THE Manhattan offices of Eco Securities were eerily empty last Thursday
morning. Over the rows of unoccupied desks, two men could be seen peering
out of the 19th-floor windows — a sight that might have aroused concern
considering the company has been in the headlines recently for its plunging
share price.
In his corner office, Bruce Usher, the London-listed firm’s chief executive,
was quick to explain nothing untoward was about to happen. The staff members
were looking for a hawk that had taken to perching on the floor above. The
rest of his crew were off for the day to take part in Green Week — an annual
eco-awareness jamboree — and were gathering up bottles for recycling.
Usually, Eco Securities staff are employed at the vanguard of another solution
to the global ecological crisis. The company is the largest trader of carbon
credits, a system established under the Kyoto protocol, the international
agreement to tackle global warming, which aims to encourage free-market
solutions to the problem.
Global warming is by definition a global problem, and Kyoto established the
Clean Development Mechanism (CDM), a market for tradable credits that
western companies can buy to meet their pollution requirements. These are
then used to finance green schemes in the developing world.
The world is making ever more hot air. Trade in greenhouse gases, worth about
¤40 billion (£31 billion) last year, is expected to increase to ¤63 billion
next year, according to Point Carbon, a market analyst. Most trading is done
in London.
But while the principle of the CDM has taken off, policing the market has
proved tricky and time-consuming for the market’s under-resourced watchdog,
the United Nations. Meanwhile, Eco Securities and the rest of the industry
have been hit by an ever-shifting maze of international legislation and
byzantine discussions on the next stage of the world’s response to global
warming. Eco Securities’ shares have fallen 70% this year.
“There’s a lot of misunderstanding about what is happening and it’s very
frustrating,” said Usher.
Despite this, he stressed that the CDM works, and calculates that by 2012 the
scheme will have reduced emissions of carbon dioxide by between one and two
billion tonnes.
“The problem is that we are emitting 20 billion tonnes of carbon dioxide a
year. So in the next five years we are going to emit another 100 billion
tonnes. CDM works but it’s just not enough,” he said.
Most of Usher’s problems now centre on the approval of schemes. The UN
appoints local inspectors, companies known as designated operation entities,
to sign off on the creditworthiness of green schemes.
But the auditors are so overloaded with schemes that Usher said: “You
literally cannot book their time. We are having to book designated operation
entities a year in advance.
“They are all over capacity. There are about 2,000 projects — we have 400 —
and there are only a few of these companies. They simply don’t have the
ability to deal with all these projects quickly,” he said.
This would not be a big problem if Eco Securities was not facing such tight
deadlines. The credits, like the Kyoto protocol itself, expire in 2012.
At present, those credits are valued to 2012 because nobody knows what will
happen after Kyoto expires. Credits are given only once a project is
registered, so a one-year delay is a 20% reduction in the value of that
credit.
“That is the biggest challenge we face,” said Usher.
Guy Turner, analyst at New Carbon Finance, said that, in the long run,
vigorous scrutiny from the UN was a good thing. “It used to be a bit of a
black art getting a project through,” he said. “Now it’s much clearer what
has to be done. The concerns are about the time it is taking, but the actual
rejection rate is very low. The last thing the UN wants is for this scheme
to fail.”
Usher said: “The system needs to be adopted not for a few thousand projects
but ultimately for millions of projects. There is a will to do that and
there are ways to do that.
“There is huge learning going on here. It’s very frustrating when the
criticism of the market is so negative.
“We all know that this [global warming] is something that is going to be
around for the rest of our lifetimes and our children’s lifetimes. There is
no way we are going to come up with a perfect system in five years. But you
have to build on what you have.”
But even if the approval process is sorted out, real questions surround what
happens after the Kyoto protocol expires.
Negotiations to replace the treaty began in Bali last December and are
expected to culminate late next year. It is a tight timetable and the key
nations are divided. If the talks fail, the market’s future may be curtailed.
The world’s governments meet again in Poznan, Poland, in December. America and
Australia had been among the biggest countries to hold out against the
treaty, but Australia has now signed up, and in America all three
presidential candidates are far greener than George Bush.
If America finally signs up to the idea of carbon credits, companies such as
Eco Securities could suddenly find their fortunes rising sharply.
America already has a domestic trading system for sulphur dioxide (the main
component of acid rain) and analysts said it could be used as a model for a
carbon-credit market.
But the uncertainty over the CDM looks set to continue even after Poznan, said
Turner. Ultimately, governments may even decide that the CDM is not the best
way of curbing the world’s carbon problems, he said.
“The carbon-credit market’s problem is that it affects the whole world and is
therefore subject to the very different political and economic needs of all
those different countries. It’s not for the faint-hearted.”
