Tide Turns for Carbon Investment

The time is right for investors to leap on board the green bandwagon, says Robin Bromby in The Australian and he draws on comments from Ken Hickson (author The ABC of Carbon, and a weekly carbon sector newsletter), saying individual investors have the choice of an increasing number of new funds targeting ways to combat climate change.

Robin Bromby in the Wealth section of The Australian (21 October 2009):

So you’re a global warming sceptic? Never mind, this is business: there’s a very large amount of money to be made from the big carbon surge.

And another thing: we’re talking ethical investment here. You know, clean air, clean water, the planet safe for our grandchildren.

All of these are good objectives and ones worth achieving even if the earth is not heating up due to human activity. See this as a bonus to the profits to be made.

And the beautiful thing is we are still in the early stages. This is ground-floor territory for the investor. One fund manager likens it to the beginning of the railway or computer eras.

Possibly true, but it may be worth remembering that huge sums of money were lost in Britain’s railway mania of the 1840s and a similar bubble in US railroad stocks later that century. And we all remember the 2002 aftermath of the dotcom bubble.

So, just like anything else, the climate change business will hold some disappointments for investors.
But, as the Python boys said, always look on the bright side of life.

Alternative energy and carbon trading, while seemingly having been with us for years, are only just beginning to gain traction as investment vehicles.

Brisbane-based Ken Hickson, author of a new 580-page book, The ABC of Carbon, and a weekly carbon sector newsletter, says individual investors have the choice of an increasing number of new funds targeting ways to combat climate change. His book quotes fund managers describing this shift away from a carbon-based economy as a “mega trend that will shape the asset management industry for many years”.

Of course, most of the money to be made is coming from us in higher prices for energy, food, transport and, in fact, almost everything we need and consume. It’s a tax, pure and simple. That’s why it is so big.

As if on cue, just as this was being written, Novus Capital launched what it described as an “innovative energy fund” seeking to raise $30 million.

The announcement carried a tag: “Suitable for self-managed super funds.” So we can see this as an emerging business opportunity for both sides. For the person managing their own super, here’s an easy way to get aboard the carbon bandwagon. For the fund managers, it’s a whole new business opportunity.

While the Novus fund will take positions in coal, it is also targeting coal-seam gas, coal gasification, coal and carbon technologies: all sectors that will expand dramatically (and profitably) as the world seeks cleaner energy. Governments everywhere are throwing money at the cause of reducing carbon pollution and encouraging alternative energies. The federal government here has earmarked $1.5billion for solar power, and recently allocated another $300m for renewable energy grants.

Australia’s renewable energy demonstration program is aimed at pushing commercial use of ocean, geothermal and other technologies. Each of the grants is expected to be between $50m and $100m. And this is just the beginning.

As Richard Gere said to the Sunset Boulevard store manager in the movie Pretty Woman, “We’re going to be spending obscene amounts of money in here.” One estimate is that carbon credit trading worldwide 11 years from now will be sitting at $US3 trillion a year. Consider that a conservative estimate.

There are signs in the US that the green technology business is picking up after being trounced during the recent financial crisis, with $US1.9bn ($2.1bn) in deals recorded during the September quarter, more than double the business written in the first quarter of 2009.

It is not just funds that will be expanding exponentially.

As Hickson points out, a new range of innovative, green financial products are coming on the market: green car loans, mortgages tailored to energy efficient homes, alternative energy venture capital, eco-savings deposits and green credit cards. He cites Barclays Bank in Britain, which targets people who fly a lot. To offset their share of aircraft carbon emissions (and assuage their consciences), these people can support investment funds that put money into developing countries for energy efficient projects, renewable energy and reforestation.

From November 24, you’ll be able trade futures and options contracts on the Australian Securities Exchange for renewable energy certificates. This is ahead of the federal government’s plan to have 20 per cent of our electricity coming from renewable sources by 2020. The ASX has also received regulatory clearance for certified emissions reduction certificates futures and options contracts, and these will be listed by next March. It’s all aimed at helping Australian and New Zealand companies get into carbon trading, finance and investment.

Terry McLennan, head of distribution at CVC Sustainable Investments, says investors should think in terms of the big five: air and water purification, clean power, cleaner fuels, sustainable food production and waste management.

Unsustainable industries are the enemy from now on, he adds.

Inevitably, we follow the US. This carbon business is in its formative stage there, too. Looking at mutual funds and exchange-traded funds, there are now close to 40 dedicated green portfolios from which to choose, according to The Wall Street Journal.

But, the paper adds, investors need to tread carefully. Look, it points out, at the bankruptcy of many ethanol and biofuels producers. (Closer to home, remember the recent collapse of Mildura-based Solar Systems and its plans to build the country’s largest solar power station.)

Australia still has a long, long way to go. According to the Australian Chamber of Commerce and Industry, the investment in greenhouse mitigation remains subdued as business continues to focus on getting through the global financial crisis. Its survey showed 23.3 per cent of businesses have no climate change plans and a further 52.9 per cent are not at present motivated to do anything about greenhouse mitigation.

Sounds bad, but it could be good news for the investor. It may be that, in terms of carbon profits, we are at the same stage as the early railway period or when most companies had yet to buy computers.

Remember the old dictum: just follow the money.

Source: www.theaustralian.news.com.au