August 29, 2006
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DOW JONES REPRINTS
  This copy is for your personal, non-commercial use only. To order presentation-ready copies for distribution to your colleagues, clients or customers, use the Order Reprints tool at the bottom of any article or visit:www.djreprints.com. • See a sample reprint in PDF format. • Order a reprint of this article now. Biggest-Ever Emissions Trades: By JOHN J. FIALKA
August 29, 2006; Page A4 WASHINGTON -- The World Bank and 11 utilities, banks, trading firms and others have put together the largest greenhouse-gas emission trades in history, a $1 billion deal that will help two Chinese chemical companies reduce emissions believed to cause climate change by the equivalent of 19 million tons of carbon dioxide a year. The transaction, almost double the size of previous deals, will be a windfall for the Chinese government, which will get 65% of the money through existing taxes on the two companies. The money will be put into a new Clean Development Fund that China will use to promote forms of renewable energy -- such as solar and wind power -- and to remove other gases believed to cause global warming. ![[Trading Credits]](/public/resources/images/NA-AK153_CLIMAT_20060828211649.gif)
Seventy-five percent of the money is coming from European and Asian corporations, many of which are hurrying to buy emissions credits that can be used to meet the terms of the Kyoto Protocol. The treaty, ratified by 164 countries, requires 35 participating industrial nations to reduce emissions of carbon dioxide and five other so-called greenhouse gases by 5.2% below 1990 levels between 2008 and 2012. Under emissions trading, a company that reduces emissions below its assigned quota has credits that it can sell. Companies that can't make reductions to meet their targets can buy the credits and use them to make up the difference. Companies also can obtain credits by financing emission-reducing projects in developing nations, such as China. "The window is closing on transactions of this size," said Joelle Chassard, manager of the World Bank's carbon finance unit, which helped write the rules for such trades of pollution credits and negotiated the first international deals. Ms Chassard said such credits sold out within two weeks to private purchasers, including utilities. She noted that most projects to reduce emissions in developing countries, such as building power plants, require long lead times that may not permit the facilities to be productive by the treaty's first regulatory period. "We think this is a very positive development. It says something about the commitment of China to do something about climate change," Ms. Chassard said. China, although the world's No. 2 emitter of greenhouse gases, is considered a developing nation and isn't bound by Kyoto regulations. The U.S. is the world's largest source of greenhouse gases, but declined to join the Kyoto treaty in favor of voluntary reduction programs. The two Chinese companies that will benefit from the transaction are located in Jiangsu Province on China's eastern coast. The companies manufacture a refrigerant using a process that generates HFC-23, an inert gas that is rated 11,700 times more powerful in global warming than carbon dioxide. A small part of the $1 billion, Ms. Chassard said, will be used to buy incinerator technology that will decompose the HFC-23. The gas, which is among those considered pollutants by the Kyoto treaty, currently is released into the air. The potency of the gas involved and the simplicity of the technology needed to eliminate it have made HFC-23 deals the most attractive for emissions credits trading. That is because companies and governments are looking for projects that can be completed by 2008. "This was an attractive deal all around," said Jack Cogan, president of Natsource LLC, a New York asset managing company that is buying credits for 27 corporations that are members of two pools it has organized. "If these [Chinese] companies make a lot of money out of this, that's fine with us. The trading was done at market prices." Other participants include: Deutsche Bank AG; RWE AG, a German utility; Tokyo Electric Power Co., Endesa SA, a Spanish utility, and Japanese trading firm Mitsui & Co. Ltd. The deal also includes members of five funds organized by the World Bank, which include both governments and private companies. According to the World Bank, 25% of the money involved in the transaction comes from government agencies that, under the treaty, can use the credits to meet national pollution targets. Companies that can't meet their pollution-reduction goals face a variety of penalties that would be levied by their home country's equivalent of the Environmental Protection Agency. Countries are moving to avoid the embarrassment of not meeting their treaty obligations. Reductions that will be required in the second round of the Kyoto Protocol, which begins after 2012, haven't been negotiated. Write to John J. Fialka at john.fialka@wsj.com1
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