet to become clear but carbon footprint reduction plans on a sector by sector basis are materializing. Energy intensive industries are likely to face new rules as early as 2009 if an international new carbon reduction protocol hasn’t been reached before that time. New investments by these companies are going to be subject to new rules on legal preconditions.

Europe’s overall objective is to reduce carbon dioxide emissions by 2020 through a mixture of rules including relying on power generation by renewable energy sources for 20 percent of all energy needs. The 27 European countries also aim to have 10% of all transport fuelled by biodiesels.

One of the main factors undermining these efforts is the economic situation, which many leaders say makes investments in the environment seem unjustified. However, most of this thinking is related to short term turmoil on the financial markets. The avoidance of ‘excessive costs for member states’ was a precondition that European leaders made in their statement at the end of the meeting last Friday. Europeans have been more aggressive than the US in lobbying for climate change, but even they themselves are now citing the economy as having a prevalence over the environment.

Europe aims to reach 2020 greenhouse gas reduction targets by stepping up use of wind, solar, hydro, wave power and biofuel energy. Europe is leading the way in carbon trading. The carbon trading programme is Europe’s main effort to fight global warming. Companies that participate in carbon trading programs include those in the steel, cement, paper and aluminium industries.Business leaders that fear that they’ll become less competitive due to the carbon regulations were told that there are several flexible ways in which to achieve the targets. They were also told that leaders are thinking up ways to protect their industry against competition from companies which face less stringent carbon emission rules. Stopping short of a green tariff, some sort of compensation here might be on the cards; importing companies might very well be mandated to participate in carbon trading to offset the imported carbons.

The director of the Environmental Defense Fund, Fred Krupp, and Miriam Horn, a journalist, have just published Earth, The Sequel, a book that´s a tad more optimistic than most environmental publications. The writers argue the case for capitalism as the driving factor that will get us out of the mess we´re in.

The subtitle of Krupp and Horn´s book reads The Race to Reinvent Energy and Stop Global Warming and this isn´t misleading. The authors have a firm belief that a creativity campaign by the government can lead to a shift to cleaner energy. “What we are waiting for is the government to pull the trigger and unleash a cascade of creativity and innovation,” they say.

Krupp has been instrumental in the quite successful acid rain reduction plan (part of the clean air act) in the 1990s. He believes that currently, first-mover advantages are to be had in capping carbon emissions and proposes a legal limit to slash 20% from current emission levels by 2020 and up to 80 percent by 2050.

The first mover advantage is all tied up with developing good technology. Krupp and Horn say that by going first, the US stands a chance to export, rather than import, the cleanest and best technology. “The real question is, do we want to import clean tech from Germany, Japan, and China or export it to the rest of the world?”, Krupp is quoted as saying in an interview with Wired.com. That sounds attractive and it´s possibly one of the more believable claims that science might bail us out; you´d expect business plans to evolve from this.

If you read the daily news articles outlining scientific discoveries you´ll agree that there is no lack of really groundbreaking scientific work. Perhaps Krupp has a point in saying that the leading edge technology will also provide leading edge competitive strength. But would it be naive to think that the greed element won´t take over our battle to cool the real elements?

What is certain is that there are a number of pleasant surprises in the book. One reviewer on Amazon comments; “I follow environmental and energy issues closely, but a lot in here was new to me. I had no idea that solar technology is getting so sophisticated. And people are finding so many ways to make energy — from algae and plants, from wind, from waste. Imagining a world without oil and coal is a lot easier for me after reading this.”

Even if you don´t believe in the free market theories of the writers, the book is going to inform you about things you didn´t know. Issues like those outlined in Krupp´s book are going to be a major part of the public agenda in the next few years no doubt, so to get a close insight into the mind of a man who knows the ropes is valuable.

All of the runners up in the Presidential races have made firm pledges to environmental matters and Americans don´t know any better than to approach the new challenge in ways that won´t be anything other than capitalist anyway.