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.