Bank to invest $4bn in emissions credits

Australian Financial Review
Saturday 28/10/2006, Page: 10

Morgan Stanley, the biggest US securities firm, plans to invest within five years in about $US3 billion ($4 billion) of emissions credits and projects to curb greenhouse gas output. Investments would include credits from the Clean Development Mechanism of the 1997 Kyoto Protocol, Morgan Stanley said.

That mechanism encourages rich nations to spend on projects such as wind farms and chemicalgas- combustion plants in poor nations. Credits can be traded for profit.

"We strongly support the use of market-based solutions to meet environmental policies and objectives," said Simon Greenshields, the bank's global head of power and emissions trading and structuring: Industrialised nations might spend as much as $US100 billion a year in developing nations by 2050, helping ensure that fastgrowing economies switch to lowfossil- fuel use, the United Nations said last month. A UN board runs the CDM.

Fords, Belgium's biggest financial services group, and Deutsche Bank of Germany also trade credits.

That spending by industrialised nations might occur if they agreed to emission reductions of as much as 80 per cent by mid-century, buying credits in poorer nations where those cuts were not possible, the UN said.

Most of Morgan Stanley's investment "will focus on increasing our emissions trading volumes", the bank said. "The remainder will be used to invest in projects and for capital costs." In the first nine months of 2006, global emissions trading was about $US21.5 billion - almost double the $US11 billion in the whole of last year, the World Bank says in a report published on Friday at Carbon Expo Asia in Beijing.

The price of certified emission reductions, a type of greenhouse gas credit created under the protocol, had surged 48 per cent so far this year, the World Bank report says.

Prices for CER credits under the protocol's Clean Development Mechanism bought directly from project owners rose to an average $US10.50 a tonne of carbon dioxide equivalent through September 30 this year, from $US7.10 last year.

In the EU since last year, about 12,000 factories and power stations have needed a government permit for each tonne of carbon dioxide they produce. They can sell surplus permits if they cut their output, providing a financial incentive. If their output exceeds the level of their grant, they need to buy extra permits.