PRINT THIS PAGE There’s gold in them thar gases
18/04/2007. Source:IVCJ. Edith Molot, EcoTraders
Private equity firms can benefit economically by combating greenhouse gas emissions, says the Israel Venture Capital Journal. In this article, Edith Molot, senior project manager at EcoTraders, explains how. "The reduction of air pollution is worth money." This statement may be met with some scepticism. Pollution is generally not viewed as a financial opportunity, but rather as a necessary evil of industrial production. The Kyoto Protocol, an international agreement to combat climate change, today provides financial incentives to install new technology and reduce certain types of air pollution.
Industrial production, waste and electricity generation emit greenhouse gases (GHG), which trap heat in the Earth's atmosphere. These greenhouse gases are causing changes in global temperature and weather, a phenomenon that has been termed "climate change." Climate change has been associated with changes in the amount and intensity of precipitation and the types and frequency of severe weather events, such as hurricanes, floods and droughts.
These climactic changes destroy homes and infrastructure, damage our economies and spread disease. The environmental, social and economic consequences of climate change are far-reaching and unpredictable. Climate change is a global problem and requires a global response. The international community is working to combat climate change via an international agreement, the Kyoto Protocol, which came into force in February, 2005.
The agreement specifies that industrialized nations will reduce their aggregate GHG emissions by 2012. In total, over 30 industrialized nations have agreed to GHG emission-reduction targets. Two major industrialized nations, the United States and Australia, refused to ratify the Kyoto Protocol and are not participating in global GHG emission reduction schemes. Under the Kyoto Protocol developing countries have no GHG emission reduction targets. Countries face different GHG emission reduction requirements based on their specific needs for economic growth and stability.
The Kyoto Protocol contains market-based mechanisms, which use market incentives to encourage polluting facilities in developing countries to reduce their GHG emissions. Polluting facilities reduce their emissions and sell these reductions in a commodity market, from which parties with GHG reduction targets can purchase. The mechanisms are intended to provide financial incentives for firms to invest in new technology, which will both improve production and reduce GHG emissions.
The sale of the reductions helps to facilitate the investment in technology. GHG emissions contribute to climate change irrespective of where geographically they are emitted. This may seem like a mundane scientific point, but it is critical towards comprehension of the international plan to reduce GHG emissions. The reduction of GHG emissions poses technological and fiscal challenges to emitters, and achieving reductions requires facilities to install and integrate new technology into their production processes.
Reducing GHG emissions is also time-consuming and expensive, particularly in the most developed countries where advanced technology is usually already in place and air pollution is regulated by law. Developing countries, however, have higher rates of air pollution due to older infrastructure and lack of legal mechanisms regulating air emission. The greatest opportunities to install cutting-edge technology to reduce GHG emissions lie in developing economies.
It behooves parties to invest in new technology in developing countries in order to improve production plus reduce their GHG emissions. The global carbon market is a commodity market composed of several exchanges and funds. Prices for emission reductions have been as low as €3 and as high as €30 per ton of carbon, depending on the project. If a project reduces 100,000 tons of carbon a year, the sale of the reductions provides a strong economic incentive, in addition to providing new technology and improved production. There are many different influences upon market prices – project risk, fuel prices, weather events and future global climate policy, to name a few.
Where does Israel fit into global climate change actions? Under the Kyoto Protocol, Israel is considered to be a developing country. Like other developing countries, Israel has a tremendous opportunity to partially fund improvements in its production technology through the sale of GHG emission reductions. A benefit of these investments is a reduction in Israel's GHG emissions and environmental pollution, generally.
There are already GHG emission reduction activities underway in Israel. EcoTraders Ltd. registered Israel’s first CDM project, the Hiriya Landfill Project, in February 2006. The project reduces GHG emissions by flaring the landfill's methane emissions. The project contributes to global efforts to combat climate change, and also to local health and environmental improvements through proper landfill management.
The project's economic benefits include the sale of the emission reductions on the global carbon market and the functioning as a clean technology demonstration project. In addition, the Hiriya Landfill will provide biogas to a nearby textile factory, which will reduce the factory’s dependence on fossil fuels and will reduce the emissions of other air pollutants such as NOx and particulate matter in the area adjacent to the factory. EcoTraders is currently working on several other GHG emission reduction projects in the energy, cement, waste and chemical sectors. Climate change is a global problem with farreaching economic, social and environmental ramifications.
The international community is attempting to address this issue with market mechanisms to encourage technology transfer to developing countries, with the dual goals of reducing environmental pollution and assisting developing countries to economically develop. Encouraging developing countries to install cutting-edge technology that will reduce GHG emissions, which have now become a commodity, ensures that economic growth in these countries will not occur entirely at the expense of their environmental quality.
This article appeared in the Israel Venture Capital & Private Equity Journal (IVCJ). IVC Research Center publishes the Israel Venture Capital & Private Equity Journal, a quarterly review of trends and developments in the Israeli-related venture capital industry. IVCJ, distributed worldwide, is dedicated to provide wide-range coverage of Israel's venture capital industry. For more information please visit www.ivc-online.com
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