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IFC, Merrill Lynch Target Voluntary Carbon Trading Sector

| Friday May 2nd, 2008 | 0 Comments

carboncons.jpgThere is a lot of confusion over company carbon trading largely because this market runs mostly on a voluntary basis. It’s only in Europe that large companies in specific sectors are mandated by law to buy carbon offset credits if they exceed legal pollution limits. Yet the notion is growing among business leaders around the globe that going green is not an unbearable plight but rather a win-win situation. Voluntary sustainability inducing efforts are beginning to be a hot trend in the corporate sector. Now two top finance names, Merrill Lynch and the International Finance Corporation (IFC) are getting in on the act.


Merrill Lynch and the IFC recently announced they’ve started a carbon consultancy targeting the voluntary carbon trading sector. The consultancy’s launch follows Merrill’s last February decision to become involved in the creation of an expected 100 million of tonnes of carbon offsets in Aceh, Indonesia over a period of 30 years.
This number is vastly more than today’s entire carbon trading market put together. According to numbers by Ecosystem Marketplace, a meager 24 million tones of carbon offsets were traded in the voluntary market during 2006.
Merrill says its move is motivated by a desire to take the carbon markets beyond pure carbon creation but also support broader sustainability issues such as biodiversity and creating an economy based on green paradigm principles incorporating agriculture. Paying farmers for not cutting down trees might seem a rather straightforward option to combat our looming greenhouse gas crisis, but it is a relatively new ‘product’. The added benefits of the creation of biodiversity and offering the local population agriculture opportunities as an alternative to selling timber is believed to become a marketable product in itself which has more value than pure carbon offsets.
Credibility is the name of the game in this business and if anything, it’s what Merrill Lynch and the IFC have understood. The consultancy, called Merrill Lynch Green & Gold, offers clients with sustainability carbon emission offsets which have various quality labels including the Gold Standard VER, Gold Standard CDM, and Climate, Community, and Biodiversity Alliance (CCBA). The latter organization is by far the most important, because it acts as a regulatory body and has broad environmentalist and corporate backing including the Conservation International, The Nature Conservancy and the Rainforest Alliance, and companies as BP, Intel and SC Johnson.
Merrill Lynch Green & Gold will largely pass on information to its clients that will be new, because Merrill Lynch itself is a pioneer. It is for instance not even guaranteed that the Aceh project will turn out to create emissions certificates that are going to be nearing the 100 million tonne mark. Nevertheless, the price per tonne of sequestered carbon has been put at $5 to $10.
That is today a slight premium to the price of voluntary allowances trading on the Chicago Climate Exchange, but way lower than the expected price of carbons on the European market, which ranges between EUR23 and EUR35.
If you’re shocked at these incongruities, brace yourself for more of the same when reading up on the carbon markets. The carbon sequestered credits are vastly immaterial yet unlike other immaterial products like derivatives, the fact that the atmosphere is not a number makes for tricky encumbrances.
So thumbs up for the participation by Merrill Lynch and the IFC because the provision of liquidity is the life blood of a market. In the not so distant past, the European carbon credits market collapsed due to market technical reasons (there was a miscalculation between demand and supply of carbon credits which caused the price to collapse).
Abyd Karmali, who heads up the Merrill Lynch Green & Gold, estimated the carbon market to be worth $70 billion. Last year, $62 billion (E40 billion) worth of carbon credits were traded in on the European Climate Exchange (ECX), which was a massive hike of 80% compared to the year before. The ECX operates within the European Union Emissions Trading Scheme.
The ICF’s role in the consultancy will be to assess each client’s carbon footprint and total emissions. Merrill Lynch Green & Gold targets companies in the Americas, Asia and Europe who wish to trade carbon on a voluntary basis. Companies that wish to proactively develop a carbon strategy that are often motivated by incentives including cost cutting and improving their brand among consumers. Companies known to be involved in the voluntary offsets markets include Starbucks, Marriott and Rio Tinto.
This 60 page study into the voluntary carbon trading market place by Ecosystemmarketplace.com provides good insights on the corporate sector’s involvement.


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