Saturday, December 15, 2007

Bali's business bonanza and what it means for Chile - Pacific Hydro has as many people in its Santiago office as its Melbourne headquarters.

Bali's business bonanza

Dorjee Sun is huddled into his mobile phone, one of many players jostling for position as the nascent global carbon market opens up a goldmine of opportunity.

Dorjee Sun is huddled into his mobile phone, laptop slung over one shoulder, pacing dangerously close to the edge of the pool.

His white shirt has stuck to him in Bali's evening heat and mosquitoes are nibbling at his ankles. But the 30-year-old internet millionaire from Sydney's North Shore has a grin on his face and a hand in the air, waiting for a reciprocal high five.

He has had a breakthrough in negotiations for his latest venture, Carbon Conservation, with three Indonesian provincial governors. Sun wants to facilitate the sale of carbon credits to developed countries from projects which prevent or reduce deforestation in Aceh and Papua. He has managed to get Merrill Lynch on board and is pretty happy about it.

(While Merrill Lynch may be ecstatic the indigenous people who lands the scheme depends on are not: Indonesia: WALHI Protest against Kyoto, Carbon Trade, Clean Development Mechanism , Africa: Poor Countries Fail in Demand for Control of New Clean Development Mechanism Fund , Indigenous Peoples protest World Bank carbon scam in Bali , A gift from Scotland to Brazil: drought and despair . On top of that, such projects deforestation projects rarely bear close scrutiny: The great carbon trading scam? )

Sun has no background in science or climate change. He made his fortune out of starting up and then selling a recruitment software company and an education mentoring business.

But the carbon industry is no longer just inhabited by scientists, environmentalists and policy wonks. Over the past year, entrepreneurs like Sun - keen to make a buck and feel good about doing it - as well as the big investment banks, project developers and trading firms are looking to get a piece of the action.

Their interest is not surprising. More than $US60 billion ($68.1 billion) changed hands in the global carbon market this year, double the trade of last year and up from just $US400 million three years ago. Analysts estimate the market could be worth $US1 trillion within the next 10 years.

By 2030, according to some carbon bulls, it may even be the biggest commodity market in the world, overtaking crude oil.

(Read more here: Bank says climate change is investment "megatrend" , Global warming has a financial upside , Profiteering from Carbon Trading - How the Global Carbon Market will Destroy Patagonia, Chile )


At the UN Climate Change Conference in Bali over the past two weeks, comparisons with the internet industry and the dotcom crash of 2001 were freely made. However, despite all of the obstacles there seems to be general agreement that while there may be a shake-up of the carbon industry, it won't collapse or disappear. Like the internet before it, carbon is here to stay and it will transform the way people do business.

"I can't guarantee that nothing will happen like the dotcom bust or the US housing market," says Olga Gassan-zade, a senior analyst at research firm Point Carbon.

"But I will say that the dotcom industry didn't die. You need a carbon market to manage emissions reductions. We'll be here in 2020 and 2050, I'm quite sure."

Australia has its own challenges. With it having only agreed to ratify Kyoto after the Rudd Government was elected late last month, companies, investors and traders are scrambling to work out what it actually means for the local market.

By not ratifying Kyoto, Australia was estimated to be missing out on $3.8 billion of economic activity a year, according to research by consulting group Cambiar, prepared for the Australian Conservation Foundation. That reflected lost revenue from project development, the sale of carbon credits and services to facilitate transactions.

(See: Kyoto deal to clear air for Australian investors, say experts - Pacific Hydro's manager says, Australia is "now open for business". )

"People are still scratching their heads trying to work out what the policy means and what it means to be a company acting responsibly in the environment," says Oliver Yates, head of Macquarie Capital Group's Climate Change Practice.

"These are not new concepts to international companies but they are new issues for Australian companies. We've largely had our eyes blinkered to this through not signing the Kyoto Protocol."

Macquarie has moved fast to shore up its position in the nascent industry. It set up an emissions trading desk in London, is already selling carbon credits out of China into Europe and last week bought half of Climate Friendly, one of the biggest players in the local carbon offset market. Climate Friendly offers people the chance to offset carbon emissions from their home, business, car, or travel by investing in renewable energy projects. (not by advocating a change in their lifestyle.)


Macquarie is not the only company ramping up its activities in the area. Renewable energy player Pacific Hydro, which has built up carbon projects in Chile and Fiji in recent years, is looking to hire up to 50 more people in Australia over the next 12 months. The company has as many people in its Santiago office as its Melbourne headquarters. Australia's decision not to ratify Kyoto had limited what Pacific Hydro could do within the country. Now that Australia is part of the Kyoto club and the Rudd Government has announced it will double the renewable energy target to 20 per cent by 2020, that's all about to change.

"Australia has the ability to be a world leader in carbon," says Andrew Richards, the company's head of corporate and government affairs.

"In the past all the investment and innovation has been sitting behind a dam wall. But that's now been broken down and we expect the investment and innovation will rush forward. There is a completely different mind set now."

(Read about the Pacific Hydro / SN Power's Chile dam plans here: Value of Pacific Hydro Skyrockets with Australian ratification of the Kyoto Protocol – Chilean rivers sacrificed to offset European Carbon Emissions. ,SN Power, Norway, & Pacific Hydro, Australia, move on La Confluencia dam project on the Tinguiririca River- effort to reduce Europe's Carbon Emissions , Chile Environment Exploited to Offset European Pollution , Kyoto ratification crucial in Australian plans for Chile hydro-development – Carbon Offsets purchased in Europe critical to dam construction , Australia's Pacific Hydro finds a loophole: Climate change, Kyoto, and carbon trading . More on how Norway's SN Power (Pacific Hydro's partner) intends to oust Chile's indigenous Mapuche people from ancestral lands to pursue hydro-development schemes: Mapuche Protest against Norwegian Hydroelectric Power , Norwegian Power Projects in Mapuche, Chile Heartland Plunder Environment )

Richards expects the increase in the renewable energy target, alone, to drive $30 billion of investment into the sector over the next 12 years.

The problem for companies like Pacific Hydro, who are looking to hire, is that there are not enough carbon experts to go around. Many Australians fled to London over the past five years as it emerged as the world's carbon trading hub. Canberra-born Geoff Sinclair, who heads up Standard Bank's carbon business in London, says you might see some of those people moving home.

Pacific Hydro has sold certificates generated from hydro projects in Fiji and Chile. But that will be much easier now that Australia is seen as one of the good guys on climate change. For a start it will be easier to win approval from the host nation and once more projects are under construction there will be more demand for bankers, lawyers, brokers and consultants. Many investment banks, law firms and research groups are starting to set up special carbon teams to deal with the extra work.

"Ratification, in my opinion, makes people aware of the issues and of the commercial opportunities that already exist," says Sinclair, who was scheduled to speak at a carbon finance panel at the UN climate change conference this week but had to pull out because he was "too busy doing deals". (It should be obvious where his priorities lie.)


Grant says the commercial opportunities in dealing with climate change have been overlooked in Australia. "There is no doubt in my mind that the Government has been looking at the impact on the economy but not on the opportunity it presents."


But Molitor, who handles all the carbon offsetting for the entertainer Justin Timberlake and the rock group Linkin Park, says there's incredible peer pressure on companies to address climate change even without being forced to do so by governments. He cites the example of Fiji Water, a bottled water company which, facing a consumer backlash, bought up carbon credits on the voluntary market to offset the emissions from transporting its product to the US, Britain, France and Australia.

(Justin Timberlake and many other celebrities take the issue very seriously: With five private jets, John Travolta still lectures on global warming , Virgin Atlantic launches Carbon Offset Scheme )

Here is the full article.