Fresh from abolishing the boom-bust cycle in Britain, Gordon Brown now dreams of a ‘New World Order’ to fight global warming – and there’s sure to be a wealth of tax-funded humbug as a result. So it came as no surprise this week to find the City urging us to go green. Or rather, the City’s now urging us all to buy and sell green. Carbon traders worldwide turned over $21bn during the first nine months of last year; if the Square Mile is to dominate this booming market in saving the Earth, it needs to innovate.
And innovate it will – hence Tuesday’s news that investors can now bet on whether global warming will wash away the City and Canary Wharf, through the $150m “flood” bond issued by Allianz, the German insurer. Better still, “why not a trade in congestion charge permits?” ponders Giles Keating in the FT. Head of research at Credit Suisse’s private banking division, Keating would like to see the Government give out road-use permits for free, instead of rolling out London-style congestion charging nationwide. Gas-guzzling drivers could then assuage their guilt with extra permits bought from pedestrians and cyclists. Cynics might add that professional brokers such as, say, Credit Suisse, could also deal industrial-sized permits for the haulage industry.
Meanwhile, F&C has just been joined by a sustainable investment officer who this week told the fund manager’s staff how to be more eco-friendly. The fees paid by F&C’s investors already help the firm to offset its carbon footprint; at its Liverpool Street offices, the lights turn themselves off automatically at night. It’s just a pity that the two largest holdings in its flagship Foreign & Colonial trust are BP and Shell.
But like so much else, of course, you can now buy atonement for your carbon emissions at knock-down prices from Asia. Thanks to cheap labour and input prices, it costs much less in India and China to produce one tonne of carbon emissions than it does in Europe; by the same token, figures the EU in Brussels, it must also cost less to cut the production of carbon emissions. Asian industrialists are thus allowed to magic new carbon credits out of their forecasts, sell them to European businesses, and bank a tidy profit. Net-net, global emissions haven’t slowed, much less shrunk. But polluting companies here in the West get to buy their way out of guilt, while Asian firms get to fund fresh investment.
You might wonder where saving the planet comes into all of this, but the profit opportunities don’t stop once a new carbon credit has made its way to the rich, industrialised West. Last May, Baxter Healthcare – a US health service firm listed on the Nasdaq – became the first company to trade European carbon allowances on the Chicago Climate Exchange in the US. “Are they the smartest carbon traders in the room?” asks Terrapass.com. In January this year, the price of European credits dipped below the price of US credits, making Baxter’s arbitrage look awfully clever – and profitable. Indeed, if you’re looking for a change of career, then you might want to consider the carbon offset market. Sales staff outside London are now being offered £40,000 per year. Senior consultants and project managers in the capital can earn even more.
There is a threat to the West’s fast-growing trade in these indulgences – and just like the credits themselves, it comes from China. Beijing plans to launch a carbon exchange this summer. “It makes you wonder about your future,” fretted one manager at a Western carbon-trading firm to Reuters recently. For now, however, the opportunity to make money from the rich West’s guilt over global warming is just getting started. By 2010, according to one estimate cited by the European Trade Union Confederation, the global market for eco-friendly goods and services could be worth £480bn.
“If you are a savvy investor interested in a good return, you need to pay attention to ecological trends and how they affect the bottom line,” advises Carsten Henningsen, co-founder of Portfolio 21, a socially responsible investment fund. True, he has a vested interest in saying that, but the potential is obvious. The Scottish Liberal Democrats want all new buildings north of the border to be carbon-neutral by 2011, while
New Zealand’s prime minister wants to achieve this same nirvana for every home and business in her entire nation. There’s plenty of opportunity to turn a fast buck here. Just don’t expect today’s guilt-neutral indulgences to bring about a reduction in carbon emissions.
Adrian Ash is head of research at BullionVault.com, the online gold investment service for private individuals.