Monday, April 14, 2008

Two Carbon-Market Millionaires Take a Hit as U.N. Clamps Down (ECO.L)

Jeffrey Ball continues his look at the carbon biz. The WSJ Weekend Edition had "U.N. Effort To Curtail Emissions In Turmoil"

Today, from the front page of the Wall Street Journal:

EcoSecurities Sees
Shares Slide 70%;
'In the Gray Zone'

Marc Stuart and Pedro Moura Costa have become multimillionaires in a booming new market designed to fight global warming.

Now, their empire is under attack....

..The market's anything-goes early days now appear to be ending. United Nations officials who regulate the trade have started questioning scores of proposed projects, from hydroelectric plants in China to wind farms in India. The issue: whether they provide real environmental gains, or are just padding the pockets of middlemen like EcoSecurities...

...The "credits" sold by EcoSecurities and its rivals are supposed to fund clean-air projects in the developing world that otherwise wouldn't get built. But the U.N. is worried that players in the market may be gaming the system by putting a green imprimatur on some projects that would have happened anyway, defeating the intent of the U.N. program....[see this post for more on additionality-ed.]

...One thorny issue: Who should vouch for the quality of clean-air projects? EcoSecurities says the U.N. scrutiny adds bureaucracy because it duplicates work already done by independent auditors who are hired to vet all projects. The U.N. panel should stick to an "executive and supervisory role," EcoSecurities says.

U.N. officials have questioned whether the auditors have been tough enough. The concern centers on whether auditors, who are hired by project developers, are adequately staffed to police the environmental legitimacy of the swelling number of projects. The auditors strenuously defend the quality of their oversight....

...While that debate rages, EcoSecurities has been busy refocusing on projects less likely to raise red flags. For instance, it is shifting to projects to curb secondary greenhouse gases, such as nitrous oxide, produced in obscure industrial processes like nylon making*. The problem, as EcoSecurities executives point out, is that targeting secondary gases does nothing to combat fossil-fuel use, which according to the U.N. is the primary man-made contributor to global warming....

...EcoSecurities' largest shareholder**, other than the two founders, is banking giant Credit Suisse, which bought an approximately 9% stake last summer when the stock was near its peak. Since then, Credit Suisse has lost two-thirds of its $60 million investment.

"We don't believe the market is valuing the stock fairly," says Paul Ezekiel, who heads Credit Suisse's carbon business and who sits on EcoSecurities' board....

*See Dupont, USCAP, "credit for early action".

** "Credit Suisse International will take a stake by buying 9.2 million shares at 320p per share, a discount to EcoSecurities' closing share price of 366-1/2p on Thursday...." Source