Carbon Finance

Mutual Funds

Although there has been growing support for global warming resolutions by other institutional investors, the majority of mutual fund managers appear to be hesitant to undertake such actions. In fact, the mutual fund industry raised strong objections to the 2004 SEC requirements that investment management companies disclose both their proxy votes and their voting policies (Brennan and Johnson 2004). They argued that such disclosures would politicize the proxy voting process and hinder funds from...

The Energy Chain And The Value Chain

Carbon Finance Applicability Images

Although six GHGs are regulated under the Kyoto Protocol, the predominance of carbon dioxide in emissions means that the battle to control the rate of climate change will be won or lost on the speed with which we can reduce this pollutant. As the Intergovernmental Panel on Climate Change (IPCC) stated in its Climate Change 2001 Synthesis Report'' Emissions of CO2 due to fossil fuel burning are virtually certain to be the dominant influence on the trend of atmospheric CO2 during the 21st...

Physical Impacts On Unregulated Sectors Water Supply and Treatment

Dust Devil Whirlwind

It could be argued that the water supply and treatment industry is the human activity most immediately affected by climate change, given its direct dependence for its raw material on everyday experience of precipitation and temperature. In their response to the Third Carbon Disclosure Project, the directors of RWE, the utilities conglomerate, stated For our water business, adaptation to climate change is a major challenge. More uneven distribution (of water) together with a rise in temperatures...

Tidal Energy and Wave Energy

Like wind power and solar power, tidal energy is intermittent. However, it is extremely predictable, and it could deliver electricity on a scale and at a competitive price that equals large HEP, fossil fuels, and nuclear power. Furthermore, there is a successful model the 240MW Rance barrage, which was built near St. Malo in the 1960s. In addition, three smaller projects are operating in Canada, Russia, and China. In the United Kingdom, studies have been made of the tidal potential of several...

Sijm J.p.m. S.j.a. Bakker Y. Chen H.w. Harmsen And W. Liese 2005 Co2 Price Dynamics The Implications Of Eu Emission

Americans and Climate Change Closing the Gap between Science and Action. Yale School of Forestry amp Environmental Studies, available at ABI. 2005. Financial Risks on Climate Change. Association of British Insurers, Summary Report and Technical Annexes, www.abi.org.uk climatechange. ABN Amro. 2005. Response to Carbon Disclosure Project, www.cdproject.net. ACF. 2006. False Profits. Australian Conservation Foundation, available at www.acf.org.au. ACIA. 2004. Impacts of a Warming...

Examples of Weather Derivative Contracts

Temperature-based swap The swap undertaken by two Japanese companies that faced opposite weather risks serves as a classic illustration of a temperature-based derivative product. Tokyo Electricity Power Tepco experiences increased demand for electricity during unusually warm summers, swapped a portion of this weather risk with Tokyo Gas Togas , which experiences a decrease in demand for gas-fired water and central heating under the same conditions. In 2001, the two companies entered into a...

William Tharp Invited Authors Comment The Carbon Project Financingcontinuum

Venture capitalists and term financiers have different perspectives on carbon risk and valuation of projects. Venture capital has the capacity to take carbon risk management into account, and consider their involvement in a project to be one of value creator. Traditional long-term project financiers, however, consider their capacity as that of value recognition. As such, longer-term financiers analyze the intrinsic value of a project, but are highly unlikely to take any lending risk in which...

The Broader Policy Context

The threat of climate change is not the only reason that modern society should embrace a low-carbon future. For several decades, oil geologists have been predicting a peak in oil and gas production as newly discovered supplies have been falling behind the growing demand. Production from the continental United States has been declining since the 1960s North Sea oil is now following suit. As outlined in Chapter 3, new supplies are being developed in less dependable places such as the former...

Constraints on the Weather Derivatives Market

In the United States, the entire power generation industry has faced regulatory pressures, costly restructuring and massive losses in the wake of the California power crisis in 2000-2001, leaving little to be spent on weather risk management. Meanwhile, utilities in Europe appeared to be more concerned about the EU Emissions Trading Scheme than weather hedging possibilities (Nicholls 2004e). It has been suggested that this will change Going forward the EU ETS scheme should contribute to renewed...

Financing The Transformation Of The Energy Chain The Role Of Venture Capital

The emphasis today is not to use taxpayers' money to perform services that could be offered by private enterprise, and to motivate private enterprise to do the job by developing legislation which encourages markets to achieve various goals environmental, medical, educational, and social more quickly and at lower cost. With global warming upon us, it is in everybody's interest to slow down the rate of climate change and best prepare global society to adapt to the inevitable transition to new...

Carbon Finance Within The Broader Field Of Environmental Finance

The modern age of environmental finance began with the U.S. Acid Rain Program. There have been many attempts to encourage responsible use of resources through pricing, most notably for water in the past 15 years. Water permits are being traded in the United States and Australia, for example. But it was the Acid Rain Program that first demonstrated that tradable permits for air pollution allowances could be used to reduce the pollution problem. Despite the important differences between the acid...

Factors Affecting Auto Manufacturers Carbon Profile

While a number of low-carbon technologies have been introduced into the traditional internal combustion engine (ICE), other technological advances are poised to challenge traditional gasoline vehicles and to improve an automaker's carbon profile (Economist 2004a). The current popularity of diesel-fueled cars has resulted in some pollution reduction. Over the next decade, alterations in fuel mix and improved fuel efficiency, as well as some low-carbon innovations in diesel, hybrids, and fuel...

Box The Concept And Use Of Biofuels

Bioethanol, which is chemically identical to other forms of ethanol, can be derived from sugar cane, grain, corn, and straw. More recently, biodiesel, which is derived mainly from vegetable oil, has also been developed. The use of these products, referred to collectively as biofuels, provide well-to-wheels7 GHG reductions on the order of 20 percent to 50 percent compared to petroleum fuels. The concept of running cars on freshly harvested plant material rather than the fossilized version is not...

Box Cargill Invests In Biodiesel Production In Europe

Cargill, a U.S.-based global food and agriculture company recently announced its acquisition of a 25 percent stake in Greenergy Biofuels Ltd. in the United Kingdom. Tesco owns 25 percent of Greenergy Fuels, which owns the other 75 percent of Greenergy Biofuels. Tesco is the leading biofuel retailer in the United Kingdom, offering biofuel blends at more than 40 percent of the petrol stations attached to its supermarkets. Greenergy Biofuels is building a 100,000-ton 114 million-liter capacity...

Adverse Weather The Role Of Weather Derivatives

Many businesses, especially those in the energy sector, are exposed to the risk of adverse, although not catastrophic, weather. Specifically, mild summers reduce the demand for air conditioning, while mild winters reduce the demand for space heating. Adverse weather likewise affects agriculture, hydroelectric and wind power generation, construction schedules, demand for certain clothing and beverage products, and outdoor entertainment. Most of these types of exposures are difficult to insure...

Sources Of Energy Hydroelectric Power

Like other forms of energy, hydroelectric power (HEP) has its pros and cons. Under the global warming debate, those issues have come up for review Is HEP a green, renewable source of energy Does it have a place in a renewable energy portfolio Is it an acceptable activity for the Clean Development Mechanism The short answer that is emerging in response to these questions is that small HEP is green and renewable, but big HEP is not. However, HEP is a more heterogeneous source of energy than coal,...

Agriculture

GHG emissions from agricultural activities account for approximately 15 percent of global GHG emissions (Figure 4.1), but with a different emissions profile than other sectors. Methane (CH4) and nitrous oxide (N2O) make up about 90 percent of agricultural GHGs, with CO2 from burning fossil fuels and electricity use contributing the remaining amount. Agriculture also contributes CO2 to the atmosphere through the clearing of land and the burning of biomass. On the economic front, agriculture...

The Physical Impacts of Climate Change on the Evolution of Carbon

Physical Impacts on Unregulated Sectors 90 Real Property and Production Facilities 96 Physical Impacts on Carbon-Regulated Sectors 103 Institutional Investors and Climate Change 111 Institutional Investors Size and Global Reach 112 Corporate Environmental Reporting 113 New Era of Fiduciary Responsibility for Institutional Shareholder Resolutions and Proxy Voting 120 New Momentum in the Corporate World 125 Barriers to the Financial Consideration of Climate Change 127 Institutional Investors and...

Automotive Industry

New regulatory pressures with respect to fuel economy and tailpipe emissions, along with rising consumer expectations for better fuel efficiency, have placed a competitive premium on auto manufacturers, who have developed strategies to address these challenges. Due to the carbon profile of a typical automotive vehicle (Figure 3.4), the primary force felt by the industry is to lower the carbon intensity of passenger cars (gCO2 km) while increasing fuel economy during the use of their vehicles....

Box Hsbc The Worlds First Carbon Neutral Bank

As well as examining the indirect impacts of carbon risk through their lending and investment portfolios, HSBC has also addressed its direct impacts on climate change, and became the first major bank to announce it was carbon neutral. In 2004, HSBC made a commitment to be the world's first major bank to achieve carbon neutrality, with a Carbon Management Task Force announcing a target of 5 percent reduction over three years. The HSBC Carbon Management Plan consists of three phases 1 to manage...

Role Of The Financial Services Sector

Climate change has become an important factor for the financial sector in its banking, insurance, and investment activities. Challenges for the sector will appear from the different directions that have been identified earlier in this chapter regulations that are designed to limit GHG emissions, physical changes that take place due to climate change impacts, legal challenges to be brought on by inadequate governance, reputational fallout for companies due to corporate positions on climate...

The Changing Climate

Although the issues surrounding climate change are perceived as being fairly new, a brief reflection on the history of research in the area reveals studies in the nineteenth century that involved the concept of global warming. Early works by the French mathematician and physicist Joseph Fourier 1768-1830 explored the field of terrestrial and radiant heat, and concluded that the atmosphere could, indeed, trap heat. Fourier suggested that the atmosphere warms the earth's surface not only by...