Is Carbon the New Uranium?

Sydney, Australia (April 3, 2007)- When Andrew Grant, managing director of CO2 Group (COZ), attended a global carbon conference nine years ago, he knew every face there. Back then the carbon trading market was estimated to be worth about $100 million globally. When Grant attended the most recent conference in Copenhagen, there were 2000 attendees. Eighty per cent were bankers and financial traders. The global market is currently estimated to be worth $3.5 billion – and we’re still only at the beginning.

The carbon marketplace is growing dramatically and is expected to increase by 50% in 2007 alone. Airlines, for example, are about to be included, and that will have a noticeable impact on airline tickets.
Per capita, the United States is the world’s largest total emitter (with China rapidly catching up). The US has not signed the Kyoto Protocol and has no immediate stated plans for a national carbon-trading scheme. However, 29 US states have introduced carbon-trading schemes, the most notable being California.
With no viable national trading model yet existing in the US (already home to the Chicago Carbon Exchange) it is not hard to see just what upside exists in the carbon market. If the Democrats win government, they will immediately introduce a scheme, but the election is not till the end of next year. But again, the point is that private industry is already on the move.
US companies are quickly looking into ways to invest in or create carbon abatement projects. There is no point in waiting around to see whether a national trading scheme will be introduced – it will. There is no point in waiting until it is introduced, for then it will be too late.
Citigroup analysts, working on the basis of a $20/t cost of carbon, suggested some companies could effectively have their market caps change by up to 45% if a scheme was introduced tomorrow (this assumes no government exemptions/extensions for major emitters, which are pretty much a given).
(See “Costing Carbon Trading”; Sell&Buyology; 26/03/07).
“Think globally, act locally” – that was the catch-cry of environmentalists back in the nineties, who were then still being dismissed as hippies and tree-huggers. On Saturday night last in Sydney an estimated half of the city’s population turned off its lights for one hour, resulting in a 10% reduction in power usage. While largely symbolic, the extent of participation surprised the power companies.
As is usually the case with any cause, the climate change battle has been taken up by movie stars and rock musicians – particularly those who live in big houses and own their own planes. While some are using solar powered amplifiers on their recordings, others are simply looking at ways to invest in carbon abatement to thus offset their personal carbon footprints. In order to put on what are carbon neutral shows, the organizers have elected to invest in carbon sequestration, in the form of trees. To do so the organizers approached the CO2 Group.
CO2 Group was a little surprised when the BDO came knocking on its door. In fact the last six months have brought more surprises for the Group, as the BDO has not been the only organization suddenly looking to offset its carbon emissions ahead of any ratified government scheme. But then when CO2 listed three and a half years ago, this is exactly what its business model was set up to achieve.
A renewable energy company can create carbon credits, but only in the process of producing energy. A forestry company can create carbon credits, but only until it cuts down its trees for use in building. CO2 Group simply plants tees and then leaves them alone. It is purely a carbon credit generator. As it is accredited under the NSW carbon-trading scheme, CO2 is in fact the only company in the world accredited to create carbon credits from planting trees.
The immediate assumption one might make is that CO2 might well be a pioneer, but pretty soon everyone will rush to plant trees and carbon credits will be generated willy-nilly. Nothing could be further from the truth.
The process by which CO2 has achieved its NSW accreditation has been long and arduous. Andrew Grant related that this is most third party-audited business he has ever been involved with. A carbon credit is a very specific instrument that must satisfy very exacting standards. Without such standards, businesses would be able to lay claim to carbon credits left right and centre that would be spurious at best.
Nor is it any tree that is planted. CO2 has spent a great deal of time in identifying its particular Mallee eucalypt as an ideal carbon sink, and perfecting its use. The trees are not planted as forests, but typically along strips amongst cereal crops. As owners of the land the farmers are paid upfront for strips representing typically 10% of acreage. The eucalypts are not bothered by water shortage, and require no irrigation or fertiliser. The strips will then act as windbreaks, reduce soil erosion, address soil salinity, provide shade for livestock, and not be at much risk from bushfires given they are not concentrated in forests.
Mallee eucalypts can live for five hundred years. Typically the carbon carrying capacity is reached in 40-50 years. From seed to mature tree, the eucalypt absorbs carbon dioxide, keeps the carbon (which is the wood) and spits out oxygen. The growth period from 7-15 years is when they are most sequester-efficient. CO2’s trees are protected, and cannot be cut down.
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