Gold News

Cardinal carbon

The war on global warming is creating a wealth of tax-funded humbug...

FRESH FROM ABOLISHING the boom-bust cycle, the world's central bankers and finance ministers – led by Gordon Brown – now dream of a 'New World Order' to fight global warming.

   There's sure to be a wealth of tax-funded humbug as a result. So it comes as no surprise to find Wall Street and the City of London urging us to go green, too.

Or rather, the financial world's finest brains are now urging us all to buy and sell green. Carbon traders worldwide turned over $21 billion during the first nine months of last year. If any one financial center is to dominate this booming market in saving the Earth, it will need to innovate.

Hence last week's news that investors can now bet on global warming washing away the City and Canary Wharf through the $150 million "flood" bond issued by Allianz, the German insurer.

And "why not a trade in congestion charge permits?" asks Giles Keating in the Financial Times. Head of research at Credit Suisse's private banking division, Keating would like to see the UK 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.

Over at F&C, meantime, the Compliance Team has just been joined by a sustainable investment officer who recently 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 off-set its carbon footprint. At its Liverpool Street offices in the City of London, the lights turn themselves off automatically at night!

Pity that the two largest holdings in its flagship Foreign & Colonial trust, as the Evening Standard wryly noted a few weeks back, are BP and Shell. And what about the hot air produced by F&C's sustainable investment officer?

Like so much else, of course, atonement for your carbon emissions can be bought at knock-down prices from Asia. Thanks to cheap labor and input prices, it costs much less in India and China to produce one ton 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 production 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 the Asian manufacturers get to fund fresh investment.

SRF, a leading Indian chemicals and textile manufacturer, said last week that it has raised $117 million by selling its 2007 carbon credits on the open market. SRF produces fluorochemicals and chloromethanes – refrigerant gases high on the list of greenhouse offenders. The sale is enough to cover 70% of SRF's entire expansion costs since 2004, enabling it to grow faster still – and pump out yet more greenhouse gases in future.

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, industrialized 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; in Jan. '07, 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...but fear that you've missed the hedge fund and private equity bubbles...then you might want to consider the carbon offset market instead.

UK sales staff posted outside London are now being offered £40,000 per year – some $80,000 at today's record exchange rates. Senior consultants and project managers in the capital can earn half-as-much and more again.

Take note – there is a threat to the West's fast-growing trade in these indulgences. Just like a huge chunk of 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. Friends of the Earth estimate that Germany’s environmental sector now employs 1.5 million people, nearly 4% of the active workforce. The new building code in Spain makes solar panels compulsory in all new and refurbished buildings; it's expected to generate 5,000 new jobs by 2010.

Here in Britain, the Stern report has urged the creation of 100,000 new jobs in green technology. 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 £480 billion.

"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. He might just be talking his book, but as the share price of outsourcing firms like Serco has proven, you shouldn't ignore the impact that tax-funded meddling can have on your investments.

The Co-op's Sustainable Leaders Trust recently topped the UK All Companies Sector. Standard Life's UK Ethical Fund has beaten the FTSE 100 index over the past three years. Jupiter's Ecology Fund has returned 429% since launch, says The Scotsman, against a 340% rise in the FTSE World Index.

And carbon credits? The Scottish Socialist Party said earlier this month it wants all new buildings north of the border to be carbon-neutral by 2011. The prime minister of New Zealand wants to achieve this same nirvana for every home and business in her entire nation! In short, there's plenty of opportunity to turn a fast buck here.

"Won't you part with a farthing to buy this letter?" asked Johann Tetzel, a Dominican friar, in his sales pitch for Pope Leo X's famous indulgence of 1515, the Sacrosanctis.

Cheap at twice the price, "it won't bring you money," Tetzel said, "but rather a divine and immortal soul, whole and secure in the Kingdom of Heaven."

The Sacrosanctis helped fund the completion of St.Peter's Basilica in Rome. It also spurred Martin Luther to kick-start the Reformation. Whatever today's booming market in guilt-neutral indulgences might bring about, don't expect it to reduce in carbon emissions.

Adrian Ash

Adrian Ash, BullionVault Gold News

Adrian Ash is director of research at BullionVault, the world-leading physical gold, silver and platinum market for private investors online. Formerly head of editorial at London's top publisher of private-investment advice, he was City correspondent for The Daily Reckoning from 2003 to 2008, and he has now been researching and writing daily analysis of precious metals and the wider financial markets for over 20 years. A frequent guest on BBC radio and television, Adrian is regularly quoted by the Financial Times, MarketWatch and many other respected news outlets, and his views from inside the bullion market have been sought by the Economist magazine, CNBC, Bloomberg, Germany's Handelsblatt and FAZ, plus Italy's Il Sole 24 Ore.

See the full archive of Adrian Ash articles on GoldNews.

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