Skip to comments.Cashing in on Rotting Chickens and Manure
Posted on 02/20/2007 7:42:29 AM PST by Rb ver. 2.0
First Reserve, the biggest private equity firm in the energy industry, expects a fivefold gain from rotting chickens and cow dung.
That assumption is looking less preposterous. A consensus is emerging for U.S. legislation that encourages trading of credits earned from projects that reduce emissions of greenhouse gases and curb global warming.
"Giddy returns" were probable, predicted Glenn Payne, director of First Reserve, who said the first sign of a new law would lead to a quintupling of credit values, to around $20 a ton of carbon dioxide, from $3.75 now. Profits from oil and natural gas over the next five years will increase less than 10 percent, futures prices show.
First Reserve signed a contract with Tyson Foods, based in Springdale, Arkansas, and the world's largest meat processor, under which the company will turn over the carbon credits generated by cleaning up the methane from its chicken scraps and wastewater ponds.
First Reserve will pay Tyson a fee and pay for the installation and operation of the equipment needed to keep greenhouse gases out of the air. The investment firm will then sell the credits to a power plant owner or another company that needs them to meet state or U.S. government pollution limits.
"Companies like First Reserve that get in now can make double- or triple-digit returns annually," said Josh Margolis, director of emissions trading at Cantor Fitzgerald in New York. "It's high reward because there are some big risks."
Profit is motivating Wall Street firms to join the fight against global warming. Goldman Sachs Group, the world's largest securities firm, made at least $68 million in six months from an investment in Climate Exchange, an emissions trading marketplace that has tripled in value. Morgan Stanley, the No.2 securities firm, plans to invest in $3 billion over the next five years on programs to cut greenhouse gas pollution or in the credits that result.
Citigroup this month announced a venture with the hedge fund unit of Cargill, the largest U.S. agricultural company, to buy shares in Sindicatum Carbon Capital to generate carbon credits.
First Reserve has also signed contracts with J.B. Hunt Transport Services, a trucking company, and Albertsons, a supermarket chain. The greenhouse gas reductions from these agreements will come from replacing truck fuel with biodiesel and installing energy-efficient store lighting. Future projects may involve capturing the methane that wafts from pig or cow manure, Payne said.
"Capturing the emissions from rotting chicken carcasses is a lot cheaper than from coal-plant emissions," Payne said. The market in Europe, where greenhouse gas emission caps have been in place for two years, shows how high the value of U.S. credits will climb, he said.
While Payne declined to discuss First Reserve's performance, one of the firm's funds returned 48 percent annually from 2001 through June 2006, according to the California Public Employees' Retirement System, a huge U.S. pension fund.
President George W. Bush cited the need to "confront the serious challenge of global climate change" in his State of the Union address on Jan. 23. The comment marked a shift in his rhetoric, said Red Cavaney, president of the American Petroleum Institute. Bush in 2001 pulled the United States out of the Kyoto Protocol, saying the mandatory emission caps in the international climate change treaty would hurt economic growth.
While the U.S. energy secretary, Samuel Bodman, said this month that Bush still opposed emission limits, he agreed with a United Nations panel that found growing scientific evidence of society's contribution to climate change. The role of humans in global warming is "no longer up for debate," he said.
Seb Walhain, head of environmental products at Fortis, the biggest financial services group in Belgium, said that investors were seeking carbon credits in the United States because "they are cheap." Walhain added, "The risk is the credits investors buy may or may not be eligible" under the rules that are ultimately established by lawmakers.
Walhain, who participated in the first emissions-related trading in Europe in 2003, said Fortis was now seeking to generate credits in the United States from projects similar to those of First Reserve.
The plan at Tyson is to cover rotting chicken carcasses to capture and burn the methane they emit. The project prevents emissions from rising into the atmosphere, where they trap heat and contribute to global warming.
Similar projects garnered a 45 percent return in two years for Trading Emissions, a British company founded two years ago with the sole purpose of investing in emissions projects and credits. In December, Trading Emissions sold 255,000 credits to the British government at about 14.50, or $19.05, a ton. They had been acquired in late 2005 and early 2006 for less than 10 each.
First Reserve entered the carbon market in September by buying a 50 percent stake in Blue Source, a company based in Salt Lake City, Utah, that develops greenhouse gas projects. Morgan Stanley, taking the same approach, bought a stake last month in a similar business, MGM International. Neither company would release the terms of its acquisition.
First Reserve, co-founded by the investment banker William Macaulay, has invested $12 billion since its founding in 1983. Last August, Macaulay raised $7.8 billion for a new investment fund, the largest pool of its type in the energy business.
General Electric, the world's largest maker of electric generators, and AES, a power plant builder, announced last month that they had created a joint venture for carbon emission credits. The venture will develop projects that cut U.S. greenhouse gas emissions by 10 million tons each year, creating 10 million credits, said Kevin Walsh, director of renewable energy at GE Energy Financial Services in Stamford, Connecticut. "Our goal is to make this a viable business in a voluntary market and be a leader as it becomes regulated," he said.
E.ON, the German utility that is the largest in the world, said this month that it would acquire credits by investing with banks in projects that curb greenhouse gases in the developing world.
Speculators, including hedge funds, are replacing industrial companies as the biggest buyers of carbon credits, said Greg Spencer, chief executive of Blue Source. "It's more about taking positions in a market that will appreciate significantly over time," he said.
Mathew Carr reported from London.
Look for the added costs to products and services coming to your life soon.
How long before landowners are forced to pay carbon penalties for cutting down trees on their own property?
Sounds like phase 2 of the Gore Syndrome.
Just follow the money and "global warming". It tells the whole tale.
Yep. On the money end Global Warming is about the creation of a new commodities market and the transfer of wealth from consumers to a select group of investors.
On the political end it's about empowering socialists who sell themselves as enlightened saviors by telling the masses which behaviors and lifestyles must be altered or else we're all gonna die.
It's communism in a different wrapper.
I just crunk up my homemade methane producer a few minutes ago. Hope to at least generate enough to run a propane heater in my shop.
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