Brandon's Chevening Fellowship Blog: London - Tuesday, Green Investments and Classical Music

We kicked off our week of meetings with various investment fund managers with a visit to Climate Change Capital, probably the world's best known focused carbon-centric investment firm. James Cameron, the co-founder, set the stage with the firm's history. An attorney, James is superbly talented in the arts of persuasion. He laid out the firm's driving mission - to prove to the world the possibility of making money while performing social good, to earn "wealth worth having." The business started shortly after the Kyoto Protocol as an advisory service, primarily with utilities as clients, thanks to cofounder Tony White. At the time, companies were assigning no value to carbon risks when making investments, which is likely now to lead to some professional negligence lawsuits. Their initial business visions were grand and needed to be scaled back to reality. After advising for a while, they were able to raise $125 million for their first investment fund. It was structured as a hedge fund, which they learned was the wrong structure because hedge funds were expected to earn returns quickly, and carbon-focused investments needed a longer time horizon. CCC next raised capital for a series of long-term investments. They were aided in their fundraising by correctly calling the collapse of the carbon price due to an overallocation of allowances in the first phase of the EU ETS. Their most recent fund is a relatively small (200 M euro) property management fund focusing on high-efficiency/low-carbon buildings.

Cameron surprised me a little by saying he believed the "additionality" test in the Kyoto Clean Development Mechanism is actually a bad idea. The concept of additionality was originally insisted upon by environmentalists to ensure the integrity of the offset system. In order to get carbon offsets, the developer must prove the emissions reductions meet an additionality test - that but for the funding from the offsets, the carbon emissions would not have happened. They are "additional" emissions reductions to business as usual practices. Cameron argued that in practice, the additionality test only serves as another hurdle for carbon-saving projects. It becomes another reason not to do good things, which he believes is improper. I'd never heard someone take this stance before - additionality is a crucial concept to most offset schemes. Will be interesting if it goes anywhere.

We next heard from Rick Kwan, a native Canadian and former electricity trader who works for CCC as a carbon trading specialist. He gave us a great, in-depth presentation on the ins and outs of carbon trading. I previously hadn't realized that most carbon trading is driven on the back end of electricity trades in the European markets. When electricity traders decide whether or not to turn on their coal plants or gas plants and sell electricity in the market, they need to account for the carbon those plants produce and buy allowances or offsets accordingly. I knew the two markets were related, but I didn't realize how directly they related in practice. The carbon market has driven a fairly noticeable shift from using coal plants to gas plants, which have fewer carbon emissions. Rick also took us through the financing of a sample CDM project - plugging in how the numbers add up and explaining the different players in the value chain. These days, with the EU carbon price dropping rapidly (driven by the recession and falling oil prices, which often serve as a proxy in natural gas contracts, even though oil is not actually interchangeable with gas), most new CDM projects are not financially viable. Rick stayed with us an hour and a half longer than we'd scheduled, which was quite generous. All in all, a really thought-provoking morning.

On Tuesday night, Guntur organized an outing to the London Symphony Orchestra for a night of Beethoven - Symphonies Nos 4 & 7 and the Namensfeier Overture. Great seats, great hall, great music.