Cantor sees new life in eco-credit trading

International Herald Tribune
Friday, December 24, 2004

Since Sept. 11, 2001, Cantor Fitzgerald has perhaps been best known for tragically losing much of its staff in the terrorist attacks on the World Trade Center in New York.

But three years later, the financial services company has retooled and carved out a niche in a surprising area: facilitating the buying and selling of carbon credits.

The new and some say potentially lucrative market is an outgrowth of the Kyoto Protocol on global warming hammered out by 130 countries in 1997.

That accord set a target of cutting combined carbon dioxide emissions in more than 30 industrialized countries to a level 5 percent below 1990 levels by 2012. The new limits become enforceable in February.

Carbon credit trading works like this: Each country or company that adheres to the protocol is granted the right to release a given quantity of carbon dioxide from its refineries, smelters and other polluting operations into the atmosphere each year. Countries decide what those levels will be in partnership with the United Nations climate change agency. Companies in the European Union, where the system begins on Jan. 1, also work with environmental ministries in their countries or at the EU level to agree on allowable levels.

Companies that release less carbon dioxide than their agreed allotment earn carbon credits. Those likely to surpass their quota can, in turn, buy credits from such so-called green companies or on the carbon trading market to raise their allotted pollution levels and pre-empt expected fines.

The carbon trading market was initially dismissed as lofty and unenforceable since the world's biggest polluter, the United States, is not part of the pact. But a combination of factors—Europe's looming emissions rules, backing by big names like Cantor Fitzgerald, Swiss Re and Natsource, a growing global consensus that global warming is fueling worrying weather pattern shifts, and Russia's recent adherence to the global agreement has created a true market of buyers, sellers and intermediaries.

The value of carbon credits, which average about $5 per emissions ton, has risen slowly and steadily. Among notable trades, which backers say have already cut greenhouse gases, are Chile's Agrosuper project in which two electricity companies, Tokyo Electric Power and Canada's TransAlta, bought credits from the methane operations of a large pork producer in Chile.

Credit proceeds will help finance biodigesters and sewage sludge cleaners for methane capture and liquefaction to generate electricity and convert waste into compost for farms and water for vineyard irrigation.

A large European multinational just bought $5 million in carbon credits from biomass-fired power plants at three Brazilian sugar mills. This trade was the first transaction flowing into the new European Emissions Trading system. (Biomass is an eco-friendly fuel culled from crop waste—in this case, discarded sugar cane cuttings.) The Brazilian consulting firm EcoInvest helped arrange the deal, with Cantor Fitzgerald's carbon trading arm, C02e.com, brokering the trade.

"There are 340 sugar mills in Brazil that could all participate in this market," said Carlos Martins, director of EcoInvest. "With ETS and Kyoto Protocol coming into force in 2005, there's huge potential for carbon trading between developed and developing countries."