LONDON (Reuters) - An injection of U.S. talent into the $6.5 billion market in carbon offsets would help clear bureaucratic bottlenecks, making way for increased investment in clean energy, the CEO of a $310 million environmental fund said.
Under the Clean Development Mechanism (CDM), an emissions trading scheme governed by the Kyoto Protocol climate change pact, companies can invest in low-carbon projects in emerging countries. In return they receive offsets that can be used toward greenhouse gas targets or sold for profit.
But long delays in approving projects and issuing offsets have forced many investors to the sidelines in the past year.
The U.S. decided not to ratify Kyoto in 2001 so its participation in the CDM has been minimal, even though the first emissions trading schemes were engineered by Americans.
“You basically have a global regulatory system staffed without the world’s most talented human resource pool, and it’s a big problem,” Assaad Razzouk, head of Sindicatum Carbon Capital, said this week.
“What the CDM needs is 20,000 products of the U.S. education system ... You’ve got Europeans regulating a cap-and-trade system which was essentially invented by Americans.”
Razzouk said the United States, the largest emitter of greenhouse gases behind China, is not represented according to its size as an emitter and as a global economic and regulatory force.
“The transfer of knowledge capital did not occur, and as a result the U.S. is not represented in this market according to their weight,” Razzouk added. “We will have a system that works much better when they are involved.”
Through a fund of $310 million, London-based Sindicatum has developed an investment portfolio of 20 projects, 80 percent of which are in Asia and the remainder in the United States.
The projects, some of which are CDM registered, capture greenhouse gases emitted by coal mines, landfills and livestock.
The fund profits both through offset sales as well as by selling power generated by the projects. It is now 85-90 percent committed, prompting Razzouk to consider Sindicatum’s next step.
He told Reuters it is considering four options: start a second fund, raise private equity capital, publicly list in the U.S. and/or Singapore, or simply continue reinvesting revenues.
Razzouk said a decision will be made in the new year, at which point the company will relocate its headquarters to Singapore and move its European office to Cyprus.
“We’ve got to take a long-term view. We have no footprint in Europe, most of our projects are in Asia and more than 80 percent of our investors are U.S. institutions,” he added.
A U.N.-sponsored climate summit in Copenhagen next month is expected to address CDM reform by attempting to streamline processes, which could result in shorter delays.
It was hoped that the talks would agree a successor to Kyoto, which expires in 2012, but there is a growing consensus that only a political agreement will be reached in the Danish capital, postponing a full treaty until 2010 at the earliest.
Razzouk said expectations of a deal at the Copenhagen meeting had always been unrealistic.
“I don’t know what people were smoking. I think expectations were wrongly raised for politicians to save us, and I think people should know better,” Razzouk said.
“There are 190 governments trying to negotiate a single treaty. My bet is they’ll agree at midnight on December 31, 2012.”
Razzouk said Copenhagen was irrelevant to his company, and that it would benefit from a number of possible outcomes.
"Unlike many other companies, we're not sitting being anxious about what happens in Copenhagen. I don't care what happens and we can't afford to build a business that cares." To read the full interview transcript or for more news and analysis on the global carbon markets, login to here
Editing by Anthony Barker