Sunday, May 14, 2006

Carbon Expo 2006

I’m just traveling home from an incredible week in Cologne, Germany at the CarbonExpo. The city of Cologne was beautiful and a lot of fun – we got there a day early and had some time to catch some sights, hit a Salvador Dali exhibit and put back a few Kölsh (the local brew) while editing the first draft of our thesis.

Here’s a picture of the massive cathedral in the city center – quite a sight:

The real excitement, though, came from the conference. It really brought home for me how fast the carbon markets are growing. I’ve been meaning to give an overview of carbon finance, the basics behind cap & trade schemes, etc. and I will soon, but for now I’ll just run through some of the highlights.

The EU ETS (emissions trading scheme) traded around €9.4 billion in 2005, since it went into effect when Russia ratified Kyoto. (The EU ETS is not technically a part of Kyoto – it was created by the EU to get all the systems in place for international emissions trading, and to get member states on track to meet their Kyoto commitments for the first period, which is 2008-2012). Early in the year I had heard estimates that the EU ETS would hit around €22 billion in ’06 – at the conference, people were saying it would probably be more like €30 billion.

With this huge growth comes some exciting times – the market has a real ‘wild west’ feel to it, with tremendous opportunities. The head of one of the bigger firms in the space referred to it as a “land-grab.” And another noted the market is “full of cowboys.” All of this made for really exciting atmosphere at the conference and a great job market.

Participants were all over the map – but mostly policy and finance types (i.e. a lot of suits, the conference was all business). There were a few of the big banks there (Goldman, Morgan Stanley), technology providers (including GE), government reps from all over the world, World Bank reps, carbon finance firms (EcoSecurities, Natsource, CO2e, Asia Carbon Funds), reps from the exchanges, market news firms (Bloomberg, Reuters, PointCarbon), and a slew of CDM project developers and consultants.

We caught up with a bunch of the experts who have been reviewing and commenting on CDM Select (the tool we’ve developed as part of our thesis), and we got a lot more interest from other project developers, investors, NGOs and governments who said they would have a look and provide feedback.

I was surprised (pleasantly) by how much the market is focused on the CDM (refresher: the Clean Development Mechanism (CDM) is a Kyoto instrument, which allows projects that mitigate GHG emissions in developing countries to generate credits called Certified Emissions Reductions (CERs) that can then be bought by industrialized nations (or companies in them) to meet their emission reduction commitments). A lot of the ‘low hanging fruit’ projects are going fast – these are mostly industrial gas destruction projects that are relatively cheap and straightforward (end-of-pipe technologies) that create a lot of CER revenue due to the high global warming potential of the gases. But more and more developers of all types and sizes (large and small private firms, governments, World Bank, etc.) are looking to more involved with potentially more beneficial kinds of projects like renewable energy, energy efficiency, afforestation/reforestation, etc.

On the political side, there was very little talk of the US, aside from some encouraging remarks about the activities at the state level with CA’s proposed scheme and RGGI (regional greenhouse gas initiative) in the Northeast. For the most part the market has written-off the US until the next administration. These days Canada was taking the heat as their new government has essentially said they won’t meet their Kyoto targets, and they won’t try. Couldn’t help but get the sense that we were being left behind in some ways and that the ramifications extended well beyond the carbon market. But given the growing awareness among the people of the US, I have little doubt that we will get on track soon and hopefully take the lead in creating a sustainable energy future. (on that grassroots tip, check out this cool link that’s going around - - sign up!)

Anyway, I’ll stop here, and promise to have more posts on the carbon market soon – which I’ve neglected on the blog, because I spend so much work-time on it – but I think it really is the most exciting aspect of sustainable development going on today. So, the bottom line is that it was a great time with a great bunch of people with all kinds of backgrounds and motivations, the market is unlike any other, but has shown signs of quick maturity (including weathering its first “crash” over the past couple weeks, and models on the exhibition floor at the conference), and there’s plenty of opportunity to ‘do well while doing good’ in environmental markets. Stay going…