M.Stanley Gives US$3 Billion Confidence Vote in Kyoto


Investment bank Morgan Stanley said on Thursday it plans to invest US$3 billion in carbon trading under the Kyoto Protocol to 2012, a huge vote for a pact which has faced doubters including most recently Canada.
Kyoto sets greenhouse gas emissions limits on 35 industrialised countries -- which they must meet by 2012 -- but allows countries busting these like Japan, Spain and Italy to fund cuts elsewhere and count them as their own.
This carbon market is seen peaking next year and in 2008, and specialist investors are hoovering up emissions-permitting carbon credits ready to offload these to countries chasing targets as the 2012 date nears.
It is this intermediary role -- buying direct from emissions-cutting projects now and selling on to national governments and industry later -- that Morgan Stanley hopes to profit from.
"We're talking a lot to the utilities and industrials and national governments too," said a Morgan Stanley spokesman.
"We do see a healthy demand. We're seeing a lot of interest from Japan too."
Some market players say demand is unsure for Kyoto-style carbon credits, given the option for countries to achieve their targets by buying other countries' rights to emit -- unsympathetically dubbed "hot air" by greens because such deals do not link directly to emissions cuts.
Austria, a big Kyoto laggard, says it wants to close such deals in the next year or two.
The United States pulled out of Kyoto in 2001 and Canada said this year it has no chance of meeting its Kyoto target, which it is busting by some 35 percent.
But carbon investors point to the fact that most countries are lagging their targets, and so are a source of demand, and to the prospect that carbon markets will become the world's climate change strategy of choice as the threat of global warming grows.
EXPANSION
The global carbon market was worth US$21.5 billion in the first nine months of 2006, the World Bank said in its market update on Thursday, up from about US$11 billion for all of 2005.
The Morgan Stanley move marks a significant expansion of the bank's existing carbon trading activities that it launched in 2004 within its commodities division.
The new investment, over five years, will put more capital behind the carbon trading business and also includes some direct investment in projects and initiatives related to emissions reduction, the bank said.
Other investment banks are involved in carbon emissions trading in a global carbon market that is fast developing in Europe, the United States and in emerging markets.
Morgan Stanley's carbon trading business is headed by Simon Greenshields, who is global head of power, associated power fuels and carbon/emissions trading and structuring.
"We strongly support the use of market-based solutions to meet environmental policies and objectives," he said.