The Stern Review's proposals for a major expansion of the global carbon trading scheme may have led to a good deal of controversy, but managers from at least one investment bank will have been rubbing their hands together with glee at the news.
The bank said the bulk of the investment will focus on buying carbon credits from carbon saving projects with the remainder going directly on projects designed to reduce emissions, such as those certified under the Kyoto Agreement's Clean Development Mechanism (CDM) and the UN's recently expanded Joint Implementation (JI) initiatives.
Simon Greenshields at Morgan Stanley said in a statement that "We strongly support the use of market-based solutions to meet environmental policies and objectives", but the scale of Morgan Stanley's investment suggests it also recognises a business opportunity.
Details from Morgan Stanley remain sketchy and the UN's carbon trading scheme remains extremely complex, but it looks as if the bank wants to buy up certified credits so it can sell them on, and presumably pick up a margin in the process.
It will also fund various carbon reduction schemes that produce carbon credits directly and then presumably sell those credits back to countries or firms that need to offset their own emissions – potentially guaranteeing its initial investment with a long term revenue stream.
Morgan Stanley's interest in this emerging market highlights an issue that should be of interest to all firms attempting to cut carbon emissions – namely that there is money to be made.
Currently, much of the focus on carbon credits is at the macro level, but if Gordon Brown gets his way we could see a market in which all companies are involved. There are many issues to be overcome before such a scheme is implemented, but were one to be developed it would offer a major opportunity for firms that do reduce their carbon emissions below their allotted level as they could then sell any credits they create on an open market.
In essence the position of the CSR, environmental, IT, or facilities department - previously a cost centre at worse and a means of reducing costs at best - could start to deliver their firm a revenue stream and attract all the corporate kudos that goes with that.
There are many business reasons for firms to want to reduce their carbon emissions, but Stern could pave the way for the most compelling reason of them all.
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