Hot! Hot! Hot!

Thursday, June 19, 2008

global warming isn’t fantasy. DAngerous as it is, it comes with many chances to make ‘green’ bucks too! In a line – It’s clear & present danger, with the right opportunities!


What do Arnold Schwarzenegger, Barclays Bank, ONGC and students of Oberlin College (Ohio) have in common? They are all working towards a greener tomorrow by reducing the emission of greenhouse gases in their own way.

With people now realising that global warming is a reality and climate change is happening, it was time someone decided to do something about it. So, out came the Kyoto Protocol by UNFCC to tackle climate change by reducing man-made green house gases or emissions. Each of these gases causes global warming, but not all are equally sinful. If CO2 (carbon dioxide) has been given a score of one on the global warming-potential scale, then sulphur hexafluoride with a score of 23,900 makes it the most lethal of all.

So, if you develop a mechanism to reduce the emission of these gases, you gain points accordingly. As an example, stopping emissions of a tonne of CO2 gives you one point, while reducing emissions of one tonne of sulphur hexafluoride will get you 23,900 points, and similarly so on so forth. These points [or CERs: Certified Emission Reductions] could be sold to countries, which under the Kyoto Protocol, need to reduce their green-house-gas emissions by at least 5% from 1990 levels.

The heat is on

Yes, literally! With climate change comes a whole lot of other changes too. Bankers, insurers and institutional investors have begun to realise that climate changes leading to storms and destruction of property are causing them big financial losses. They are now demanding that companies, in which they hold stakes, sit up and take notice and alter their business plans accordingly.

Businesses too are realising how soaring energy costs are increasingly eating into their profitability and it’s time they did something about it. Citigroup is encouraging the sale of energy efficient homes, IBM has reduced its energy bill, Unilever has reduced its greenhouse outputs by 10% in one year. DuPont, way back in 1980, had introduced substitutes for Chlorofluorocarbons (CFCs) in refrigerants as they were destroying the Ozone layer.

Siemens has developed more energy-efficient motors plus has stared using renewable energy systems like wind-energy. The firm conserved some 1.2 billion tonnes of carbon dioxide since 1995! Intel has chipped in too by developing a technology where a PC on standby mode would consume just 5 watts of electricity, resulting in a saving of 71% of power consumption.

Toyota, always a pioneer and leader, beat everyone in energy conservation by launching the Toyota Prius. This hybrid averages 55 miles to the gallon and emits 55% less carbon dioxide than other midsize cars. Not just are these companies helping the environment, but tomorrow when regulations on carbon emission get stricter (which they will, if we need to save our planet), these companies, who have already got a ‘heat-start’, would find it very easy to not just comply with the norms but stay ahead of competitors too.

DuPont in 1994 set a target of cutting emissions by 40% by the year 2000. It achieved that. Then it targeted 65% reduction by 2010 and achieved that by 2005. It found that despite producing 30% more goods, it was using 7% less energy, which helped it save $2 billion. It surely makes business sense today to think green.

Green bucks, green planet

There are some companies who are unable to reduce their carbon emissions for various reasons. Sometimes, it’s just not practically possible and sometimes, it’s too expensive for them to replace their existing equipment with the modern energy saving ones. They needn’t lose hope. All they need to do is pay companies in developing countries to cut emissions and earn CER credits.

A business opportunity

As the West realises it’s cheaper and easier to buy carbon credits than earn them on their own, it has now developed a huge new business opportunity for many. One company that’s made a very big fortune for itself is the European Climate Exchange (ECX). In its first month of operations, it traded a million tonne of CO2 credits. Today, it handles 85% of the 1.2 billion carbon emission trade made in Europe.

If that’s not all, it’s expecting the volume to grow to 4.8 billion tonnes by 2009. If earlier, it cost $13 to buy one carbon credit, then today, the price has doubled to $26. Not surprising that Goldman Sachs shelled out $23 million for a 10% stake in Climate Exchange (which owns the European Climate Exchange & Chicago Climate Exchange).

Carbon trading volumes are exploding. From 10 millions tonnes traded in 2004 to more than 600 million tonnes by 2006, analysts predict the market for carbon credits to be worth some $45 billion annually by 2008. As the deadline of 2012 nears, the buying of carbon credits would increase frantically.

It’s a huge business opportunity for India and many of the developing countries. Big players have entered the game making it more lucrative. J.P. Morgan plans to invest $3 billion in carbon trading. They would work as intermediaries – buying direct from emission cutting projects and selling to governments & industries later. Merrill Lynch too has entered into carbon consulting. India’s premier bank IDBI has now got a dedicated carbon credit desk, which provides all the services in the area of clean development mechanism (CDM). Japan has turned out to be one of the biggest buyers of carbon credits. It bought 38% of the carbon dioxide credits offered worldwide. Britain, at 15%, stood second.

With big buyers around, come big brokers too. The biggest “emissions broker” named Evolution Markets is doing brisk business today. It made the world’s first cross-border carbon trade in 2002 when it brokered the sale of carbon credits from government of Slovakia to Japan. It now even offers “carbon finance,” wherein, by using the value of future emission reductions, it would finance emission reduction projects. As the business grows, new opportunities keep coming up. Is this going to be the future of growth?

Everybody loves green

Students of Oberlin College in Ohio now have timers inside their showers. Anything more than 3 minutes of shower time is no good. They have also decided to share refrigerators, which, according to them, is “one of the top energy suckers in a household.” Some students are even persuading their administrators to switch to fossil-free fuel on campus. They are doing their bit to reduce carbon emissions and global warming from their lives and the planet.

Even the Pope has joined in. Cardina Paul Poupard accepted a donation, which would make the Vatican the world’s first carbon-neutral sovereign state. A part of the reforestation project in Hungary would be designated as the “Vatican Climate Forest” where, depending on the Vatican’s energy usage, a proportionate number of trees would be planted to offset its carbon emissions. The 2006 Super Bowl too aimed at offsetting all the CO2 the championship generated by planting trees.

The blockbuster film The Day after Tomorrow was again a “carbon neutral” film. Its scene advisor, Dr Molitor, persuaded the director to invest in carbon reduction projects to compensate for the emissions during production.

A whole new world

The world is changing – this time for the good. A whole new world of opportunities seems to have opened up. This has even made ‘pig-flatulence’ feature on the London Stock Exchange! An Irish company AgCert has found a way to collect methane from rotting pig manure and generate electricity. Whoever thought that world over, companies would be scrambling for it!

There are some surprised beneficiaries too. Villagers in South India have been using biomass as cooking fuel. They never knew how much they were contributing towards prevention of global warming. Today, the Chicago Climate Exchange is giving them carbon credits and they get to earn a minimum of Rs.800 per year. Bangkok makes electricity using swine manure; villagers in Andhra Pradesh use seeds of the Honge tree to make cleaner fuel; China is using wind energy... Yes, the world is changing and earning too. Save the planet and your bottom lines - there can’t be a better combination. The good news for India is that while China’s leadership in the CDM market has shown a decline, India has jumped from a 3% share in 2005 to 12% in 2006 (World Bank data). “Reducing emissions” is the latest trend and Indian entrepreneurs have a lot to gain. The climate is warming up and making business opportunities go hot! Hot! Hot!