Trading Emissions offers ray of light in stock market gloom

The FTSE 100 might have seen 5.6 per cent knocked off its value yesterday as fears of a global economic slowdown prompted another wave of selling, but that did not stop carbon trading specialist Trading Emissions Plc (TEP) bucking the trend, its share price rising almost 15 per cent on a solid set of annual results.

The company – which develops carbon emission reduction projects in developing economies that can then sell Certified Emission Reduction (CERs) credits through the UN's Clean Development Mechanism (CDM) – announced that pretax profits for the year to July climbed 28 per cent to £194m. Net income also rose, up from £189.7m to £254.9m.

TEP fund manager, Simon Shaw, said that the results represented a "good performance", adding that the company was now aiming to start distributing cash profits to shareholders through dividends or share buy-backs next year.

Shaw said that despite the turmoil impacting other financial markets, the company remained confident that the carbon market can continue to prosper.

"The carbon market is basically an energy generation business and, while demand for power will be impacted by any slowdown, it is stable compared with many other sectors," he said. "If the economy is struggling people might go to the shops less, but they will still turn on the lights and the heating." He added that, as a result, demand for carbon credits was likely to remain solid.

The one major uncertainty hanging over the market's future is the likely impact of a post-Kyoto international agreement on the still embryonic sector.

However, supporters of the CDM are hopeful that changes to the mechanism post-2012 will help streamline the approval processes for new projects, which have led to bottlenecks in the flow of CERs to companies such as TEP.

Shaw said the company was optimistic that a deal can be brokered at the UN's Copenhagen talks next year that will see the CDM continue. "We're sanguine that the market will continue and there are still opportunities for new projects out there," he said.