By Timothy Gardner - Analysis
WASHINGTON (Reuters) - Wall Street was supposed to become the capital of a global carbon trading market worth a trillion dollars a year but now many who thought green trading desks would be the next big thing are fearing the pink slip.
U.S. banks had looked forward to a huge “cap-and-trade market” a system where companies would buy and sell the right to emit gases blamed for warming the planet. Many hired carbon traders, picked up assets, and trained members of energy desks to deal in emissions markets.
But prospects for a broad U.S. carbon market have dimmed. U.S. Senator Lindsey Graham, a Republican working on a compromise climate bill, declared economy-wide cap-and-trade “dead” this month.
At least one bank with carbon trade assets has already been hit. EcoSecurities, a clean energy project developer and carbon trader, bought by JP Morgan Chase last year has closed its New York-based U.S. office leading to a loss of up to 20 jobs.
JP Morgan has said a senior carbon trader, who had recently moved to Washington, is leaving the bank this month. Banks that that did not expand in advance of a cap-and-trade bill may not have to cut much staff, but long-anticipated expansions will not happen either.
“It’s like all-out war,” Peter Fusaro, an expert at Global Change Associates in New York, said about the political and market odds stacked against creation of a big carbon market. Many in green groups, banks and the government had hoped the United States would anchor a global market worth up to $2 trillion a year by 2020.
Doubts about formation of a big U.S. market have filtered down to decimate prices in U.S. regional and voluntary corporate cap-and-trade programs formed in the absence of federal action on climate.
The problems extend to would-be carbon traders abroad. As the world struggles to agree a new pact to fight global warming, prices in the E.U.’s carbon market have fallen to about half of what they were in 2008. Australia’s national carbon plan is stalled and faces a third defeat in May.
Without creation of a U.S. market on emissions from tailpipes to smokestacks, the Obama administration must find different ways to meet President Obama’s goal of cutting emissions 17 percent by 2020 under 2005 levels.
Paths to that goal could be U.S. mandates for solar and wind power, and incentives for nuclear energy and energy efficiency. If those are signed into law, future green jobs may hold more promise there than on carbon desks.
“Hopefully I’ll remain in the environment field,” said one former carbon trader who did not wish to be identified. “Perhaps something in energy efficiency. That’s going to keep growing.”
To save their jobs, these traders must expand their coverage of environmental products and services beyond carbon credits, said Fusaro. Traders can dabble in markets generated by investments in energy efficiency and renewables and for emissions of smog components.
They can research how potential carbon regulation will affect billion-dollar investments in power plants or heavy industry. They report the details to the legal and investment bank parts of their companies.
Jason Patrick, the lone full-time carbon-focused trader at Bank of America Merrill Lynch, said he has spent a “huge amount of time” educating his company’s commodities desk and others about policy opportunities and risks.
Some carbon trading jobs may remain if U.S. senators forming the compromise bill propose implementing cap-and-trade more narrowly, first on power plants, which emit about 40 percent of the countries emissions. Later heavy industry could be covered, but perhaps not transportation.
Even if a carbon market fails in the climate bill, the Obama administration could still cut emissions through the Environmental Protection Agency. Some lawyers and traders believe EPA could even craft a limited cap-and-trade program, though the agency’s chief Lisa Jackson said on Monday the agency has not laid out a plan.
Indeed Barclays, the investment bank of Barclays PLC hired Kedin Kilgore, who once managed carbon at JP Morgan, in January to keep it ready in case cap-and-trade prospects swing back. Still, it has kept its U.S. team to just a few.
And state programs could eventually toughen if the federal plan stalls. “The job is mostly about managing regulatory risk,” Andrew Ager, the head of broker Prudential Bache’s emissions desk in London, said about U.S. carbon dealing. Prudential has two people in New York focused on carbon.
Banks such as Goldman Sachs and Morgan Stanley would not give details about their teams.
But many financial firms and brokers limited teams to single digits even as an administration pledging to create a cap-and-trade system came into office last year.
“Most banks did not go crazy hiring carbon traders,” just because Obama was elected, said George Stein, managing director at New York’s Commodity Talent LLC.
The strategy to keep lean means young graduates who had wanted to combine an interest in environment with making money may have to adjust.
“I get young people coming to me saying they are looking into oil and gas trading. Carbon jobs just aren’t out there,” said Global Change’s Fusaro.
Additional reporting by Nina Chestney in London; Editing by David Gregorio