“We don’t think environmental markets are going away,” Alfred Evans, chief executive officer of Climate Change Capital, said on April 16 in a phone interview from Geneva. Bunge, the food and agriculture company, is betting there will still be markets for credits in some North American states and Australia, even in the absence of a global market, Evans said.
Bunge, based in White Plains, New York, bought Climate Change Capital for an undisclosed sum in an accord that closed April 16 and now owns the world’s largest private carbon fund. The climate-protection business has committed more than 850 million euros ($1.1 billion) since 2005 to emissions-cutting projects in developing nations, according to its website.
Investors, including Stichting Pensioenfonds ABP and Centrica Plc (CNA), the U.K.’s biggest household energy supplier, are receiving the credits, whose price fell to a record 3.27 euros a metric ton on April 4. The money invested was raised in 2006, when the price for Certified Emission Reductions from projects was about $10.50 a ton of carbon-dioxide equivalent, according to the World Bank.
Climate Change Capital’s supplies of credits from China complements Bunge’s projects in India and South America, Evans said. Carbon prices may be near their bottom, making it a good time to buy, the executive said.
Bunge had expected credits for about 12 million tons of carbon-dioxide equivalent by the end of this year and 34 million by 2020, according to UN project data compiled by Bloomberg. Together with Climate Change Capital, the group now expects about 59 million tons by the end of this year and 170 million by 2020, the data show.
The price of CERs fell 68 percent in the past year because the European Union carbon market is oversupplied through this year and beyond, according to Bloomberg New Energy Finance. Factories and power stations in that market, the world’s largest by traded volume, can use CERs from United Nations’ Clean Development Mechanism, or CDM, to cut the cost of compliance.
“Bunge’s purchase of Climate Change Capital shows continued belief in long-term value creation within the CDM primary markets,” said Mark Owen-Lloyd, head of carbon trading at CF Partners (U.K.) LLP in London. Price volatility has underlined the need for sound risk management in the industry, Owen-Lloyd said. Camco International Ltd. (CAO), another London carbon developer, plunged to a record low on April 5.
Some comments about the market’s gloomy outlook are “misplaced,” Evans said. “We are definitely somewhere near the trough.”
Certain emission-reduction offsets, such as projects to cut greenhouse gases at landfill sites in Mexico, may be re-badged for new carbon markets as they proliferate, including California and Japan, as well as voluntary programs across the globe, Evans said. “California has been in our thinking,” he said.
That state, the world’s eighth-largest economy, has delayed compliance under its proposed cap-and-trade program by a year to 2013. Factories and power stations in the market will be able to use offset credits for compliance, once they are converted to California Air Resources Board-approved instruments, according to the program’s rules.
China, which is piloting emissions trading in seven programs, may retain its credits for its own use instead of exporting them, Evans said. China is presently the biggest supplier in the Clean Development Mechanism, the largest offset market.
UN climate negotiators have so far failed to extend or replace the 1997 Kyoto Protocol, whose targets for most developed nations run through this year. The CDM was formed under rules of that protocol.
Investors in carbon funds managed by Climate Change Capital are not seeking to exit after the price plunge, Evans said. That hasn’t been the subject of communications with them, he said. Whether some assets come up for sale depends what’s in the interests of those investors, Evans said.
Climate Change Capital does not publish the performance of its funds. Data on UN websites show projects it invested in have produced hundreds of millions of euros of credits.
An installation at the Zhejiang Juhua Co. (600160) chemical factory in China, for instance, has produced 30.7 million tons of credits since 2006. They would be worth 376.7 million euros at 12.26 euros a ton, the average price of 2012 CERs since they were first offered on ICE in March 2008. The contract rose as high as 26.65 euros a ton in July 2008.
China has set a floor price for sales at about 8 euros a ton, Gareth Phillips, chairman of the Project Developer Forum lobby group in London, said April 3. That’s double current prices so some investors that committed to buy at that level may have loss-making contracts.
The type of CER supplied by Zhejiang Juhua will be banned from the EU starting May next year. The EU is faced with an oversupply that prompted the bloc’s lawmakers to consider tightening the market further. Climate Change Capital’s funds invested alongside banks including Deutsche Bank AG (DBK) and Morgan Stanley (MS), according to a statement.
Bunge may seek to renegotiate purchase contracts with suppliers that are unprofitable, where there’s flexibility in the agreements to allow that, Evans said.
Otherwise, the group will abide by the terms, he said. “We will stand by all contracts,” he said.
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