Friday, December 14, 2007

Carbon Markets: Bali's business bonanza

From the Sydney Morning Herald:

Dorjee Sun is huddled into his mobile phone, one of many players jostling for position as the nascent global carbon market opens up a goldmine of opportunity.

Dorjee Sun is huddled into his mobile phone, laptop slung over one shoulder, pacing dangerously close to the edge of the pool.

His white shirt has stuck to him in Bali's evening heat and mosquitoes are nibbling at his ankles. But the 30-year-old internet millionaire from Sydney's North Shore has a grin on his face and a hand in the air, waiting for a reciprocal high five.

He has had a breakthrough in negotiations for his latest venture, Carbon Conservation, with three Indonesian provincial governors. Sun wants to facilitate the sale of carbon credits to developed countries from projects which prevent or reduce deforestation in Aceh and Papua. He has managed to get Merrill Lynch on board and is pretty happy about it.

Sun has no background in science or climate change. He made his fortune out of starting up and then selling a recruitment software company and an education mentoring business.

But the carbon industry is no longer just inhabited by scientists, environmentalists and policy wonks. Over the past year, entrepreneurs like Sun - keen to make a buck and feel good about doing it - as well as the big investment banks, project developers and trading firms are looking to get a piece of the action.

Their interest is not surprising. More than $US60 billion ($68.1 billion) changed hands in the global carbon market this year, double the trade of last year and up from just $US400 million three years ago. Analysts estimate the market could be worth $US1 trillion within the next 10 years.

By 2030, according to some carbon bulls, it may even be the biggest commodity market in the world, overtaking crude oil.

Many believe Australia, with its natural resources, strong financial services industry and robust legal system, should be a regional hub for carbon trading. But the country is playing catch-up, having only just ratified the Kyoto Protocol.

Meanwhile, players like Sun are looking to gain an early-mover advantage. But even he concedes there are huge risks involved as the carbon market is plagued by political, regulatory and legal uncertainty.

For a start, there is no system yet in place to set the rules when Kyoto runs out in 2012. And the mandatory carbon trading scheme in Europe is the only significant market operating. While other schemes are being considered in Australia, Japan and on the east and west coasts of the US, there is no plan for how those systems will be linked.

Sun has spent the past six months trying to sell his project to investors and manage the tricky relations between Indonesia's national and provincial governments in order to get it off the ground. If he succeeds, the pay-off could be huge....MORE