LONDON - There is a price for everything and that is now true for carbon emissions where the market is becoming more liquid, allowing policymakers to set more aggressive reduction targets, a fund manager told Reuters.
James Cameron, vice-chairman at Climate Change Capital, which invests directly in clean energy projects said the key to the whole strategy is understanding relationships between policy, investors and realising value.
"Investors need long-term policy structures within which ... they have freedom to select the most efficient way to allocate or reduce greenhouse gases ... Which means policy makers can set higher reduction targets."
The core of any policy is normally the Kyoto Protocol, where about 40 nations, including European Union countries, Russia and Japan have to cut emissions of heat-trapping gases including carbon dioxide by 5.2 percent below 1990 levels by 2008-12.
Investors can earn Kyoto credits from climate-friendly projects in China and other emerging economies, under the Clean Development Mechanism (CDM) -- one of the three main emissions-reductions tools prescribed by the protocol.
"You can take capital raised in London and invest it in reducing greenhouse gas emissions in China, that benefit can be captured in a contract, which can then be valued and traded," Cameron said.
These contracts known as certified emissions reduction (CER) issued under the CDM can be converted into an allowance and will soon be tradeable under the European emissions trading scheme, launched in January 2005.
"What it shows is that as soon as you establish a price for carbon emissions, you release creativity," Cameron said.
JOIN THE DOTS
Climate Change Capital was launched last year, has more than US$150 million under management and invests in emission reduction projects around the world.
The fund has recently hired Ken Newcombe, a pioneer of cabon finance, from the World Bank.
"He has a fantastic network and knows about world bank projects that we can now invest in," Cameron said. "There are also huge opportunities in investing in clean energy and emerging markets."
Until recently, people invested in clean air schemes mainly for reputational or ethical reasons, but that is changing and carbon trading is becoming more mainstream as investors recognise that superior returns can be earned.
"If you can join the dots ... and are prepared to get informed, understand Kyoto and the associated detail and ready to take risks, you will be well-rewarded," Cameron said.
One CDM or CER credit is equal to one tonne of carbon dioxide, a measure for the market and the main greenhouse gas blamed for global warning and climate change.
"The liquidity in the market has been much better than people expected, volumes are substantial," Cameron said.
"Nitrous oxide, methane all get converted into carbon dioxide equivalent ... That's the currency."
In Europe 5.4 billion euros of trade was done via brokers and exchanges last year, while global trading of greenhouse gas credits totalled more than 9 billion euros, 25 times the value of deals recorded in 2004, according to Oslo-based analysts Point Carbon.
Story by Pratima Desai
REUTERS NEWS SERVICE
