Tuesday, 1 June 2010

From Markets With Love

The carbon super market may just get another goodie
At the Carbon Expo, carbon traders are discussing the launch of the Green Bond or International Carbon Bond.
Like the Clean Development Mechanism (CDM)  that pays developing countries to reduce GHG emissions , the Green Bond will do just the same.

To the uninitiated, the CDM is the principal tool for engaging with developing countries on mitigation policy. This allows developed country governments and companies to meet emissions reduction targets in part by purchasing certified emissions reduction credits (CERs) which they receive in return for financing projects in developing countries which reduce emissions. This is also known as “offsetting”.

India and China are the leading countries in CDM projects but recently China has over taken India. While India entered the CDM market in 2003, the size of projects is small – largely driven by  mid-sized companies. However this could change, should some of the Indian Public Sector Units chose to enter the carbon markets.
 Like some  bonds, including Daniel Craig, this is also hot .And here is why.
Unlike the CDM process where there is a lengthy review process, with the Green Bond, the money is paid up front by investors and the returns guaranteed to the investor. The Investor then would be free to trade the bonds in international market. And governments will earmark funds exclusively for carbon abatement programmes.

And here is the sweet spot.It would be like a sovereign debt.So if the project fails and there is no reduction in emissions,the investor is protected as the bond is backed by the World Bank or some such financial institution.

So if you want to make some quick bucks, watch this space and keep in touch with your investment banker - he is very likely to sell you the bond and not the sun.



  1. So this is still technically an offset which may not really reduce emissions, rather give rich people and countries a way to get out of their obligations?

  2. Oh absolutely - this works exactly like CDM - the only turn on is that money is released upfront and not at the end of the project - under CDM the verification takes very long - infact that has discouraged players . The market feels that with , millions will get released.

  3. I am writing this in response to your repeated tweets attacking the nuclear liability bill. With respect, from your repeated allegations, I suspect you do not quite follow the rationale of the bill. I am posting this comment here to suggest that you please read my post explaining this bill in some detail before you criticize it further. Thanks.

  4. cbcnn_Pilid

    Thanks for directing me to your post, which was excellent.
    The issue is not about the merits or demerits of Nuclear – or about it being the enemy of the people with environmental concerns . Ironically this also seems to have changed in the light of GHG emissions and is increasingly identified as a solution to our energy future in the light of climate change.
    The issue is with the liability cap.
    While I hear what you are saying I am not sure I still can agree with you.
    Accidents can bankrupt private companies that build these reactors and no insurance company willing to take on the risk of indemnifying against such a huge liability; and neither will a company commit to payments that they know are beyond their resources – hence Price-Anderson Act in the US, if I understand correctly.

    But in this bill the Polluter Principle is totally weak and that really the government will have to deal with/pay for the consequences. Why the cap of only Rs 500 crores to be paid for by the operator.? We all know that this is a paltry sum and nuclear disasters are lethal, affecting generations to come.
    This is what I just dont get .

    But then I guess if you have business interest as the overarching priority, then you limit the liability this low sum so that you make it profitable for the operators. A bit twisted ? Therefore I think Soli Sorabjee is right when he said that the bill in this form is a blatant violation of our fundamental right

    Having said that, your post was great !

  5. Thanks for your comment. My quick response:

    Because of the cost involved in clean up, even elsewhere, if not governments, it is consortia of nuclear operators who pay up - that is also what the Price Anderson Act provides for beyond the first $300 million or so. The operators' cap is set based on the insurance capacity of operators put together. In fact, the whole idea of legally mandated insurance coverage is, in a sense, a violation of the polluter pays principle but the amounts involved make that a necessity.

    You are right that protecting business interest is an integral aspect of this legislation but without that protection, it is doubtful whether investment can be attracted to the industry at all. Protecting businesses is thus not the 'overarching priority' but an essential prerequisite to develop an industry that is still, relatively speaking, in a nascent stage. Also, if a disaster at one facility ends up forcing all other operators to sell their assets to pay for compensation, the entire industry effectively dies in the process. Surely, you realize the implications for the country at large of having to make do without a significant portion of its power generating capacity? So, there are several reasons why a cap on the operator's liability makes sense.

    From the victims' standpoint, what matters is whether they get compensated adequately and in a timely manner, not where the money comes from. So the bill is not necessarily a violation of any right.