Carbon Monitor September 2009

August 31, 2009

Uncertainty Reigns after CPRS defeated and ETS delayed


After the recent defeat of the Australia CPRS in the senate, a similar process is playing out with New Zealand’s Emissions Trading System and the support from the minority parties.


The ETS review was intended to be tabled before the end of August but intense lobbying has delayed the process as the Government is in ‘intense negotiations’ according to the Prime Minister.


Minority parties the Greens and Maori have all moved to reposition themselves including attempting to withdraw a minority report from the ETS review committee.


Seen as a way of moving to support a renegotiated or watered down ETS these moves represent the repositioning prior to the inevitable vote in Parliament.


The minority National Government still needs support to achieve a review of the existing legislation which it currently categorises as ‘quite expensive’ and would cause ‘quite a number’ of businesses to close down.


Meanwhile over the tasman, it is expected that the Rudd Labour Government will go to the polls on the issue of the CPRS. Political commentators see this as a move to strengthen Rudd’s position as the opposition under Mr Turnbull are ill prepared for an election.


Overwhelming Response to Forest Owners Guide to Carbon Trading

Following a further mention in last months CM we have received literally hundreds of requests for the forest owners’ carbon guide.

“Good stuff, nice and clear. I trust you won’t mind me forwarding it on to my colleagues.” Regards, Mark

If you have forest that was pasture on the 31st December 1989 then this guide is essential reading.

The guide is available by emailing

Commerce Commissions Guidelines for Carbon Claims Need Policy Decision


The Commerce Commission has now released the final guidelines at


Cocom requires an additionality test to be met prior to making carbon claims. In a Kyoto regulated market additionality is meaningless and we made this point in our submissions.


We wrote to Comcom asking for clarification of the above scenario. Their reply was that the matter had been referred to Ministry for the Environment as the issue was a matter of policy for MFE.


MFE has advised that policy has yet to be formed. Meantime our view is that claims of carbon neutrality should be made only after receiving proper advice.


EU Price Update


Allowance prices had a reasonable month without the recent volatility. Prices in Euro terms climbed and remained relatively steady in NZD terms.


2012 CER prices still support NZU prices of $28 or more at the current exchange rate of 0.475


Bids for Ecosecurities Result in Conflicting Claims


Following a recent profit announcement by Ecosecurities Pedro Moura Costa, its former founder and man behind the take over offer said


“EcoSecurities’ results illustrate the difficulties this company faces and why it needs a change of strategy. An operating profit of only €341,000 on significant sales volumes and after years of investment should give shareholders cause for concern. Our Offer represents the only certainty for shareholders at a time when both EcoSecurities and the carbon markets face significant uncertainty.”


Guanabarra Holdings B.V. Moura Costa’s take over vehicle then proceeded to dissect the interim result saying to the London Stock Exchange:


Guanabara notes the unaudited Interim Results for the six months ended 30 June 2009 (“Interim Results”) announced by EcoSecurities on 4 August 2009 and the response circular dated 4 August 2009 in response to Guanabara’s Offer. 

Following careful analysis, Guanabara believes that the Interim Results serve to endorse its view that Guanabara’s Cash Offer of 77 pence per share represents fair value for the Company. The main reasons for this conclusion are set out below.


EcoSecurities reported another reduction in its contracted portfolio, following a reduction in 2008: 





the total contracted net amount of pre-2012 CERs reduced by circa 20 million tonnes to 124 million tonnes as at 30 June 2009; and





there was a significant reduction in the growth rate of expected CER volumes from registered projects. From 31 December 2007 to 31 December 2008, there was an increase of 169% (from 13 million tonnes to 35 million tonnes) but, from 31 December 2008 to 30 June 2009, the increase was 14% (from 35 million tonnes to 40 million tonnes).


The announced €1.06m profit before tax was predominantly derived from financial activities as opposed to operational results as it included net finance income of €0.72m. The Company achieved an operating profit of only €0.34m on sales of €60.0m. Sales were derived mainly from: 





the acceleration of deliveries of forward sales above the previously planned level;





substantial trading activity, whereby the Company sold 4,274,000 CERs, 3,712,000 of which had been bought in the secondary market; and





a significant reduction in the Company’s inventory of CERs, from 1,710,000 CERs as at 31 December 2008 to just 263,000 as at 30 June 2009.


Guanabara expects EcoSecurities’ cash holdings to decrease in the short term as it funds the future development of carbon credits and as delays in registration, financing and construction continue to affect CER issuance. This is likely to be exacerbated by the reduction of the Company’s CER inventory.





EcoSecurities has not provided any guidance as to profitability in the full financial year and beyond.

Guanabara believes that continuing uncertainties in the global economy in general and the carbon markets in particular create an environment in which the future financial performance of EcoSecurities is likely to fluctuate significantly. 

Guanabara believes further that the performance of all carbon companies will continue to be adversely affected by complicated regulation and administrative delays, as evidenced by Unep Risoe’s recent reduction of the amount of CERs it expects to be generated by the end of 2012, because of increasing delays in the issuance of credits from projects that have been approved by the UN. 

EcoSecurities’ stock-exchange listed peers have recently reported write-downs in their contracted portfolios. Tricorona AB reported (23 July 2009) a reduction in its portfolio of carbon credits for delivery in the EU’s second trading period 2008-2012 from circa 64 million tonnes to circa 55 million tonnes between 31 December 2008 and 30 June 2009. Camco International Limited announced (6 August 2009) a reduction in its risk adjusted contracted portfolio of JI and CDM projects from circa 94 million tonnes to circa 85 million tonnes between 31 March 2009 and 30 June 2009. Trading Emissions plc reported (11 August 2009) a reduction in its risk adjusted pre-2012 CER portfolio from circa 47 million tonnes to circa 43 million tonnes between 27 March 2009 and 11 August 2009.

The nature and scope of the carbon regulatory framework for the period following 2012 is as yet unknown. Recent press coverage from sources including Point Carbon, has highlighted that any agreement on the post-Kyoto period continues to be highly dependent on the political willingness of some of the world’s largest countries and there continue to be many points which still require agreement. In particular, whilst there have been some developments in relation to potential new climate change regulations in the United States, there can be no certainty that a new regime will be agreed in the foreseeable future or that whatever regime does ultimately emerge will allow EcoSecurities to become active in the US market. 

Guanabara’s Offer is in cash and is the only offer currently available to EcoSecurities shareholders. In the event that Guanabara’s Offer were to lapse and there was no alternative offer, the EcoSecurities share price would depend on the Company’s trading performance and might not be maintained.  

Guanabara would also like to highlight that all the parties which have given irrevocable undertakings not to accept Guanabara’s Offer are connected in some way with the Company and its current management, either as directors, employees or, in the case of Credit Suisse International, have board representation. No independent shareholders have given any such undertakings.

The Offer price of 77 pence per share represents a substantial premium of approximately 141 per cent to 32 pence, the Volume Weighted Average Trading Price of an EcoSecurities Share over the six month period up to 5 June 2009, and a premium of approximately 69 per cent to the Closing Price of 45.5 pence per EcoSecurities’ share on 4 June 2009, the last Business Day prior to the date of the announcement by Guanabara that it was considering an offer for EcoSecurities.



Moura Costa is talking down the price of his former company indicating tough times ahead.


More interesting is the comment that he bid is the only way for shareholders to turn their shares into money.


An independent Director resigned late August citing that he had recently taken an appointment with an American regulator.


If other independent Directors resign it could be an indication Mora Costa is right.


EITG Web Site Makeover


Our web site has just been updated with the new 2009 EITG branding completing the first phase of our rebranding exercise.


We expect to release our completely new web site in October 2009 where we will have back issues of CM available to download along with other EITG publications.


Hits on the site are continuing to increase to record numbers.


Carbon Group Joins Our Consortium


Carbon Group provides a range of services to assist individuals and organisations understand, navigate and benefit from the emerging area of greenhouse gas awareness, its quantification, mitigation and offsetting.


The vision is to accelerate the move towards a low carbon future in two ways; by working with organisations to reduce their carbon emissions, and to facilitate and commercialise clean technology.


The approach is based on helping organisations make the most of commercial opportunities provided in a carbon-constrained world. We form partnerships with environmental specialists and sustainability experts across many different industries. Once we understand your business, we gather these experts together to develop a compelling business case for change. We focus on bottom line results, backed by hard science and experience.


Carbon Group is a member of the New Zealand Business Council for Sustainable Development, under the auspices of parent company and leading environmental services consultancy, Andrew Stewart Limited.


Private companies in the tourism, television production, insurance, information technology, construction, finance, importing, healthcare and education sectors, have used our carbon services. Carbon Group also assists local government with public services and infrastructure projects.



Carbon Monitor August 2009

August 4, 2009

Substantial Sale of Forest AAU Announced


A European Buyer has purchased approximately 520,000 forestry AAUs from the New Zealand forestry company, Ernslaw One Limited.


The AAUs have been awarded under New Zealand’s Emissions Trading Scheme (NZ ETS) where they were awarded as NZUs which have now been converted into AAUs.


While the Scheme is currently under review forestry owners have already received units and been part of the NZ ETS since 2008. With the domestic market in New Zealand in a state of uncertainty, forestry owners in New Zealand are starting to look offshore to monetise their forestry AAUs.


Ernslaw One Limited owns around 4% of New Zealand’s Kyoto compliant forest, having undertaken afforestation projects to establish 27,780 stocked hectares of which approximately 11,000 hectares are planted in longer rotation Douglas-fir, the balance being in radiata pine. All the forests owned by Ernslaw One Ltd are certified by the Forest Stewardship Council (FSC) and independently audited.


Thomas Song, Managing Director of Ernslaw One Limited said “We are delighted to have been able to conclude this deal. This deal demonstrates that there is significant interest internationally in forestry AAUs from New Zealand. We see this as a great boost to the forestry industry in New Zealand and a cost-effective way to involve the forestry industry in climate change mitigation. We look forward to managing these forests for the benefit of the global environment.


The name of the buyer and the price of the sale of AAUs is undisclosed.



These AAU units are not eligible for the European Emissions trading system so are likely to have been sold to a government rather than an entity participating in the EUETS.


Previously Japan is known to have been involved in purchasing AAU units for its anticipated emissions trading system.


Again we see lack of price disclosure indicating that the market for AAU units remains illiquid and immature.


Whilst this trade certainly indicates demand, the lack of open disclosure of price does nothing to achieve the objectives of Kyoto or the NZETS.


Rumours and discussions with unnamed parties indicate that the price was around 10 Euro or $21 NZD, or a 25% discount to the current price of a CER unit under the CDM.


Given the outright sale there appears to be little in the way of a risk management strategy in place should there be an event that affects the carbon sequestration sold.


Given the units are issued by the New Zealand Government there would appear to be little buyer side risk, more a seller risk in having to surrender NZU units in the event of an unexpected event leading to loss of forest and a deemed emission.


It would appear after discussing the issue with Earnslaw One executives in late 2008 that they would manage such a risk by using other forestry and are planning new plantations.


It was also rumoured that Earnslaw One was the forest owner in the first trade of 50,000 NZU units announced earlier in the year.


Forest Owners Guide to Carbon Trading well Received

Since its release last month the guide has received overwhelmingly positive feedback.

“Good stuff, nice and clear. I trust you won’t mind me forwarding it on to my colleagues.” Regards, Mark

We are also grateful to Gary Clancy of MAF for feedback and suggestions for the final document.

If you have forest that was pasture on the 31st December 1989 then this guide is essential reading.

The guide is available by emailing

New Zealand Commerce Commissions Releases Guidelines for Carbon Claims


Further to the draft guidelines issued for consultation the Commerce Commission has now released the final guidelines at


Unfortunately despite our input into consultation Cocom requires an additionality test to be met prior to making carbon claims. In a Kyoto regulated market additionality is meaningless and we made this point in our submissions.


Those electricity suppliers and fossil fuel supplies for transport whilst required under the New Zealand Emissions Trading System to surrender permits equivalent to ALL carbon emissions won’t be able to claim carbon neutrality under the guidelines.


Why? Even though such products will be carbon neutral (i.e. completely offset) they will not pass an additionality test and therefore in the view of Cocom any claim to the contrary will result in action under the Fair Trading Act.


We wrote to Comcom asking for clarification of the above scenario. Their reply was that the matter had been referred to MFE as the issue was a matter of policy for MFE.


We will advise of the outcome of the enquiry to MFE. Meantime our view is that claims of carbon neutrality should be made only after receiving proper advice.


EU Price Update


Allowance prices spiked sharply upwards after a reasonably strong month overall.


2012 CER prices still support NZU prices of $28 or more at the current exchange rate of 0.46


Bids for Ecosecurities Heat Up


UPDATE 3- LONDON, July 16 (Reuters) – EcoSecurities has dismissed a second bid from co-founder and former president Pedro Mora Costa as “inadequate” after he raised his offer for the British clean energy project developer by 28 percent, the company said on Thursday.

Shares in EcoSecurities, which develops carbon offsetting projects under the Kyoto Protocol’s Clean Development Mechanism scheme, closed up 4.7 percent at 77 pence.

Rival bidder EDF Trading, said earlier on Thursday it had pulled out of the running after signing a deal with EcoSecurities co-founder Pedro Moura Costa’s company Guanabara Holdings.

Costa made a 77 pence per share cash offer through his Guanabara joint venture for EcoSecurities, 17 pence above a previous bid, which he said values the company at approximately 91 million pounds ($149.3 million).

EcoSecurities’ board again called the offer “wholly inadequate” and advised shareholders to take no action.

EDF Trading, a unit of French utility EDF <EDF.PA>, said if Costa’s offer is successful it may exercise options to purchase a portion of EcoSecurities’ pre-2012 Certified Emissions Reductions (CER) portfolio and enter a service deal with Guanabara.

As of April 30, EcoSecurities said it had a portfolio of 155 United Nations-registered projects in developing countries like China and India, expected to generate 40 million CERs by 2012.

Benchmark CERs, for delivery in December <CFI2Zc1>, settled up 1.6 percent at 13.02 euros a tonne.

Meanwhile Guanabara said in a statement: “The cash offer represents an opportunity for EcoSecurities shareholders to monetise their investment in EcoSecurities shares at a time of great market volatility and economic uncertainty, particularly in the carbon markets.

“Approximately 65 percent of EcoSecurities pre-2012 CER portfolio is not forward sold. This makes EcoSecurities overly dependent on future CER prices (which) have decreased 46 percent over the last 12 months.”

A spokesman for EcoSecurities said Guanabara currently controls 12.1 percent of its shares.

“Guanabara’s new bid for EcoSecurities remains far too low,” said Mirabaud Securities analyst Agustin Hochschild.

“In effect, EDF Trading is subsidising Guanabara’s bid in exchange for CERs … it’s a sensible way forward for those two parties, but not necessarily for EcoSecurities shareholders.”

EDF Trading said on June 8 it was considering a cash offer of at least 75 pence per share, which would have valued EcoSecurities at 88.6 million pounds, trumping Guanabara’s 60 pence offer made three days earlier.

EcoSecurities rebuffed the Guanabara approach and said it had also rejected an earlier 96 pence per share proposal from EDF.

EDF Trading said on Thursday it will not deal in EcoSecurities shares for the term of its agreement with Guanabara or until Guanabara’s offer is declared unconditional.

Guanabara is a Dutch company owned half by Costa, and half by BTG Carbon Luxembourg, a subsidiary of BTG Investments LP.




The turmoil which started back in 2007 continues with Ecosecurities.


After seeing substantial write downs in its carbon credit portfolio after overestimating the amount of credits it would receive under the United Nations Clean Development Mechanism the shares fell heavily to a recent low of 20p.


After leaving one of the founders has now bid for the company despite the value of its remaining credit portfolio dropping 46% in the last year.


If the bid is successful we expect radical changes at Ecosecurities.


Carbon Planet Denies Involvement in REDD credits from PNG


Papua New Guinea’s carbon chief was recently suspended amid allegations of inappropriate trading of credits from PNG forest conservation projects.


It is reported by Economist that some 40 m tonnes of reduced emissions from deforestation and degradation so called ‘REDD’ credits had been or were about to be sold despite there being no legal framework in place for such a sale.


Carbon Planet an Australian company know for its emissions assessments denied involvement in a $1.2m AUD purchase of such credits according to Point Carbon saying it had paid no money.


Currently REDD projects are only permitted in the voluntary carbon markets and are not eligible for credits under the Clean Development Mechanism (CDM) of the Kyoto Protocol.


This is expected to change with the latest round of negotiations for emissions caps post 2012 with REDD becoming part of the Clean Development Mechanism or the CDM.


EITG view on REDD Opportunities


Given the only recent approval of a methodology (by TUV SUD) by a validator there is little established precedent as to the form of and what may be approved by a validator.


Moreover in the event of approval the credits that would be yielded are under the Voluntary Carbon Standard called VCU units.


The first sale of the VCU units created under the standard is reported to have occurred in March 2009 but omits a price.


Our market research with UK based carbon trading houses indicates the price range for VCU units being USD$1 with some ‘projects’ achieving up to USD$4.


Our view is the voluntary market is potentially likely to decline now the first commitment period has commenced (2008-2012) and the USA has announced a CAP and TRADE system aligned with Kyoto. Whilst the voluntary market has grown significantly in the last two years it is our view that it is a backstop to the compliance market i.e. Kyoto and is relatively small in comparison both in volume and price.


Our view is it would be better to make the additionality argument based on VCU income but not pursue VCU credits.


The preference would be that the REDD project is incorporated in the CDM. However recent CDM directives effective August 1st 2008 require projects to be advised to the CDM Board BEFORE the project commencement date to remain eligible for the CDM.


The issue in this case is there is no approved CDM methodology for REDD. The effect of advising in like form to CDM current notification to preserve eligibility is not certain.


More on REDD as negotiations evolve and EITG efforts in this space progress.