PRETORIA, South Africa () -- Reducing CO2 and greenhouse gas emissions (GHG) is increasingly paying dividends for companies large and small in the U.S. and around the world as more governments take greater steps towards trying to reduce CO2 and greenhouse gas emissions and mitigate the effects of drastic climate change.
Two big differences today as far major power producers and manufacturing corporations adopting green and clean tech lies in the fact that: a) they are now more efficient, varied and cost-effective, and b) there are now mechanisms through which the results of such efforts can be monetized.
With the ongoing development of carbon and GHG emissions reduction credit markets that have grown out of the Kyoto Protocol's Clean Development Mechanism (CDM) the business of companies such as EcoSecurities [AIM:ECO], which specializes in providing carbon and GHG reduction consulting, project management and financial intermediary services, is rapidly expanding.
The shape of things to come is yet to be discerned, however. Emissions offsets markets and intermediaries must prove themselves viable and able to accomplish over the long term what they've been designed to accomplish: Realizing the significant global reductions in CO2 and GHG emissions envisioned by the signatories to the Kyoto Protocol and the European Union's ETS (Emissions Trading Scheme).
Year-End Results
EcoSecurities, a leading provider of carbon and GHG emissions reductions services, reported that revenues increased 35% to EUR3.1 million ($4.12 million) year-over-year in 2006 primarily as a result of its consulting activities. In addition, "Demand for carbon credits was robust in 2006," and secondary market liquidity is growing, according to management. The company completed forward sale agreements for CERs (CDM Certified Emissions Reductions) totalling EUR287 million during the year.
The expected Net Trading Margin on its 29 million CO2 equivalent tonnes worth of forward CER sales as of Feb. 15 totalled EUR154 million ($204.7 million), a EUR3 million increase in value since year-end 2006. Management added that buying interest in Japan remained strong despite recent weakness in EU ETS (Emissions Trading Scheme) prices.
Nonetheless, the company reported a year-end loss before tax of EUR19.5 million ($25.92 million) as recorded in its preliminary results for the fiscal year just past.
Ecosecurites' management is sanguine about its prospects, however.
"Many external developments led to increased public awareness of climate change and improved the overall environment for carbon trading in 2006," Mark Nicholls, EcoSecurities' chairman stated in a media release.
"Looking ahead, tighter EU emissions targets brought about by recent EU ETS National Allocation Plans and accelerating policy momentum in the United States, especially in California, will contribute to the Group's further development in the global carbon market in 2007," he said.
Healthy Losses
EcoSecurities' net loss, however, reflects investments aimed at growing its business and which management believes will generate profits down the line. During 2006, EcoSecurities' continued to add to its already large portfolio of CDM Certified Emission Reduction credits (up 119% to 127 million tonnes). CER project originations more than doubled, and it continued expanding into new markets.
The EcoSecurities group opened nine offices during 2006, extending its presence to include 23 offices in 21 countries. Since the start of 2007 it has opened an additional four - in the Ukraine, in Poland and two in the Middle East.
In addition, the company at the end of February announced the acquisition of Portland-based Trexler Climate + Energy Services (TC+ES), a pioneering and internationally recognized leader in the emerging field of climate change risk management and mitigation services.
"The climate change market is taking off in the U.S. After a number of difficult years, we had the choice of growing organically, or throwing in with another player. EcoSecurities offers us the resources to do what we want to do at a much greater scale," TC+ES founder Dr. Mark C. Trexler, now director of EcoSecurities Global Consulting Services, told Resource Investor.
"It will open up a lot of doors for us, allowing us to be more effective advocates of climate change policy and environmentally effective mitigation efforts than we could be as a small Portland-based firm."
Promising Outlook
Management is optimistic about the group's prospects given increasing corporate and investor interest in carbon and GHG emission reductions projects, continuing growth of primary and secondary markets, which is expected to present greater opportunities for trading CERs, and its position as a market leader.
According to management, the group has acquired one of the world's largest CER portfolios. With the addition of 21 new projects since year-end 2006, as of Feb. 15 its gross CER portfolio volume totaled 163 million tonnes.
The number of projects EcoSecurities has in operation has grown to 130 and is expected to produce 56 million CERs through to 2012, which, as of today, will be the final year of the Kyoto Protocol's Phase Two CDM.
Ensuring that carbon and GHG reduction programs, credit and offset markets carry on post-2012 is crucial, according to Trexler.
"Indeed, we should be thinking about pursuing a number of kinds of initiatives. A Kyoto-like cap and trade is one. A technology development and deployment initiative is another, and could be pursued by a small number of countries. The only way we're going to significantly tackle GHG emissions is through a combination of measures. It's hard to tell what the likelihood of success is. There are big barriers," he said.
Technologically, the group continues to diversify. Its project portfolio now includes 18 emissions reduction technologies and processes. Landfill gas, biomass and afforestation projects are the largest by volume at 25%, 14% and 12%, respectively.
Geographically, projects are underway in 36 countries. Brazil and China account for the two largest portions by volume, with 29% and 27%, respectively. Africa and the Middle East at 13% and the rest of South and Central America, at 12%, follow.
Betting on the U.S.
Management is now taking steps to build on and secure its strong market position. With U.S. states and the federal government moving briskly forward with the introduction of renewable power standards and plans to establish carbon and GHG offset markets, the acquisition of Trexler Climate + Energy Services is expected to play a large part in this effort.
"In addition to its core business within the CDM, EcoSecurities intends to expand into the voluntary emissions reductions market, as well as into the emerging U.S. market," Nicholls stated in a media release accompanying the announcement of its preliminary year-end 2006 results.
"Furthermore, the acquisition of Trexler Climate + Energy Services' business will enable the Group to move forward quickly into the emerging domestic emissions reduction market in the U.S. In the capital markets, the Group is pursuing opportunities related to secondary trading of CERs in addition to arranging investments in emission reduction projects."
The Business of Climate Change
Since opening its doors in 1991 TC+ES has provided strategic carbon and GHG offset and climate change consulting, advisory and implementation services to a variety of companies in the U.S. and internationally. Private sector clients have included Stonyfield Farm Yogurt, Chevron Texaco, TransAlta, AES Corp., J-Power, Sumitomo Coal, the Southern Company, Nike and Statoil.
EcoSecurities, which has been operating in the greenhouse gas mitigation and carbon trading sector since 1997, is folding TC+ES into its consulting division to establish EcoSecurities Global Consulting Services.
"The combined group will play a leadership role in the global expansion of EcoSecurities operations internationally and into the expanding carbon markets of the United States," according to joint press releases.
"The synergies for the two organizations are dramatic," Trexler commented to RI. "There's a lot that EcoSecurities has done in Europe and internationally that we can bring to the U.S. to help guide policy development. There's a lot we've done in the U.S., Japan, and Canada that we can bring to Europe, and doors we can open in the U.S."
"We also have almost 20 years of experience in the field, which helps bolster EcoSecurities' position in the market. In terms of products and services, what it means is that we'll each be able to offer a more comprehensive set of products and services to clients than we ever could individually," Trexler added.
Bruce Usher, EcoSecurities' New York-based CEO, said: "This partnership is highly strategic to EcoSecurities' expansion in the market for consulting and project development services in the United States and the rest of the world."
"Dr. Trexler has been a key figure in the founding and development of the overall field of climate change mitigation strategies both in the United States and beyond. We are delighted to welcome the TC+ES team to form EcoSecurities Global Consulting Services and look forward to continue being at the cutting-edge of the market as it expands in the United States and internationally," Usher concluded.
