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Carbon credit firm looks east

By Si Tingting (China Daily)
Updated: 2009-04-20 07:57

Global carbon asset developer Camco is eyeing up China as its major business driver this year.

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Camco International Ltd, a UK-based manager of projects that generate greenhouse-gas credits, made its first profit in 2008 as revenue from its carbon trading business rose and said it expected "recurring, sustainable cash flows" from carbon offset deliveries, mainly from its Chinese and Russian projects, in 2009. The company was listed in 2007.

The company has invested in about 90 clean development mechanism (CDM) projects in China, mainly in the coal, steel and cement industries. The company currently manages in excess of 20 percent of China's registered carbon-emission reductions (CERs) and has issued over 30 percent of China's CERs, a Camco source told China Business Weekly last week on condition of anonymity.

CDM, part of the Kyoto Protocol climate pact, is designed to help developing countries shift to low-carbon economies and also help rich nations offset their emissions by buying carbon credits.

"We will continue to look for acquisitions this year and next year to grow our company," chief financial officer Scott McGregor said recently.

Camco's focus

Employees work at Ningbo Zhonghua Paper Company's plant in Ningbo City. The facility is owned by Asia Pulp & Paper Co. [Bloomberg News]

Camco said its focus for 2009 would be to build its business, particularly in China and the United States.

"Many Chinese companies in a variety of sectors are interested in the carbon market and understanding how they can access carbon finance, which provides an additional source of revenue that ensures growth for these companies and improves environmental performance at the same time," said the source.

According to the source, in the early years in China (Camco came to the country in 2003), it was Camco who approached Chinese clients. "We spent a huge amount of time educating the market about CDM and how companies in China could benefit from carbon finance revenues," he said.

More recently, Camco's established track record has reversed the roles. "It has led to an increasing number of companies choosing to look for and work with Camco," he said.

Developers generate carbon offsets by cutting carbon emissions, for example replacing fossil fuels with wind power. Camco invests in such clean energy projects, registering them with the United Nations under a Kyoto Protocol scheme that awards carbon offset credits for cutting greenhouse gases. The CO2 credits bought by Camco can be sold to developed countries with a CO2-reduction commitment to buy carbon credits from developing countries under the Kyoto Protocol.

Camco trades the carbon offsets between rich and poor countries, as developed nations struggle to meet caps on greenhouse gas emissions under the Kyoto Protocol on global warming.

China reduced the minimum price for greenhouse gas credits the country will accept last week by 13 percent, from 8 euros a ton to 7 euros a ton, potentially cutting costs for companies investing in projects to generate carbon offsets, said a report released last Wednesday by Citigroup Inc.

This could benefit Camco's China operations. "Lower CER prices are good news for utility companies investing in projects to generate offsets," the report said.

The average price of CO2 credits in the international market is about 10 euros a ton.

Camco will initiate more low-carbon projects in 2009 to meet its target of delivering 127 million tons of carbon credits during the first Kyoto compliance period ending Dec 31, 2012.

Camco's risk-adjusted registered offset portfolio grew to 46 million at the end of March, up from 40.4 million in December, with an average purchase price of $10.69 per ton, compared to $10.88 at the end of 2008.

Camco made $2.97 million in pretax profits in 2008, compared to a loss of $16.47 million a year earlier, the company said on April 6. Revenue rose to $56 million from $14 million. Camco's carbon business generated a revenue of $42 million, up from $3.9 million in 2007.

Impact of financial crisis

"While 2009 will be a challenging year, our healthy cash position and global platform mean that Camco is well placed to move beyond the current adverse impacts on climate change businesses," Chief Executive Officer Jeff Kenna said in a statement.

The price of carbon declined as the global financial crisis gripped the world's money markets, renewing fears that a deep recession what would drive down demand.

Lower oil prices encourage power suppliers to switch from coal to gas and since gas is the cleaner fuel, carbon emissions fall, meaning fewer carbon credits are necessary under the EU's scheme. The economic recession will also lead to less demand for energy, driving down carbon emissions even more, further dropping prices for emission permits.

The financial crisis has also resulted in a lack of available investment capital for project finance. "This (the credit crunch) has resulted in a natural slow down in the number of emission reduction projects that Camco can work on with project owners," the Camco spokesman said, but "Camco's commercialization strategy at the end of 2008 has ensured the company is well positioned to survive it," he added.

Camco also offers advisory services to China-based companies to conduct carbon footprint assessments, an important step in establishing accurate carbon emissions baselines and working out ways to cut emissions. Camco is confident it will grow its market share in this sector in China.

The Chinese branch of Asia Pulp & Paper Co Ltd, APP-China, recently commissioned Camco to conduct a carbon footprint assessment for six of its leading pulp and paper mills and two forestry plantations in China. "By doing the assessment, APP-China can find opportunities to reduce its emissions," said Sophy Huang, Public Relations Director of APP-China. And the label of being "environmentally-friendly" will make our products more competitive, Huang said.

Since carbon emissions assessments are a key starting point for any business wanting to understand the cost of carbon in its business, "there is no doubt the importance of this type of work in China, for both Chinese and foreign companies, will increase," the Camco source said.