The New Carbon Cycle

After Lierberman-Warner Defeat, Business Leaders Call for Action on Climate Change

The Lieberman-Warner Bill was blocked by a Republican fillibuster in the Senate a few weeks ago.    While it was not expected to get through the Senate and then the House this year, most of the potentially regulated industries expect something to be passed in the next two years.  The international negotiation and discussion of a post-Kyoto treaty continues.  As part of this public discussion, a series of CEOs from large, multi-national companies have called for action on climate change.  These leaders are part of the World Economic Forum.

A Steering Board consisting of the following World Economic Forum Industry Partner companies guided development of this CEO statement for the G8: Alcoa (USA), AIG (USA), Applied Materials (USA), Basic Element (Russian Federation), British Airways (UK), Deutsche Bank (Germany), Duke Energy (USA), Electricité de France (EdF) (France), Eskom (South Africa), Petrobras (Brazil), RusHydro (Russian Federation), Royal Dutch Shell (Netherlands), Telstra (Australia), Tokyo Electric Power (Japan), TNT (Netherlands), Vattenfall (Sweden).

The comprehensive statement can be found at CEO Climate Policy Recommendations to G8 Leaders. 

One of the leaders of this group, Alain Belda, CEO of Alcoa, stated, "We know we must address climate change. We may not have sorted out every detail, but we are willing to take a leadership position and embrace open dialogue... that will get us all to our common goals of protecting our world for future generations. The changes that are needed can't be incremental; we need major breakthroughs."

"Energy and the environment are the two great social and engineering challenges of our time and will only increase in importance as world economies continue to grow. As businesses and government prepare for post-Kyoto, these proposed climate change policy recommendations serve as a useful guide," advised Mike Splinter, President and CEO of Applied Materials."

One of the reccommendations of the CEOs is that the system be "market-oriented."

• Comprehensive. For environmental effectiveness and economic efficiency, the

framework should encompass all major economies, in particular the G20

economies,11 all major greenhouse gases (not just carbon dioxide) and the

principal greenhouse house gas-emitting sectors, including energy,

transportation, buildings and deforestation/land use change.

• Commitments-based. The framework should establish clear international

commitments that are “nationally appropriate”; “measurable, reportable and

verifiable”; and, in the case of developing countries, “enabled by technology,

financing and capacity-building”.

• Flexible. The international framework should respect and preserve the

prerogative of national governments to choose their own domestic policy

options to address climate change. The new framework should accommodate

this diversity by allowing variation in the magnitude and timing of countries’

commitments, providing that the overall framework is capable of meeting the

agreed intermediate and long-term environmental goals.

• Equitable. To achieve broad participation, the framework must reflect the

fundamental principle of “common but differentiated responsibilities”13. In light of

their greater historic contribution to climate change, and their stronger

capacities, G8 and other developed country governments should show

leadership in sharing the burden of addressing climate change. We would

support such an outcome. We also note that in moving forward, future equity

and future responsibilities will require developing countries to also take on clear

emission reduction commitments.

• Framed within the context of sustainable development. The new

framework must view climate change within the context of the wider

development challenge faced by many of the poorer countries in the world. The

new framework must be designed to allow for economic growth in developing

countries, while meeting its overall international environmental objectives.14 As

agreed in the Bali Action Plan, the framework should provide incentives and

support for mitigation efforts in developing countries, including finance for

technology deployment and institutional/policy development and by providing

adaptation assistance to those countries most vulnerable to climate impacts. In

combination, these elements could provide tangible support to the sustainable

development and economic growth aspirations of developing countries.

• Technology-enabling. The framework should promote an international level

playing field to support the rapid RD&D of all clean energy and fuel technologies

that can lower GHG emissions and technologies that can help adapt to climate

change. In the near term it should encourage the wide-scale deployment of all

best available technologies that improve energy efficiency to achieve emission

reductions. It must enable research, development, demonstration and

deployment (RDD&D) of the next generation clean energy technologies, in

particular those needed to de-carbonize coal powered energy emissions. It

must also contain mechanisms to protect the rights of technology owners.

• Predictable. The long-term business strategies and investments necessary to

achieve such a paradigm shift are feasible only in the context of a stable,

predictable international policy framework, based on the principles set out

above. As this framework evolves, business must be confident that the

UNFCCC will remain the principal venue for it; that nations will honour their

commitments regardless of changes in government, and that successive

agreements will be negotiated, accepted and implemented in a timely manner.

Carbon trading or a cap-and-trade emissions market for greenhouse gas reductions is therefore a fundamental aspect of their recommendations--showing a clear preference by industry and business for a cap-and-trade system in any treaty that will be negotiated to follow Kyoto.

Investors Purchase Half of Climate Change Capital

Reuters reports that investors have aquired one half of Climate Change Capital, one of the largest carbon credit investment firms based in London.  The investors are Alliance Trust PLC, a UK investment trust, the Universities Superannuation Scheme, a UK pension fund, SNS REAAL N.V., the Dutch-based banking and insurance business and Japanese trading house, Mitsui & Co Ltd.  The combined investment has been estimated at $ (US) 110.1 million.

The carbon investment firm has been a leader in investing in projects that produce carbon credits, known more specifically as Certified Emission Reductions, under the Kyoto Protocol.  The company has expaned their investments, with 250 million euros under management for investing in clean technology, clean fuels and renewable energy, much of which is invested in UK-based wind farms.

Climate Change Capital is reportedly the third largest owner of carbon credits in the world with an estimated 91 million tonnes of carbon dioxide (CO2) equivalent under ownership, behind the Paris-based chemical company Rhodia and the Italian utility ENEL.  If those credits trade at over 16 euros per tonne in a secondary market where delivery is guaranteed, the value would be over 1.4 billion euros.

New Carbon Finance Study Predicts One Trillion Dollar US Carbon Market

Various stories have arisen on the Internet regarding a study released on February 14, 2008 by New Carbon Finance, a division of New Energy Finance, a provider of information and analysis on renewable energy and low-carbon industries.  The study reportedly predicts that the USlegislation now being considered that limits carbon trading to the US market, would create a $1 trillion US carbon market by 2020. However, the exact nature of such market is not clear.  It is not clear whether the study predicts an annual market, which would seem overstated, or a cumulative market over 10 years, or on average $100 billion per year, which seems very possible.  The study predicts the US market would be twice the size of the EU market.

Major investments in the US would occur in clean technology, accoding to the study. These projects would include renewable energy, energy efficiency, and greenhouse gas mitigation projects.

At present there are about thirteen bills that have been filed in the Congress, in both the House of Representatives and the Senate.  Almost all are based on a cap-and-trade program.  Thus, it appears if any bill is actually passed, a market-based program to cap greenhouse gas emissions and to allow the selling of carbon allowances and offsets will be the system that is implemented in the US to reduce greenhouse gas emissions and to address climate change.

The study by New Carbon Finance reportedly concludes that an economy-wide cap-and-trade system will be implemented within four to five years.  An economy-wide greenhouse gas emissions reporting system has already been passed in the December Omnibus Spending bill and the President has signed it into law.  The US Environmental Protection Agency is already working on the implementing regulations.  The law requires EPA to propose draft reporting regulations by September 2008 and final regulations by September 2009.  The reporting regulations form the foundation of any future greenhouse gas emission law.

The three currently viable presidential candidates from both parties have committed to controlling greenhouse gases and to passing climate change legislation.  John McCain, the Republican candidate, co-authored a bill with Joe Lieberman restricting greenhouse gas emissions and creating a cap-and-trade system.

"Even if the current Bush administration rejects all of these bills, the next president will be less inclined to use a veto. All leading 2008 presidential candidates have endorsed the need for action and some have already supported significant emissions reductions," said Michael Liebreich, CEO of New Energy Finance.

The US legislation that has made it the farthest in the legislative process, the Lieberman-Warner Climate Security Act, which was passed out of the Senate Environment and Public Works Committee, would impose restrictions on the use of international credits under any post-Kyoto agreement, such as the Certified Emission Reductions generated through the Clean Development Mechanism.  The CDM program allows the use of cheaper offset credits generated through less expensive greenhouse gas reduction projects in developing countries.

"This will have two important consequences. For the US market, it will rule out a significant source of inexpensive abatement, pushing the carbon price to unnecessarily high levels. It will also remove most US demand for international credits, hampering the growth of projects and technology transfer to developing countries," said Milo Sjardin, who heads the North American division of New Carbon Finance.

The press release on New Carbon Finance’s website also states that the study predicts that, if US legislation does not allow domestic companies to purchase cheaper international carbon credits from projects in developing countries, the price of carbon will rise to $35 to $40 per metric tonne of carbon dioxide equivalent by 2015. At this price for carbon, the study predicts that the prices of electricity would rise by 20%, gasoline by 12%, and natural gas by 10%.  Other prices for goods in the economy would also increase as a result of power and fuel price increases. 

On the other hand, if the legislation allows the purchase of offsets from projects in the developing world, the price of carbon would be around $15 to $20.  At a $15 per ton of CO2 equivalent, the effect on the economy would be reduced.  The study predicts the price of electricity would rise by 7%, the price of gasoline 4% or about 13 cents a gallon, and natural gas would rise by 5%.  The resulting economy-wide price increases would be less as well.

The real focus of the study appears to be on the differential in the price of carbon and the impact on the economy if greenhouse gas emitters are not allowed to purchase international carbon credits to offset their emissions. Under this analysis, any US legislation should permit international carbon trading to offset US greenhouse emissions to lessen the impact of greenhouse gas limitations on the US economy.

Company Enters Agreements to Produce Biodiesel from Corn at Ethanol Plants

(Adapted from Business Wire). A company, GreenShift Corporation, that is developing new technologies to extract more value and produce more profit for ethanol production facilities announced an agreement with United Ethanol, LLC to initially extract up to 1.5 million gallons per year of crude corn oil from the distillers grain that is produced as a co-product from United Ethanol's new dry mill ethanol plant.  This oil can then be used as a feedstock for ethanol.

United Ethanol began operating in March 2007 and is seeking to develop product streams and income streams from their process:  with GreenShift to extract and sell corn oil), EPCO Carbon Dioxide, Inc. (to bottle and sell carbon dioxide, and with Environmental Credit Corporation and Carbon Green, LLC to monetize carbon credits.  The new technologies and processes are a step that may produce more income to an industry that has suffered under higher feedstock prices and lower prices for ethanol.

The GreenShift process for which a patent is pending is called Corn Oil Extraction Systems.  This process has been engineered to help ethanol producers increase cash flows through the introduction of a third revenue stream - corn oil. GreenShift provides turn-key extraction systems to participating ethanol producers at no cost to the ethanol producers in return for the long-term right to purchase the extracted corn oil at a per pound premium to its value when trapped in the distiller's grains. GreenShift's extraction technology also reduces overall plant emissions and utility costs by upwards of $1 million per year for a 100 million gallon per year ethanol plant that dries 100% of its distiller's grains.

Kevin Kreisler, GreenShift's chairman said that "Corn ethanol producers recognize the need to use technology to enhance margins and defray risk. The best way to do this is to implement "plug and play" technologies that enhance the yields and operating efficiencies of traditional ethanol production process. Our corn oil extraction technology is the first of several technologies that meet that goal that we are bringing to market and we are excited by the opportunity to work with United Ethanol."

GreenShift is focused on delivering technologies and process innovations to the ethanol production industry with a view towards maximizing the yield of corn-based ethanol production. GreenShift's currently available offerings in its ethanol program include its:

-- Corn oil extraction systems;

-- Integral biodiesel production systems; and,

-- Integral biomass gasification for combined heat and power solutions.

GreenShift is also developing new technologies, such as its carbon dioxide algal bioreactor technology, for application at ethanol facilities.

Traditional ethanol processing converts each bushel of corn, which weighs about 54 pounds, into about 18 pounds of ethanol, 18 pounds of carbon dioxide, and 18 pounds of distillers dried grains, which contain about 2 pounds of fat. This corresponds to about 2.8 gallons of fuel production per bushel of corn. GreenShift's ambition is to increase this efficiency as much as possible by converting as co-products such as dry distiller’s grain and carbon dioxide into additional renewable fuels.

GreenShift Agrifuels (OTCBB: GSGF - News) and Global Ethanol, LLC today announced the execution of agreements to extract about 10 million gallons per year of crude corn oil from the distillers grain co-product of Global Ethanol’s 100 million gallon per year ethanol facility in Lakota, Iowa and 57 million gallon per year ethanol facility in Riga, Michigan, and to convert the extracted corn oil into biodiesel at Global Ethanol’s Lakota facility.

Under the terms of the agreements, GS AgriFuels Corporation and Global Ethanol formed a jointly owned company called GS Global Biodiesel, LLC to build, own and operate the Lakota, Iowa-based biodiesel facility. The GS Global Biodiesel facility will be initially sized for 10 million gallons of biodiesel production per year but will be designed to scale up to 30 million gallons per year in coordination with the onset of production of nearby corn oil extraction systems that are installed by GS AgriFuels’ parent company, GS CleanTech Corporation.

GS CleanTech’s patent-pending corn oil extraction system is designed to extract crude corn oil out of the distillers dried grain co-product of the dry mill ethanol production process. This crude corn oil has been proven to be an excellent biodiesel feedstock with the proper processing. GS CleanTech executed a development agreement with Global Ethanol and GS Global Biodiesel to build and install corn oil extraction systems at Global Ethanol’s Lakota and Riga ethanol facilities and to design and build the GS Global Biodiesel facility.

GS AgriFuels will raise and provide the financing for the construction of the corn oil extraction systems at Global Ethanol’s Lakota and Riga ethanol facilities, as well as the financing for the construction and operation of the GS Global Biodiesel facility. Global Ethanol will manage and operate the GS Global Biodiesel facility and market all of the biodiesel produced. GS AgriFuels has recently engaged an investment banker to raise the estimated $35 million needed for the project. The parties expect that the first tranche of financing, which will support the construction and installation of two extraction systems in Lakota and one extraction system in Rega, will close in December 2007. The GS Global Biodiesel facility is expected to be commissioned during the fourth quarter of 2008.

Trevor Bourne, the chief executive officer of Global Ethanol, said that “We are very excited by the formation of GS Global Biodiesel. Global Ethanol is a leading producer of renewable fuels and is committed to increased production efficiencies and diversifying our commodities mix. GreenShift’s corn oil extraction and biodiesel production technologies have proven themselves to be the best solution available to achieve this. We are looking forward with great anticipation to the construction of GS Global Biodiesel and to exploring expanded opportunities to work with GreenShift in the future.”

“Global Ethanol is clearly committed to technology-driven production improvements and is a key strategic partner for GreenShift,” added Kevin Kreisler, GreenShift’s chief executive officer. “In addition to converting the 10 million gallons of corn oil that we extract from Lakota and Riga into biodiesel, we plan to ship an additional 20 million gallons of corn oil as we bring extraction systems online at nearby ethanol facilities to GS Global Biodiesel for conversion as well. Global Ethanol’s team will run the facility and market the biodiesel and their expertise in commodities management and operations will make a facility of this scale an exciting and successful project.”

These developments demonstrate that new technologies and new innovations may provide ethanol producers an ability to generate additional revenue streams to remain or become profitable at times of high feedstock prices or low ethanol prices, or both.   The ability to generate carbon credits is another opportunity to generate revenue.  This additional revenue will only grow as states and then the federal government impose limits on greenhouse gas emissions and implement a greenhouse gas cap-and-trade program.

El Paso Electric Issues RFP for Renewable Energy Credits

El Paso Electric has issued a Request for Proposal (RFP) under the state of New Mexico's Renewable Energy Act (REA) and the New Mexico Public Regulation Commission's renewable portfolio standard requirements. The solicitation seeks competitive proposals for a range of renewable energy resources.

A percentage of EPE's retail energy sales in New Mexico must come from renewable energy resources as represented by renewable energy certificates (RECs). Proposals will be considered for RECs from supply-side renewable energy resources, with or without physical delivery of the associated energy.

The RFP is posted on EPE's website.

US Commerce Department Sending 18 Clean Energy Companies to China and India

As part of the Asia Pacific Partnership on Clean Development and Climate, the US Commerce Department is reportedly sending 18 companies that specialize in clean energy to promote US technology that reduces greenhouse gas emissions.  This is apparently part of the current and future trade missions the US Commerce Department will sponsor as a means of promoting  "Made in the USA" climate change solutions.  This is a positive step for development of the US market and industry for renewable energy and environmental products.

Google Announces Investment of Hundreds of Millions of Dollars in Renewable Energy

On November 27th Google announced a new strategic initiative to develop electricity from renewable energy sources that will be cheaper than electricity produced from coal. Below is the press release issued by Google.

The newly created initiative, known as RE<C, will focus initially on advanced solar thermal power, wind power technologies, enhanced geothermal systems and other potential breakthrough technologies.  RE<C is hiring engineers and energy experts to lead its research and development work, which will begin with a significant effort on solar thermal technology, and will also investigate enhanced geothermal systems and other areas. In 2008, Google expects to spend tens of millions on research and development and related investments in renewable energy. As part of its capital planning process, the company also anticipates investing hundreds of millions of dollars in breakthrough renewable energy projects which generate positive returns.

"We have gained expertise in designing and building large-scale, energy-intensive facilities by building efficient data centers," said Larry Page, Google Co-founder and President of Products. "We want to apply the same creativity and innovation to the challenge of generating renewable electricity at globally significant scale, and produce it cheaper than from coal."

Page added, "There has been tremendous work already on renewable energy. Technologies have been developed that can mature into industries capable of providing electricity cheaper than coal. Solar thermal technology, for example, provides a very plausible path to providing renewable energy cheaper than coal. We are also very interested in further developing other technologies that have potential to be cost-competitive and green. We are aware of several promising technologies, and believe there are many more out there."

Page continued, "With talented technologists, great partners and significant investments, we hope to rapidly push forward. Our goal is to produce one gigawatt of renewable energy capacity that is cheaper than coal.  We are optimistic this can be done in years, not decades." (One gigawatt can power a city the size of San Francisco.)

"If we meet this goal," said Page, "and large-scale renewable deployments are cheaper than coal, the world will have the option to meet a substantial portion of electricity needs from renewable sources and significantly reduce carbon emissions. We expect this would be a good business for us as well."

Coal is the primary power source for many around the world, supplying 40% of the world's electricity.  The greenhouse gases it produces are one of our greatest environmental challenges. Making electricity produced from renewable energy cheaper than coal would be a key part of reducing global greenhouse-gas emissions.

"Cheap renewable energy is not only critical for the environment but also vital for economic development in many places where there is limited affordable energy of any kind," added Sergey Brin, Google Co-founder and President of Technology.

Strategic Investments and Grants

"Lots of groups are doing great work trying to produce inexpensive renewable energy. We want to add something that moves these efforts toward even cheaper technologies a bit more quickly. Usual investment criteria may not deliver the super low-cost, clean, renewable energy soon enough to avoid the worst effects of climate change," said Dr. Larry Brilliant, Executive Director of Google.org, Google's philanthropic arm, "Google.org's hope is that by funding research on promising technologies, investing in promising new companies, and doing a lot of R&D ourselves, we may help spark a green electricity revolution that will deliver breakthrough technologies priced lower than coal."

Working with RE<C, Google.org will make strategic investments and grants that demonstrate a path toward producing energy at an unsubsidized cost below that of coal-fired power plants. Google will work with a variety of organizations in the renewable energy field, including companies, R&D laboratories, and universities. For example, Google.org is working with two companies that have promising scalable energy technologies: 

• eSolar Inc., a Pasadena, CA-based company specializing in solar thermal power which replaces the fuel in a traditional power plant with heat produced from solar energy. eSolar's technology has great potential to produce utility-scale power cheaper than coal.
• Makani Power Inc., an Alameda, CA-based company developing high-altitude wind energy extraction technologies aimed at harnessing the most powerful wind resources. High-altitude wind energy has the potential to satisfy a significant portion of current global electricity needs.

Ongoing Commitments

Today's announcement represents just the latest steps in Google's commitment to a clean and green energy future. 

Google has been working hard on energy efficiency and making its business environmentally sustainable.  Last spring the company announced its intention to be carbon neutral for 2007, and is on track to meet that goal. To this end, the company has taken concrete steps to reduce its carbon footprint and accelerate improvements in green technology, including:

• Developing cutting-edge energy efficiency technology to power and cool its data centers in the U.S. and around the world. 
• Generating electricity for its Mountain View campus from a 1.6 Megawatt corporate solar panel installation, one of the largest in the U.S.
• Accelerating development and adoption of plug-in vehicles through the RechargeIT initiative, including a $10 million request for investment proposals.
• Joining with other industry leaders in 2007 to form the Climate Savers Computing Initiative, a consortium that advocates the design and use of more energy-efficient computers and servers.   
• Working on policies that encourage renewable energy development and deployment, such as a U.S. Renewable Energy Standard, through Google.org.

Credit Suisse Invests in Eco-Securities and Demonstrates the Emergence of the New Carbon Cycle

Investment in carbon trading companies by banks and investment banks demonstrate how our economics can be forged into a New Carbon Cycle of carbon reduction projects offsetting the carbon dioxide emitted from burning of fossil fuels.

This New Carbon Cycle reflects that human evolution has shifted from physical adaptation to adaptation of our technology and our social and economic systems.  As a result, as climate change threatens our environment and the lives and livelihoods of many people around the globe, it is our nature to attempt to adapt our technologies and social and economic systems to reduce the threat and impact of emission of carbon dioxide and other greenhouse gases. 

The natural carbon cycle functions through the recycling of carbon through the atmosphere and incorporation in to plant matter which dies or is consumed by animals and eventually is released again into the atmosphere. This system created the pre-industrial age balance of carbon dioxide and climate. 

The New Carbon Cycle will emerge not through natural forces as the human emission of greenhouse gases is overwhelming the natural carbon system, but through adaptation of human technology and economic systems.  The source of this adaptation is the cap-and-trade system for greenhouse gas emissions under the Kyoto Protocol.  This system provides the mechanism for the economic driver to create and distribute through the global economy technology to reduce greenhouse gas emissions.

The power of this adaptation is reflected in the $30 billion invested in the European Union Emissions Trading System last year. As a result of the emergence of this carbon economy, banks and investment banks are directing  billions in capital to carbon reduction projects. Further evidence of this evolving financial market in anticipation of ever growing carbon credit trading, Credit Suisse has invested $58.9 million to buy a 9 percent stake in carbon emissions credit developer Ecosecurities Group PLC. Under their agreement, the two companies plan to raise $133.9 million for greenhouse gas emission reduction projects driven by global concerns to fight climate change. 

According to an Associated Press story reported on the Forbes website:

"Banking and the investment banking sector see the carbon market as a big growth opportunity, it relates to so many thing in their portfolio like the utilities and renewables businesses," Ecosecurities Chief Financial Officer Jack Macdonald said, adding that the company was in talks with several other partners over the sale of a stake before deciding to opt for Credit Suisse.

Carbon markets and particularly those relating to investments in the developing world are seen as potentially very lucrative.

CDM projects were designed as part of the Kyoto process to encourage green investments in the developing world. With CDMs for every metric ton of greenhouse gas emissions the project avoids emitting, the project owners are given one tradable CDM credit, worth the equivalent of one ton of carbon dioxide emissions.

This story demonstrates the powerful evolutionary process that has been created through the Kyoto Protocol and the EU Emissions Trading System and that is growing dramatically every year.  If the United States enters the global cap-and-trade system the capital that will enter the market will undoubtedly exceed $100 billion.  This system will grow and survive on its own with no central planning or direct guidance by governmental regulation, but by the emergence of numerous individuals and business entities assigning capital on a global basis to renewable energy projects such as wind energy, energy efficiency, and reforestation, and preservation of forests, among many other actions and projects.

This self organizing process reflects the innate human ability to adapt and evolve through intellect to create new systems and processes to address human needs or concerns.  Obviously this ability to adapt and innovate is not perfect or capable of accomplishing every feat or solving every problem.  However, human evolution is the best hope for sustainable energy generation and a solution to global warming. 

Citibank Pledges $50 Billion Dollar Investment Program in Climate Change

Citibank has made a major decision on investing in climate change in a press release recenlty issued.  The press release in its entirety is provided below.

Citi Targets $50 Billion Over 10 Years to Address Global Climate Change

Includes Significant Increases in Investment and Financing of Alternative Energy, Clean Technology, and Other Carbon-Emission Reduction Activities

Builds on Existing $10 Billion Climate Change Activities

New York – Citi today announced that it will direct $50 billion over the next 10 years to address global climate change through investments, financings and related activities to support the commercialization and growth of alternative energy and clean technology among the clients and markets it serves, as well as within its own businesses and operations.

The $50 billion target is a realistic estimate based on market-based activities and transactions with clients as well as energy saving, “green” projects within Citi’s own operations. This target includes nearly $10 billion in activities Citi has already undertaken to address climate change to date, and is the latest example of Citi’s ongoing efforts in the broader environmental arena, including investments to control its own environmental footprint, advice to clients on risks and opportunities, and policy engagement.

“With a presence in more than 100 countries, Citi holds a unique position within the global community. This informs our commitment to bring forward the best solutions for our clients, while also benefiting the people and the communities where we operate,” said Charles Prince, Chairman and CEO of Citi.

“One area where we believe we have this opportunity is on environmental and climate issues, which pose a significant challenge to the world, to the global economy, and to clients and require forceful action,” Prince said. “The comprehensive program we are announcing today is not a wish-list, but a realistic, achievable plan that serves a critical global need and responds to an emerging investment opportunity.”

Citi has long been active on environmental issues, as evidenced by its initial and ongoing leadership in the development of the Equator Principles, which established best practices for assessing and mitigating social and environmental risks in project finance. Citi has also called for the development of global and U.S. frameworks that will help reduce greenhouse gas (GHG) emissions, drive innovation and opportunity, bring clarity and certainty to the markets and achieve a level playing field.

“As a global leader in financial services, we recognize our responsibility to confront climate change and the importance of identifying and helping implement new solutions for our clients and our businesses. We will continue to partner with environmental experts and clients as we address this issue,” Prince said.

“This new initiative is an excellent complement to Citi’s call for stronger, market-based climate policy in the United States and abroad,” said Eileen Claussen, President of the Pew Center on Global Climate Change. “Citi understands how profoundly climate change will transform the economy, and they are pioneering opportunities for the capital markets to meet the climate challenge.”

Citi’s activities in the area of climate change span its entire business and operations. They include:

Corporate-Wide
Citi will increase ten-fold, to $10 billion, its commitment to reduce its corporate environmental footprint through its own real estate portfolio, procurement and energy use, as part of its pledge to reduce GHG emissions by 10% by 2011. This ambitious undertaking across Citi’s more than 14,500 global facilities is driven by the creation of a Global Energy Council; purchase of 52,283 MWh of green power for operations; and its goal of achieving environmental certification (e.g. Leadership in Energy and Environmental Design or LEED in the U.S.) for the construction of all new office buildings and operations centers and evaluation of existing larger facilities.

In 2007, two major U.S. office facilities in Dallas and New York City are in the process of achieving LEED status, with a new office tower in Long Island City, NY, housing 1,500 employees, achieving LEED Silver rating, and a data center in Europe that is being designed to achieve LEED Gold status. Citi expects to open LEED-certified retail branches in 2008, and has already begun installation of 100% recycled materials.

Citi Markets & Banking
Citi’s Markets & Banking group plans to invest in and finance over $31 billion in clean energy and alternative technology over the next ten years through the expansion of existing activities and the launch of new client services. With committed investments and financings approaching $7.5 billion to date, the Markets & Banking group sees tremendous opportunities to support companies working in alternative energies such as solar, wind, hydro and geothermal; helping to commercialize energy efficiency ideas; and facilitating investments in aging infrastructure using clean and efficient technologies.

Citi has a growing portfolio of equity investments in renewable energy projects, including wind farms in Minnesota and New Mexico. Citi recently advised and financed the $2.15 billion acquisition of a major US wind portfolio by EDP - Energias de Portugal that plans to bring over 9,000 MW of new wind development projects to market. Citi also underwrote US Green Bonds for a green/carbon neutral real-estate development in Syracuse, NY, and will continue developing innovative financial products to support clients as they implement climate change initiatives.

Since 2006, Citi has also provided advisory services in targeted GHG-intensive sectors to help clients analyze and understand carbon exposure and reduction strategies, building on Citi’s industry leading environmental and social risk management (ESRM) capabilities.

Citi Alternative Investments
Various businesses at Citi Alternative Investments (CAI) have been active in making environmentally friendly investments. For example, as part of the Sustainable Development Investment Program, CVC International has invested $150 million to date, including such notable transactions as Suzlon Wind Energy, a wind turbine manufacturer based in India, and Sindicatum Carbon Capital, a developer of projects that reduce GHG emissions globally. Citi Property Investors (CPI) invests in sustainable building projects. Its first such investment was in the Loreto Bay Company, a 5,000-home community in Baja California, Mexico that is one of the largest sustainable resort communities in North America.

Underscoring Citi’s continued commitment to the environment, in April 2007, CAI created a standalone investment center called Sustainable Development Investments (SDI). SDI builds on Citi’s Sustainable Development Investment Program with an expected ten-fold increase in its capital commitment to over $2 billion of private equity over the next ten years in renewable and alternative energy, clean technologies, energy efficiency, carbon credit markets, waste and water management and sustainable forestry. Similarly, CPI intends to commit $500 million to investments in sustainable building projects over the next 10 years.

Global Consumer Group
Citi’s consumer franchise is offering climate friendly mortgage, card and commercial finance products to its clients. In the summer of 2006, CitiMortgage and Sharp Electronics Corporation, the world’s leading producer of solar cells and U.S. subsidiary of Sharp Corporation (Osaka, Japan), signed a joint marketing agreement that enables Sharp’s Solar Energy Solutions Group offer home equity loans and lines of credit through CitiMortgage as an additional financing option for homeowners to purchase and install solar electric systems. The home equity program offers customers an affordable alternative to make this energy-efficient upgrade to their homes.

Citi’s commercial finance and leasing division, CitiCapital, is more than doubling its commitment to facilitating the reduction of carbon-gas emissions and promoting sustainability by 2010. Its CitiCapital Energy Finance Unit has an existing portfolio of over $1 billion from underwriting energy efficiency upgrades for universities, local school districts and various municipalities in the United States, allowing clients to amortize the cost savings of improvement over a 15- to 20-year period generally without capital outlays.

In the workplace, Citi recently demonstrated its commitment to healthy work settings and environmental responsibility with its new Citi Cards facility in Elk Grove Village, Illinois, which was designed with numerous environmentally sustainable features.

In addition, Citi Community Development is building on its existing investing activities to include green-related investments, such as renewable energy tax credit investments and green private equity investments. And members of Citi’s popular “Thank you” points rewards program can redeem points for a range of environmentally responsible rewards.

Global Wealth Management
Citi Investment Research issued over 70 climate-related notes in 2006. A major thematic investment research report by Edward Kerschner, Chief Investment Officer of Citi Investment Research, highlights the investment opportunities and implications of a changing climate. Based on this report, Citi is holding a two-day conference on June 5-6, 2007, that will bring senior executives from the corporate, political, regulatory and advisory arenas together with influential global investors to discuss the issue.

Citi Smith Barney and Citi Private Bank also advise clients on opportunities in the socially responsible investment arena, including climate-friendly opportunities.

Citi Private Bank and the Financial Times have created an Environmental Award for businesses from around the world that have significantly improved their environmental performance. The focus in 2007 is on GHG reductions, and the inaugural awards event will be held in London on September 19, 2007.

Additional Activities

• Citibank, Citi Smith Barney, and Citi Cards now offer paperless statements to customers. For each client who elects to take advantage of this opportunity, a tree is planted.
• Citi actively engages on the issue of climate change with stakeholders, including clients, employees and non-governmental organizations and socially responsible investors.
• In 2006, the Citi Foundation provided $2 million in grants for sustainable enterprise, including climate-related programs in alternative energy and sustainable forestry and agriculture, and expects to continue to develop and grow this portfolio. The Citi Foundation currently supports projects such as the Ecologic Development Fund, which works in Honduras and Panama to produce community-based carbon offsets via the reforestation of a reserve.
• Citi endorses industry-wide efforts to advance climate solutions, and is actively involved with other corporations on climate change in such groups as Columbia University’s Global Roundtable on Climate Change (GROCC), the Pew Center on Global Climate Change’s Business Environmental Leadership Council, the 3C initiative led by Vattenfall, the World Resources Institute (WRI), and Renewable Energy and Energy Efficiency Program (REEEP).

Citi’s stock is part of Dow Jones Sustainability Index and FTSE4Good, both of which acknowledge leadership in setting standards in sustainable growth and in demonstrating exceptional environmental, social and economic performance.

Citi has been working with Sustainable Finance Ltd., leading advisors on sustainability opportunities to the financial sector, to develop and implement Citi’s environmental strategy, including the climate change commitments announced today.

What is Carbon Trading or Greenhouse Gas Emission Reduction Trading?

Emissions trading actually began in the United States and has been occurring for many years with respect to volatile organic compounds, which lead to ground level ozone pollution or smog in our major cities, nitrous oxides, which also contribute to smog formation, sulfur dioxide, and particulate matter, which has health effects in terms of breathing the particles in and lodging in the lungs.  Emissions trading in essence is the ability to trade or buy and sell credits or allowances to emit a particular pollutant.

I first learned about emission markets or cap and trade over 20 years ago in my environmental law class at Harvard Law School from Richard Stewart, who was a professor there at the time.  Though I doubted the concept then, I have seen it work in practice in the United States where I have been involved in advising clients on obtaining and trading emission reduction credits in volatile organic compounds, nitrous oxides, and particulate matter.  A market also exists for sulfur dioxide emissions, primarily from coal-burning power plants.  All of these programs were created through the federal Clean Air Act and similar state statutes that provided the basis for the creation of emission trading programs by the U.S. Environmental Protection Agency and state environmental agencies.  Thus, the concept of emissions trading, while derided by the far left and far right, have been working in this country for many years.

Such regulatory and economic systems depend on a concept called cap and trade.  A "cap" of total emission of a pollutant in an area and on specific facilities or air emission sources is created to require these facilities to over time reduce their air emissions.  This creates a need to purchase credits for "offsets" from other faculties and therefore creates a scarcity in the market and demand in the market for these credits.

Such a cap-and-trade system results in the emergence of a economic incentives and a market for investment in reductions in the emissions of pollutants.  As stated above, government agency sets the limit the amount of a pollutant that can be emitted.  The emitting entity must find a source of credits to purchase in order to keep operating, or be faced with reducing its level of production, and thereby, its emissions.  Alternatively, the entity can install emission control devices or systems and reduce its emissions below the level for which it has been assigned credits.  In the event the entity can reduce its emissions to such an extent that it has more credits than it has emissions, it can then sell those credits to other entities that have not found a means to reduce its emissions in a cost effective manner, or that is seeking to expand its operations.

In the international arena under the Kyoto Protocol, those nations that are required to reduce their emissions in the developed world can buy credits within their country, among developed countries, or more commonly what has occurred is they buy credits for reduction in carbon dioxide, or CO2, and other greenhouse gases in developing countries.  This program is referred to as the Clean Development Mechanism (CDM), and Certified Emission Reductions (CERs) have been selling in a market that has seen tens of billions of dollars exchanged.

The European Union (EU) has been operating a carbon market called the EU Emissions Trading System (ETS).  This system is about to complete an experimental run ending in 2007.  The mistake made by the EU was the over issuance of emission trading credits.  This led to the collapse of the market in 2007.  In the next phase, 2008 to 2012, the EU is working on cutting back on the credits assigned to each member country to avoid an over subscription.  Even though the program was going through an experimental stage and some mistakes were made, tens of billions of Euros were invested in carbon reduction projects and in carbon credit trading.  As an initial experiment, the ETS demonstrates that a global cap-and-trade system can work to reduce greenhouse gas emissions.

Emission markets are initially created by a government agency, but then are left open to the market to develop reductions and distribute capital, without a centralized planning agency.  Thus, the most efficient process for addressing pollution emerges, as those from the science of complexity would say, from the self-organizing process.  If set up right, the least-cost approach will develop out of a market-based system in a way that could not be specifically planned and implemented or specifically predicted.

As a result, emissions trading allows what I call self-organizing regulation, whereby individuals and individual entities, without any command-and-control regulation or central planning by governments or otherwise, identify actions, seek and obtain capital, and develop in an organic, self-organizing way the process to reduce pollution.  The government acts, like it does in any market, as the developer of laws and regulations that establish and set the general rules for the market, and then the individual participants, what Complexity scientists call "adaptive agents", make their own individual choices and take their own actions.  These numerous choices collectively result in the market and the ultimate reduction in pollution. In the right context, emission trading markets provide a more efficient and effective alternative to the traditional command-and-control regulatory system.