It Pays To Be Green

Businesses can earn extra by protecting the environment
(From Newsbreak, August 14, 2006, pages 29 & 30)By Melody M. Aguiba

http://newsbreak.com.ph/newsbreak/story.asp?id=555

GOING “GREEN” certainly makes business sense, especially if one knows how to cash in on one’s contribution to helping save Planet Earth. Just ask Marlon Centeno and his colleagues at NorthWind Power Development Corp. (NWPDC) , which uses a renewable resource—the wind. For solving, rather than causing, environmental and social problems, they can earn US$57,600 a year on top of their revenues from selling power.

NWPDC’s wind farm located in Bangui Bay at the northern tip of Luzon displaced previous diesel-based power generation sources, which are not only unreliable energy sources, but are also major pollutants. Centeno knows. He used to be an official of a major fossil fuel-burning power plant in Cebu and had also witnessed how the business was at the mercy of skyrocketing fuel prices.

So while the wind farm project addresses environmental considerations, economics was also a major factor for investing in it. Business ventures that reduce greenhouse gases are rewarded with easy access to financing, technology transfer from experts, and of course, the goodwill that comes with being good corporate citizens.

They have the worldwide movement to reduce discharges of greenhouse gases to thank. Greenhouse gases, such as carbon dioxide, methane, nitrous oxide, and sulfur oxide, among others, are said to cause global warming which is triggering extreme weather conditions everywhere, melting icebergs and inundating and sinking island villages and coastal areas.

NWPDC and a good number of other “green” companies located in developing countries are riding on the business opportunities brought about by the Kyoto Protocol which was signed last year by more than 160 countries, including the Philippines.

The protocol binds the industrialized countries—Japan, Australia, United Kingdom and European countries, which produce most of the greenhouse gases released into the air – to timebound targets. The goal is to collectively reduce by an average of 5.2 percent their emissions from 2008 to 2012 with 1990 as the baseline. To meet their commitments, industrialized countries have the option to reduce part of their emissions domestically, or they can trade with their neighbors who are themselves First World countries.

The third option takes into consideration the fact that greenhouse gases are dispersed throughout the atmosphere, thus making the location of the greenhouse-reducing project irrelevant. Businesses and governments could then engage with those in the developing countries to offset what they could not meet in their commitments to the protocol. Developing countries do not have emission targets because they are generally less industrialized.

CARBON CREDITS

The last option is popular because of cost considerations. According to the World Bank, every ton of reduced carbon dioxide costs anywhere from US$25 up to $50 in the industrialized countries. On the other hand, the same effort in the developing world costs only about $5 per ton. This intrinsic comparative advantage of developing countries presents an opportunity for international trade. It then makes sense for the industrialized countries to look out for projects they can fund in developing countries, like the Philippines, so they can reduce the cost of their compliance.

When companies and industrialized countries anticipate that they will not meet their quota for carbon credits, they engage in a project-based system called the Clean Development Mechanism (CDM), one of the three Kyoto mechanisms. CDM compels companies in the industrialized countries to finance projects for reducing greenhouse gas emission in developing countries, or transfer and deploy their energy-efficient technologies.
For doing so, they participate in the trading of a new commodity: carbon credit, or the market value of one metric ton of carbon dioxide that is not released into the air.

NWPDC’s project, when evaluated, can earn 44,000 carbon credits every year for preventing the equivalent metric tons of carbon dioxide emitted by alternative energy sources. With an indicative value of $4 to $5 per metric ton, the company’s carbon credits command a sale price of $1.46 million to $1.78 million over its 10-year contract. These represent earnings of the company over and above its usual revenue stream of selling power.

EMMISSION TRADING

NWPDC, however, already has the World Bank as its ready buyer for 35,200, or 80 percent, of its carbon credits. The World Bank advanced US$200,000 for the company’s feasibility study and also financed the verification and certification by an independent auditor of each unit of greenhouse gas emission reductions so the company can qualify for carbon credits. For this project, the World Bank is representing a public-private partnership, made up of six governments and 17 private companies from the developed countries, which authorized the World Bank, as their trustee or liaison, to purchase carbon credits from this project on behalf of the participants of the fund.

The remaining 20 percent of NWPDC’s carbon credits is a buffer in case the wind farm generates lesser wind power in a year. Otherwise, the company can sell this to the open carbon market through a CDM developer, a broker, or other investment agencies. There are already emissions trading exchanges in Europe and the US where volumes continue to expand every year. Trading agencies have been sprouting as a result of the profitability prospects of buying and selling carbon credits.
The emissions trading market has intricacies that consider not the rise and fall of their earnings or corporate deals, but factors like weather patterns, such as a forecast of a heat wave that could mean power plants in some First World countries need to burn more coal for more air conditioners that will be turned on. Rainstorms, on the other hand, will have the opposite effect, and will mean less demand for carbon credits, thus lower prices. As of this writing, carbon credits are fetching a high of $12 per metric tons in the open market. This means if NWPDC officials decide to cash in on their free carbon credits (the 20 percent), they can realize additional profits of up to $57,600.

NWPDC’s Centeno, however, told NEWSBREAK that at the moment, they have no plans of participating in open trading. They remain focused on their main business, which is generating power. “We don’t depend on our carbon credits for our viability,” he said.

Nonetheless, the CDM remains the key attraction for entrepreneurs in developing countries like the Philippines, because it represents an opportunity to attract foreign investments into these less carbon-emitting projects. But while market risks limit the flow of these investments to the country, multilateral agencies such as the World Bank and Asian Development Bank, and also institutions like the Danish International Development Agency, have, in the meantime, stepped in to fill the slack, acting as market facilitators and catalysts. Environmentally friendly endeavors are high on their priority lists. Basically, they provide the financing and technical assistance for these projects. All these, however, are made in coordination with local government agencies, such as the Development Bank of the Philippines and the Department of Environmental and Natural Resources (DENR). In the case of renewable energy projects, like NWPDC’s, the wind project was an offshoot of a pilot program of the Department of Science and Technology.

Countries that now have the highest number of CDM-registered projects are India (71 projects or 31 percent of total); Brazil (48 projects or 20.96 percent); Mexico (17 projects or 7.42 percent); Chile, 13 projects or 5.68 percent; China (11 projects or 4.8 percent); Honduras (nine projects or 3.93 percent); Korea and Malaysia (five projects or 2.18 percent each; and Argentina (four projects or 1.74 percent).

In the Philippines, aside from NWPDC’s wind power plant, seven other projects have received letters of approval from the DENR for their greenhouse gases emission reduction, contributing to the Philippines’ capturing a 3.49 percent share in worldwide CDM projects.

Six of these projects will cut methane emission from wastewater produced by five hog farms and one distillery. To cut emissions, the hog farms have adapted ingenuous technologies, like the covered-in-ground anaerobic reactor, while the distillery is using thermophilic anaerobic digestor technology.

The methane recovery, developed by the Philippine Bio-Sciences Company Inc. was made for five hog farms: Gaya Lim Farm Inc., Gold Farm Livestock Corp., Joliza Farms Inc., Paramount Integrated Corp., and Uni-Rich Agro-Industrial Corp. These farms are found in Bulacan, Tarlac, and Nueva Ecija.

The wastewater treatment plant for the distillery in Lian, Batangas of Absolut Chemicals Inc., a subsidiary of Tanduay Distillers Inc., is being developed by Mitsubishi UFJ Securities and Kingsford Environmental Phils. Inc. “The projects are highly valued by farmers as the treated wastewater will be applied as liquid fertilizer for free, reducing farmers’ reliance on chemical fertilizers. The projects also increase diversity and secure energy supply through the ethanol plant while the hog farms can use biogas as fuel for electricity,” the DENR said.

RENEWABLE ENERGY

The replacement of energy sources that depend on burning fossil fuels, however, remain the top projects eligible for CDM, mainly because the shortage of access to clean energy is recognized by the funders as one of the obstacles to development. No wonder the 20-megawatt geothermal plant in Negros Occidental was recently given CDM approval. Other projects that qualify for the CDM are renewable energy with a maximum output capacity equivalent of up to 15 megawatts, energy efficiency improvement projects that reduce energy use by up to 15 gigawatt-hours per year, and other projects that cut anthropogenic emissions and emit less than 15 kilotons of carbon dioxide equivalent annually.