Wednesday, June 25, 2008

Sir Nicholas Stern: Carbon Cowboy

Yee haw!
Sir Nick is vice-chairman of IDEAcarbon's parent, IDEAglobal*.
From Research Recap:
IDEA Carbon today launches The Carbon Ratings Agency, “the world’s first independent carbon credit ratings service.”

The service will provide detailed credit ratings for carbon offset assets in the CDM, JI and voluntary markets. Each asset studied will be given a rating based on a detailed analysis of the underlying project, leading to an assessment of the likelihood of it delivering its stated emissions reductions in the stated time period.

The Carbon Ratings Agency also considers the economic and social development benefits that the project does, or does not bring.

The Carbon Ratings Agency says it will provide ratings to market participants both on a mandated basis (where project owners or investors commission the agency to rate their carbon assets) and through the Agency’s Market Initiated Ratings Service, which will give subscribers access to a representative range of carbon asset ratings on an ongoing basis....MORE

Just as the "verifiers"** have a position equivalent to that held by the appraisers in the housing bubble, the "raters" will be the Moody's, S&P's etc.

*From an April comment at Environmental Capital:

...It gives a bit of perspective on Mr. Stern’s comments in Bali:
“Bali will set in motion a process that will define the structure
of the carbon markets for decades to come”
“By 2020 the global carbon market could be worth EUR 240-
450 billion”

**From our earlier post "Will carbon-trading happen? Goldman hopes so, backs APX":

The verifiers hold exactly the same position in the carbon world as appraisers do in the mortgage biz.

As we get into structured carbon finance (carbon notes, carbon backed securities) really slicing and dicing the cash flows, there will be room for all kinds of shenanigans. The key difference is that whereas Mortgage Backed Securities had real estate (even if overvalued) backing them, CBS's will be built on the absence of an invisible gas. Is it any wonder that GS is interested?