With progress slow on climate talks, banks withdraw from green industry.
Greenhouse gases aren’t rising to the top of most agendas right now. Emission caps established under the Kyoto Protocol are set to expire at the end of 2012, and a United Nations-led effort to forge a new global compact is inching forward. The European Union, which runs the world’s biggest carbon trading market, has other things on its collective mind. One side effect of all this is a 47 percent drop this year through Dec. 12 in the value of C0₂ allowances issued under the EU’s Emissions Trading Scheme. The permits, which mostly go to utilities and other industrial companies, can be banked or traded.
The biggest banks, trying to recover from trading losses and a regulatory clampdown on using their own money to make bets, are scaling back their carbon trading operations. “People are leaving the industry because they’ve been fired or because they see no prospects,” says Emmanuel Fages, head of energy research for Europe at Société Générale (SCGLF) in Paris. “That is the sad story.”
The latest casualties include Odin Knudsen, managing director for environmental markets at JPMorgan Chase (JPM), who in October left his New York post after his team was shrunk. The previous month, UBS Securities (UBS) fired Vice-Chairman Jon Anda and the rest of his Stamford (Conn.)-based climate policy team. Anda and Knudsen confirmed their departures in interviews. JPMorgan would not comment. UBS spokesman Christiaan Brakman said in an e-mailed response to questions that UBS “remains committed to address climate change.” Fages’s employer, Société Générale, announced on Nov. 25 that it had agreed to sell its 50 percent stake in carbon trading joint venture Orbeo to partner Solvay Group (SVYZY), a chemical maker.
In Europe, demand for emissions permits has been crimped by the economic slowdown, which has forced industry to idle plants. The value of carbon trading fell 8 percent, to €23.7 billion ($32 billion), in the third quarter from the previous three months as the price of permits tumbled, according to Bloomberg New Energy Finance data.
A carbon offset program operated by the UN is in jeopardy as a result of the expiration next year of greenhouse gas caps set by the Kyoto Protocol. Under the UN program, companies and nations can earn credits to offset fossil-fuel emissions by sponsoring renewable-energy projects. A follow-up treaty to Kyoto won’t come into force until 2020 at the earliest. Japan, Russia, and Canada have refused to accept new limits in the meantime.
The carbon trading industry’s dimming outlook can be seen in the thinning membership rolls of the International Emissions Trading Assn. About 10 institutions have quit the Geneva-based trade group this year, cutting membership to around 150 companies. “There are shakeouts and departures happening as you would expect to be the case during any market that was a little bit unsure about where it was going,” says Henry Derwent, the organization’s president. Carbon trading “is currently suffering, as so many other markets are, from low economic activity in the main area, which is the European Union.”
The bottom line: Europe’s sovereign-debt crisis and lack of progress in global climate talks are leading some investment banks to ax carbon trading.