Merrill Lynch & Co., the world's second-largest securities firm, agreed to take a minority stake in the Russian Carbon Fund, a company that develops projects to reduce greenhouse gas emissions in the former Soviet Union, in a deal worth about $200 million.
The agreement will provide Merrill Lynch & Co. with emission-reduction units from Copenhagen-based Russian Carbon Fund's portfolio, the investment bank said today in an e-mailed statement. The tradable credits are valid under the Kyoto Protocol's joint implementation mechanism, which promotes projects in eastern Europe and Russia to curb emissions.
Credits earned through ventures that reduce greenhouse gases in developing countries can be used in the European Union's emissions-trading market, and are generally cheaper for European factories and power plants than securing credits at home. The second phase of the EU regime, the world's largest emissions trading system, runs for five years from 2008, and was designed to match the period when European nations must demonstrate reductions in emissions as agreed under the Kyoto Protocol.
The deal is „good for the environment and makes economic sense,” David Sobotka, the global head of commodities at Merrill Lynch, said in the statement. Banks such as Merrill have been attracted to the carbon-trading market, because of its relationship with other energy prices and price volatility.
Merrill values the deal at about $200 million, Alexandra Walker, a London-based spokeswoman for the company, said today by telephone. Emissions credits will be available as a result of the deal starting next year, she said. Russian Carbon Fund is developing projects to reduce emissions of methane from municipal waste sites and natural-gas distribution networks, as well as curbing emissions of nitrous oxides in the chemicals industry, its chief climate change officer, Morten Sorensen, said in a phone interview.
It is aiming to secure at least 100 million emissions reduction credits by 2012, he said. Merrill will be entitled to „a minor part of what we are aiming to generate,” he said without providing specific details. As part of the arrangements, Merrill will also make debt-financing available for at least 50% of the cost of Russian Climate Fund's projects, according to Walker.
The German government, taking advantage of a provision in EU laws, got permission this month to use more credits generated abroad. It said February 9 its factories and electricity generators could buy imported credits worth 20% of the annual government grants in the five years through 2012. That's almost double the previous 12% that was permitted.
Credits that can be imported into the EU trading system in 2008 had a bid at €12 ($15.80) a metric ton and an offer at €12.80, according to today's price information on Bloomberg from broker ICAP Plc. European Union allowances for delivery in December 2008 last traded at €15.40 a ton as of 2:34 p.m. London time on the European Climate Exchange in Amsterdam. (Bloomberg)