Description:
There is an apparent need to reduce greenhouse gas (GHG) emissions (up to 80% by 2050). In October 2008, G8 - Group of Eight - leaders agreed on the long-term target of at least halving their greenhouse gas emission by 2050. Mexico, Brazil, China, India and South Africa also urged all developed countries to commit themselves to absolute emission reductions based on a medium-term target of a 25-40 percent cut below 1990 levels by 2020. 

One trillion dollars. That is the most recent estimate of the potential carbon emissions market, if, as expected, cap and trade regulation comes to the U.S. [2]“This portends to be the largest single commodity in the world,” says Richard Sandor, a Chicago economist and entrepreneur, known as the father of financial futures and chairman and CEO of the Chicago Climate Exchange. [3] The time horizon is a mere 12 years. Is this plausible? A recent New Energy Finance study says yes. Indeed, with multiple bills in Congress and determined plans by President Obama to establish a national carbon cap-and-trade system in the U.S., its more likely than plausible. The price of carbon could reach $40/ton, and this is in the U.S. alone.

Worried about the effect of our current economic woes? Don’t be. There has been considerable investment in carbon sector (carbon tracking, trading, capture and storage technologies), $100 billion in 2008, up more than 80% year-on-year, despite the global economic crisis. In 2008 traders bought and sold approximately $60 billion worth of emissions allowances, mostly in Europe and Japan, where governments regulate greenhouse gases.  [1] That total represents an 80% increase from 2006. The voluntary carbon trade in the U.S. saw its price per ton triple in the first quarter of 2008 — inversely proportional to the credit crisis on a month to month basis. 

Is there value in carbon? Clearly. But since the regulatory framework is still evolving, it is important to designate ownership of carbon value now.  This lesson has already been learned the hard way with renewable energy credits (RECs).  In 2006, California passed legislation which provided that unless a renewable energy provider addressed ownership in its pre‑2005 contracts, REC benefits were assumed to have been already sold to purchasers.

Will carbon competitiveness create an advantage for industry leaders? Will the market continue to grow despite the economic downturn? How will businesses capitalize on the value of carbon in the current and future regulatory regimes? How should companies engaged in angel or VC finance rounds or approaching a merger, acquisition, or IPO, account for carbon value in the valuation of the company? How should companies today protect carbon value in their transactions before the regulatory system in the U.S. is established?

[1] Marc Gunther, Carbon Finance Comes of Age, Fortune, April 28, 2008.
[2] Marc Gunther, Carbon Finance Comes of Age, Fortune, April 28, 2008.
[3] A Convenient Truth, Institutional Investor: America’s Edition, May 2008

Please join us at Morrison & Foerster’s Palo Alto office on March 26th for a discussion that will shed light on this potential locomotive of an opportunity.

 Moderator: Timothy Harris, Partner, Morrison & Foerster LLP

Panel:
Michael Steel, Partner, Morrison & Foerster LLP
Dr. Alex Rau, Ph.D., Founding Partner, Climate Wedge Ltd.
Michael Meehan, CEO, CarbonNetwork
Joe Nation, Ph.D, Principal, Climate Action Partners