HOW TO BE A CARBON DEALER

Trading Carbon: The Developing Market For CDM CERs
Andrew K. Burger, December 15, 2006 (Resource Investor)
- It’s taken more than a decade…but a multi-billion dollar global market has grown up around the issuance, verification and trading of Certificate of Emission Reduction credits (CERs) under the Kyoto Protocol’s Clean Development Mechanism (CDM) and Joint Implementation (JI) programs.

- The primary market for carbon credits is expected to reach 30 billion to 40 billion euros during the 2008-2012 period, while estimates for secondary market activity are an order of magnitude higher…CDM carbon trading schemes have emerged in regions around the world…the European Union’s Emissions Trading Scheme (ETS) has grown quickly into the world’s largest market for carbon emissions reduction credits.
- As the debate and controversy concerning the CDM's issuance, validation and valuation methodologies, as well as its fundamental premise, continues, private sector intermediaries…have stepped in and picked up where the World Bank left off and are now driving carbon trading markets…

- New York-based Ecosecurities lays claim to being the largest company in the Kyoto Protocol’s CDM carbon emission reduction credit issuance and trading sector. Placing itself at the nexus of a web of organizations involved in CDM CO2 [Carbon Dioxide] and GHG [Greenhouse Gas] emission reduction and renewable energy projects, the company has been a central force in the issuing, purchasing and sale of CERs accounting for the reduction of approximately 150 million tonnes of CO2-equivalent emissions…
- The company’s business can be distilled down into three essential components, CEO Bruce Usher told Resource Investor: Identifying and putting together potential CDM GHG emission reduction projects and participants, moving projects through the CDM registration, verification, and CER issuance process, and fixing the price of income streams for CDM project developers.

- On the investment side of its business, Ecosecurities acts as a principal, using its capital to acquire CERs from project developers that can then be resold to companies in need of credits to meet government mandated CO2 and GHG emissions reduction targets.
Cargill and Marshall Street, a private equity investment house, were the company’s first two investors…
- With offices in 20 countries, located primarily in developing countries, Ecosecurities has now amassed a portfolio of some 280 CDM projects around the world…
- Focusing on genuine GHG emissions reduction, renewable power and energy generation projects, Ecosecurities has avoided the type of sharp criticism that plagued some of the World Bank’s early CDM financings…
- The U.K. Environment Agency on Dec. 8 announced that it was levying civil penalties totalling £750,000 against four companies - Alphasteel, Scandstick, Daniel Platt and Mars (U.K.) - which failed to meet requirements and abide by the rules during this first year of the EU's ETS.
- New York State on Dec. 6 announced plans to auction all of its permits to emit greenhouse gas emissions as part of a seven-state [New York, Connecticut, Delaware, Maine, New Hampshire, New Jersey, Vermont] plan to develop a regional market that will help freeze and then cut CO2 emissions at electrical power plants. The EU last year gave away all the permits businesses needed, sending carbon credits prices crashing…

- With…the ETS in Europe…exchange and OTC (over-the-counter) markets in the U.S. and the Asia-Pacific region, the market for carbon emissions reduction credits is widespread, diverse and a bit complex…still very much a work in progress, and prices are very volatile…
- Ecosecurities removes the market risk for project managers and developers…When Ecosecurities purchases the CO2 equivalent tonnes of emissions reduction credits from project developers, it is “buying a stream of credits that stretch out to 2012, when Kyoto Protocol, Phase One is due to expire. We then turn around and sell portions of those cash flow streams…We lock in the price over the entire project term and for the entire income stream.”
- Ecosecurities has been…guiding a variety of companies, including engineering project management firms, multinational agricultural, power and energy and industrial chemicals companies and banks, through the lengthy and complicated CDM registration, verification and CER issuance process. More than half Ecosecurities’ staff of around 185 people is involved in such work…
- Ecosecurities’ CDM origination efforts thus far focus on developing GHG reduction and renewable energy and power projects in three sectors: landfill gas collection and utilisation (ecomethane-power generation) as part of a joint venture with Biogas Technology Ltd. and the EnerG Group, biogas development projects in partnership with Cargill that make use of systems for anaerobic digestion of liquid livestock waste streams, and N2O abatement systems projects, examples of which are now in the works at more than 20 nitric acid factories in China.
- In partnership with Mexico’s Granjas Carroll de Mexico and Cargill, which recently vested a series of warrants, Ecosecurities last month registered 18 methane recovery and electricity generation projects in the Mexican states of Pueblo and Veracruz. An additional four in the Philippine provinces of Bulacan and Tarlac were developed by Ecosecurities and Philippine BioSciences Co.

- Ecosecurities in 2005 issued a Deed Poll granting Cargill warrants…dependent upon Ecosecurities signing agreements with companies introduced by Cargill that have the potential to achieve a number of Agreed Emissions Reductions, which in aggregate total 5 million gross metric tonnes of Carbon Emission Reductions (CERs)…
- Ecosecurities announced cooperation agreements with Standard Bank South Africa and Singapore’s UOB Kay Hian…to work with the banks’ clients to identify potential CDM GHG emissions reduction projects and jointly develop them…
- Defending the Kyoto Protocol and the Clean Development Mechanism, Usher said, “The Kyoto Protocol’s objective is to reduce global greenhouse gas emissions, and virtually all CDM projects reduce emissions. Another objective is less well understood: To experiment with what works and what doesn’t [in terms of developing market-based emissions reduction mechanisms]…I think it’s a very small part of the whole process,” he concluded.