Morgan Stanley to pour $3bn in carbon trading

LONDON: Investment bank Morgan Stanley plans to invest $3bn in carbon trading under the Kyoto Protocol to ’12, it said on Thursday in a vote of support for a pact that has doubters including, most recently, Canada.

Kyoto sets greenhouse gas emissions limits on 35 industrialised countries — which they must meet by ’12 — 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 ’08, and specialist investors are hovering up emissions-permitting carbon credits ready to offload these to countries chasing targets as the ’12 date nears.

It is through this intermediary role — buying direct from emissions-cutting projects now and selling later to national governments and industry — that Morgan Stanley hopes to profit.

“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.”

The global carbon market was worth $21.5bn in the first nine months of ’06 up from about $11bn for all of ’05, the World Bank told a carbon market trade fair in Beijing in a market update on Thursday.

But most of this trade took place in the European Union’s carbon market, while Kyoto has faced sceptics — the US pulled out of the pact in ’01 and Canada said this year it has no chance of meeting its Kyoto target.

The UN’s climate change body launched on Thursday a new carbon trading arrangement between industrialised and former communist countries — termed Joint Implementation — and a UN official welcomed the Morgan Stanley investment plan.

“We’re pleased to see the interest the private sector investment community is taking in Kyoto mechanisms,” said James Grabert, JI team leader at the UNFCCC.

The Morgan Stanley move marks a significant expansion of the bank’s existing carbon trading activities that it launched in ’04 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.

And Goldman Sachs announced last November plans to invest $1bn in renewables and other clean energy. These funds are now almost fully invested largely in wind and solar, the bank said on Thursday.

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.