Recently, Elm posted a piece discussing comments from Kevin Parker, the CEO of Deutsche Asset Management, an investment firm with three-fourths of US$1 trillion under management. We expanded that original post for EHS Journal, who just published it. The expanded … Continue reading →
NYT reports that Washington has abandoned hope of issuing carbon legislation this year, including cap-and-trade. The inaction is also dragging down regional/state programs as well, including the well-hyped RGGI trading program. This shouldn’t come as a real surprise to anyone. But it does continue to increase the business uncertainty surrounding emissions in the US. Tune in again next year. Or the year after….
Read more →Our last entry discussed the concept of “Black Swan” events, a term created by noted author Nassim Nicholas Taleb to describe an event that is (a) so low in probablility that it is unforeseeable and (b) so catastrophic in impact that it changes history. Certainly, risk assessments are predictive in nature and no one can predict the future with complete certainty. But in our view, one of the best tools available for risk assessments is an open mind. This can be a challenge in the EHSS world as we generally have engineering and other technical backgrounds. We have been trained to seek absolutes and eliminate uncertainties. At Elm, we believe that involving external support helps to identify and explore events (and their related exposures) that are relevant but get “technically rationalized” by internal staff. With the BP oil spill and the December 2008 Kingston, Tennessee coal ash pond failure, we began thinking about some of the Black Swan events discussed with clients in the past. Below are a handful of EHSS Black Swan risk events that we have discussed with clients over the past years – and some that are currently on our mind. Radical change in EPA’s regulation of coal
Read more →Bloomberg.com reported that earlier this week, European authorities launched a major investigation of several large companies that are thought to have played a role in a system of fraud and tax evasion that may have impacted 7% of the total CO2 emissions trading market for 2009 in the EU. Prosecutors and tax investigators yesterday searched Deutsche Bank, HVB Group and RWE AG in a raid on 230 offices and homes to investigate 180 million euros ($238 million) of tax evasion. The probe targeted 150 suspects at 50 companies… Yesterday’s raids were the biggest related to a fraud that may have tainted an estimated 7 percent of European Union carbon trades in 2009… About 400 million metric tons of emission trades may have been fraudulent last year, or about 7 percent of the total market, including futures transactions, according to estimates from Bloomberg New Energy Finance. Europe lost about 5 billion euros in revenue for the 18 months ending in 2009 because of value-added tax fraud in the CO2 market, according to Europol, a European law-enforcement agency.
Read more →Last night (April 20, 2010), CNBC aired an hour-long TV segment on the burgeoning industry labeled “carbon hunting”, the practice of finding, aggregating, marketing and selling carbon credits. While the story illustrated successful projects, it also highlighted a myriad of risks in the carbon trading industry. Check your local TV listings for the next airing.
Read more →Reuters has reported that the US Senate anticipates bringing the latest carbon emission bill to the floor next week. Although details are currently sketchy, there are some interesting facets revealed in that article: - The bill’s greenhouse gas (GHG) reduction target is 17% by the year 2020; - The baseline year for this reduction is 2005; - Regional and state-specific GHG cap-and-trade programs would be eliminated and replaced by a federal program. - Cap-and-trade for electric power generators would begin in 2012; for manufacturing, the program would begin in 2016; - Domestic and international off-sets would be allowable - Transportation emissions reductions would be achieved through a motor fuel fee that would hopefully spur various forms of innovation, efficiency and reductions One glaring aspect of these few details is whether/how companies will get “early action credit” for their GHG reduction efforts achieved prior to this bill’s 2005 baseline year. Corporations that made major strides in GHG reductions between 2000 and 2005 may find themselves on the wrong end of the “80/20 rule”. Those who chose to wait for more certainty could be in an improved competitive situation by spending less money to harvest the “low hanging fruit” to hit the
Read more →Environmental Leader has reported that the Hungarian government sold 2 million previously used CERs, the market became tepid. Then when prices fell from more than 12 euro per credit to less than one euro, trading was suspended on two exchanges, Bluenext and Nord Pool. The NYT provided more details of the transaction, stating The credits appear to be part of massive blocks of CERs awarded to Eastern European states and Russia after the collapse of Soviet-era industry. This created a loophole used by Hungary to reintroduce used CERs back into the market… Carbon traders said countries like Hungary were exploiting the loophole to earn more money from the carbon trading system than they could by selling the credits that they had previously earned under the Kyoto system… The traders said at least one other E.U. member state had acted similarly earlier this year. The EU said they were “surprised and concerned” about the situation. BusinessWeek quoted others who expressed more urgency about the matter: “The supply and demand dynamics have been changed,” said Paul Kelly, chief executive officer of JPMorgan’s EcoSecurities unit. While the scope of the problem has yet to be determined, buyers are “questioning the authenticity” of what
Read more →As we previously reported, the SEC issued their interpretive guidance concerning the need for publicly-traded companies to identify, assess and (if necessary) report climate-related business risks within existing SEC reports. This interpretive guidance document was published in the Federal Register of February 8, 2010. Elm has reviewed this publication and provides the following excerpts that we feel may be most critical to companies who are looking to address the requirements of the new Interpretive Guidance. These excerpts may be slightly edited for length and clarity, but we have attempted to ensure that substantive information remains as in the publication. The Commission has not quantified … a specific future time period that must be considered in assessing the impact of a known trend, event or uncertainty that is reasonably likely to occur. As with any other judgment required by Item 303, the necessary time period will depend on a registrant’s particular circumstances and the particular trend, event or uncertainty under consideration. [Management] should not limit the information that management considers in making its determinations. Improvements in technology and communications in the last two decades have significantly increased the amount of financial and non-financial information that management has and should evaluate, as
Read more →In 2009, there was a general sense in the US that some regulatory and economic certainty would finally be established relative to greenhouse gases, and CO2 in particular. The current administration made highly public moves and statements to that effect, which were mirrored by action in Congress and the Senate. EPA issued its finding of endangerment. And there was significant optimism that the COP15 Copenhagen meeting would bear fruit. Fast forward to February 2010. There has been quite a shift in direction and now there is arguably more business risk related to CO2/GHG than there was going into 2009. Among recent highlights: Nike formally announced that they are abandoning the use of carbon offsets and Renewable Energy Certificates (RECs), citing, among other concerns: there is substantial scrutiny of the use of RECs, in particular related to whether they in fact help create new renewable power, or whether they are simply payment to a project that would have existed anyway. … Moving forward, however, our preference is to achieve climate neutrality through a combination of energy efficiency and the purchase of more direct forms of renewable energy, through on-site applications and other means. The German Emissions Trading Authority (DEHSt) computer system
Read more →The New York Times published an article highlighting questions surrounding a major forest preservation project in Bolivia sponsored by American Electric Power, BP and PacifiCorp, known the Noel Kempff Climate Action Project. Greenpeace claims it found that from 1997 to 2009, the estimated reductions from the program had plummeted by 90 percent, to 5.8 million metric tons of carbon dioxide, down from 55 million tons. It also questioned the “additionality” of the program, which says that a specific forest area would not have been preserved without the program. What is striking about this matter is not the debate of the project’s effectiveness (given the on-going controversy surrounding the use of forestry in climate risk management). The surprise was a comment made by Glenn Hurowitz, a director of Avoided Deforestation Partners, a small nonprofit organization that claims to “advance the adoption of U.S. and international climate policies that include effective, transparent, and equitable market and non-market incentives to reduce tropical deforestation”: In the proposed climate legislation, you can’t get credit for conservation or any other type of offsets until you’ve delivered the offsets. So inaccurate projections would not affect the issuance of credits. This statement clearly demonstrates a critical business risk
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