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Market News

 December 01, 2006
Banks spend $300M on carbon credits!

 London, UK (GLOBE-Net) -- Major international banks, including Lehman, Fortis and BNP Paribas, have spent over $200 million euros (Cdn. $305 million) on carbon credits in a deal with a Chinese mining company. The deal is part of a growing trend among international financial institutions to acquire carbon credits that can be sold to buyers falling short in meeting their emission reduction targets under the Kyoto Protocol.

A number of large banks and financial institutions have been involved in carbon credit purchases over the past few months, as they seek to capitalize on a booming carbon trading market. The inability of many states to meet their emissions reduction targets under the Kyoto Protocol is fuelling increased demand for offsets credits to cover their excess emissions.

These latest investors funded two projects to capture methane in coal mines at Yangquan Coal Industry Company, and use the gas to generate power.

"The projects will improve the safety in the mines and will reduce greenhouse gas emissions in the atmosphere," said deal arrangers IXIS Environment & Infrastructures in a statement.

The banks and specialist investor the European Carbon Fund have bought 18 million tonnes of credits in the project developed by carbon specialists Camco.

Methane has 21 times the impact of carbon dioxide on global warming and accounts for 16 percent of global greenhouse gas emissions when measured in terms of carbon dioxide equivalents (CO2e). Kyoto Protocol targets and 'carbon credit' trading systems generally function on the basis of CO2e, so each unit of methane is more valuable economically in terms of carbon credits and environmentally in terms of reducing global warming impacts.

Investors see a potential windfall from purchasing credits from developing countries such as China, and then re-selling them to European nations that are committed to reducing emissions under the Kyoto Protocol rules. The EU must reduce greenhouse gas emissions to 8% below 1990 levels for 2008-2012, and many countries are currently above that level.

EU countries submitted their emissions plans for the period 2008-2012 recently, but 10 were turned back by the European Commission, and told to reduce their projected allowances. The carbon market was undermined earlier this year as it was revealed that there was an excess of credits available, and the Commission wants to make sure emissions allocations during the second phase of the EU Emissions Trading System (ETS) are stringent enough to keep the market functioning well.

The worldwide market for carbon credits grew to an estimated US $21.5 billion during the first three quarters of 2006, doubling its value in 2005 according to the World Bank and the International Emissions Trading Association. The market was once again dominated by the EU ETS.

See article: Carbon market doubles in size to $22 billion .

Morgan Stanley has announced that it will invest approximately US $3 billion in carbon credits and other greenhouse gas emission reduction initiatives over the next five years.

China has attracted heavy investment in carbon credit projects, particularly in the area of industrial gases that have a high global warming potential and are relatively cheap to reduce. China will host the 2007 Methane to Markets Partnership Expo, a forum for projects, technology, financing, and policy, to be held in late October 2007 in Beijing.

Other countries in the Asia Pacific area are likely to become major players in providing opportunities to leverage funds for carbon credit generating project investments. Recently the Asian Development Bank joined the US led Methane to Markets Partnership to help develop and strengthen partnerships in Asia that reduce greenhouse gas emissions and deliver clean energy to markets throughout the region.