The other day we looked at railroads and their “green” impact. Today we look in another direction.
From the NY Times:
Dow Chemical & Gazprom recently signed a memorandum in which they agreed to look at opportunities where Dow technologies could be used to reduce carbon emissions, thus generating the emission credits. The companies agreed to look at opportunities worldwide.
Dow could then use some of the credits to offset its own industrial activities while Gazprom’s trading arm in Britain could market any excess.
In other words, by using Dow technologies, companies can generate carbon credits that they can then sell or use as currency to offset the purchase of the technology.
Additionally:
However, the true promise for this business is in carbon credits that come, like the gas, from Russia. Companies in Russia and elsewhere in Eastern Europe are among the world’s big producers of greenhouse gases. But they stand to benefit under the climate treaty by selling their rights to release carbon dioxide into the air, if they invest in greater efficiencies.
The statement said the companies would also explore projects in the small carbon market in the United States.
As a country, Russia possesses the credits in abundance under the Kyoto Protocol, which set a baseline in 1990 for emissions, before a sharp contraction in the Russian economy greatly reduced carbon emissions. Russia can transfer those benefits to its companies to sell.
In 2004, when Russia ratified the protocol, officials estimated Russian companies could earn $6 billion to $9 billion selling credits created from investments in emissions-reducing technologies.
Now, lets put aside that the largest polluters will benefit the most from the cap/trade program because of the 1990 baseline. Is it wrong? Yes. A joke? Yes. But, it is what it is and wishing it wasn’t won’t change anything.
Cap/Trade is shaping up to be a massive market. Personally, I’ll avoid anything in Russia as their recent history of respecting property rights is poor to say the least. However, if you have the stomach for it, the potential for nice profits is there as a large additional revenue stream will appear for those Russian companies. That being said, companies that have the technologies polluters (for lack of a better word) will want to generate the credits will be in high demand.
Why? Using a baseline of 1990 when Russian /Eastern Europe were coming out from a century of Communist rule means that even token upgrades ought to generate huge credits. In all reality many operating facilities probably now already produce less than 1990 levels of pollutants so the impetus to “do something” to qualify for large numbers of credits will assuredly be there. That assures demand for products.
It also means that the potential impact of cap/trade on some industrial companies may not be as great as originally thought as the products they produce may offset the emissions they produce. They may not realize the full potential profits from the sales of these products as credits may be used as currency, but the downside is reduced. Sadly, companies whose products do not lower emissions will pick up the tab for the rest.
A company like Dow looks to benefit as their products will be used by Gazprom and US energy companies to lower their emissions. The credits generated can be used by Dow to reduce their own emissions tab. Again, everything depends on base levels, requirements etc. but that is the basic theory. Other possible beneficiaries could be GE (GE) and BASF (among others) who make emission control systems.
Again, until final legislation/treaties are signed and finalized, making investments here is guesswork. But, seeing that the market will be huge and knowing early entrants into markets tend to benefit the most, it is time to begin looking into possibilities.
Disclosure (“none” means no position):Long DOW, GE, none