THEME
- SUSTAINABLE MARKETS
Fertile ground
Business potential
No track
record
Techno
No
market
potential
Conservative forecasts suggest that the principal value of
this market alone will be around USD 15 billion by 2012.
The EU has also announced the creation of an emissions-
trading system. The principal value of this market, which
should be operational by 2005, is estimated at some 8
billion.'
In addition to climate change-related assets, markets are
rapidly evolving for other environmental goods and services,
in particular water, renewable energy rights and obligations
and sulphur dioxide (SOx) and NOx rights. In aggregate
these markets are likely to reach USD 100 billion within the
next decade. A number of environmental asset markets in
teract with other environmental asset markets, particularly
as they relate to energy generation and use. Marlow explains:
'A typical Organization for Economie Cooperation and
Development (OECD)-based energy company may be
required to participate in markets for electricity, buy climate
change rights to offset their greenhouse gas emissions,
purchase water rights for its hydroelectrie generation,
and purchase both SOx and NOx rights to offset pollutant
emissions. At the same time this company may receive
rights from its generation of renewable energy and be eligible
for a green electricity premium for its output.' E&A provides
equally fertile ground for financing environmental assets.
An agri business in a modern developed country may be
required to negotiate a hedge position for its commodity
erop and foreign exchange exposures, hedge its water avail-
ability and price through water/precipitation derivatives,
yet may receive return-flow water rights and renewable
energy certificates.
To date these environmental business factors have tended to
be seen as isolated compliance costs rather than an oppor-
tunity to deploy capital more effectively and profitably.
Says John Marlow, 'The financial community is now in-
creasingly recognizing the business potential represented by
these unique asset and risk classes. Rabobank is one of the
few banks to have created a dedicated team to bring sophis
ticated structured trading techniques and strong balance-
sheet commitment to bear in these environmental asset
markets.'
The general response of the financial sector
I The Word
