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If carbon markets boom, who will benefit? Meet the trillion dollar club

If carbon markets boom, who will benefit? Meet the trillion dollar club

“Carbon will be the world’s biggest commodity market, and it could become the world’s biggest market over all,” Louis Redshaw, head of environmental markets at Barclays Capital, told the New York Times in July 2007.

In the same article, Chris Leeds, then-head of emissions trading at Merrill Lynch, said that, carbon could become “one of the fasting-growing markets ever, with volumes comparable to credit derivatives inside of a decade.” Four years later, things have changed somewhat. Reuters recently described carbon as the world’s worst performing commodity. And even the World Bank acknowledges that carbon markets “now face major challenges”.

This might just be a blip for carbon markets. California’s emissions trading scheme, which is planned to start in 2013, could boost carbon trading. The World Bank employs about 200 staff to work full time on carbon markets, according to Andrew Steer, the Bank’s special envoy for climate change. The International Finance Corporation’s Climate Business Group has a US$200 million Post-2012 Carbon Facility, that will buy carbon credits generated after 2012 and forward purchase Certified Emission Reductions produced from 2013 to 2020 from IFC financed projects. Meanwhile, the UN Environment Programme’s Finance Initiative is working with financiers to promote carbon trading – particular for REDD.

If carbon is, at some point in the future, to become the “world’s biggest commodity market”, it is worth asking who will benefit from this recently created commodity.

Last week, a team of Reuters journalists produced profiles of 16 commodity traders, that between them have revenues of US$1.1 trillion a year. These companies sell more than half of the world’s freely traded commodities. Just two of them, Vitol and Trafigura, sold more oil last year than the combined exports of Saudi Arabia and Venezuela.

Commodity trading is hugely profitable, not least because traders make money whether the price goes up or down. For them, the current economic crisis is an opportunity. And they can manipulate the markets of the commodities in which they are trading. Reuters explains:

For many commodities traders, the most profitable ploy has been the squeeze, which involves driving prices up or down by accumulating a dominant position.

So who are these companies? The basic information about the world’s top 16 commodity traders, from the Reuters report is complied in a table below. Read the Reuters report for more information about these companies.

Almost all of the companies are involved in carbon trading. If carbon were to become the world’s biggest commodity, these companies would probably accumulate dominant positions in carbon. Some are involved in oil trading and carbon trading. Others are involved in large-scale forest destruction and carbon trading.The logic is simple. Oil trading is profitable. Clearing forest is profitable. Carbon trading is profitable. Win, win, win. For the traders, that is. For the climate, of course, it’s a disaster, because carbon trading does not reduce emissions.

Here is a thumbnail sketch of the top 16 commodity traders’ involvement in carbon trading. Feel free to add further information about these companies in the comments:

  1. Vitol has one of the largest and most diverse carbon project portfolios in the world and our involvement and expertise in carbon markets is global and comprehensive,” the company states on its website. In January 2011, Vitol announced that it had bought a 76.3% stake in Carbon Resource Management (CRM). CRM has a “portfolio of over 45 million tonnes and over 200 CDM projects currently being progressed”.
  2. Glencore has said that it is not interested in carbon trading, apart from as a means of offsetting the emissions from its shipping activities. “We are a physical commodity trader so those [carbon] markets aren’t of interest to us,” a company spokesperson told Reuters. The company is involved in trading biofuels, and says that “biofuels will be increasingly important to Glencore as it attempts to address climate change concerns”.
  3. Cargill has a fully-owned subsidiary called Green Hercules Trading Limited. The company has “an array of services, such as financial support to carbon reduction projects, at all stages.”
  4. Koch Industries funds plays a major role in accelerating climate change through its oil trading. It also funds several climate denial think tanks and lobbies against any government action on climate change. At the same time, Greenpeace notes that Koch Supply and Trading, a Koch Industries subsidiary, has participated in carbon trading in the US.
  5. ADM Investor Services is a subsidiary of ADM. In its monthly review of December 2010, it described carbon markets as “A golden opportunity in a commodity that is not gold” and predicted a 30 per cent price increase year on year. (The most recent monthly review from ADM Investor Services makes no mention of carbon markets.)
  6. In August 2010, Gunvor and JP Morgan completed the first European Union 2020 over-the-counter European Union Allowance carbon contract. The over-the-counter trade, was part of a “complex structured deal involving trades with earlier delivery dates”, the brokerage company, Tradition, said in a statement.
  7. Trafigura appears to have no involvement in carbon trading. However, the Trafigura Foundation has set up a biogas project in Yunnan, China which generates carbon credits.
  8. Mercuria announced in 2009 that “Mercuria Energy is positioning itself to be one of the world’s top traders in carbon”. Last year, Mercuria Energy bought carbon offset project developer MGM International Group. Last week, Point Carbon reported that MGM International was involved in a project in Colombia where Ivan Cepeda Castro, a Colombian senator and leading human rights activist, accused the country’s largest cement manufacturer, Cementos Argos, of using illegally-seized land for a tree planting project to generate carbon credits. Mercuria sponsors IUCN to “strengthen capacity for economic approaches to biodiversity conservation in developing countries”.
  9. Noble is a major player in the expanding global market for emission reduction certificates or ‘carbon credits’ and one of world’s largest suppliers of registered CERs,” according to the company’s website. Last year, the Noble Group announced that it had bought a 52% stake in a 32,500 hectare oil palm plantation project in West Papua. The investment was heavily criticised by Papua Forest Eye under the headline, “Noble savages Papua’s forests“.
  10. LDH Energy is the merchant energy platform of the Louis Dreyfus Group and Highbridge Capital Management, which is wholly owned by JPMorgan Chase. “LDH Energy has been active in emission credit markets since 2006. We operate across all emission markets with a specific focus on global carbon markets,” according to the company’s website.
  11. Bunge has been engaged in mitigating carbon emissions for several years through investments in Clean Development Mechanism (CDM) projects, participation in European cap and trade markets, and via the Bunge Emissions Group,” the company states on its website. The Bunge Guara biomass project aims to generate carbon credits by switching the fuel in one its fertilizer plants in Brazil from gas to firewood from eucalyptus plantations.
  12. Wilmar International has cleared large areas of forest in Indonesia to make way for oil palm plantations. It also stands accused of human rights violations. While the emissions from this forest destruction are large, Wilmar is generating carbon credits through clean development mechanism projects by using biomass from waste products from its plantations to fuel its palm oil factories.
  13. Arcadia Energy Trading (AET) has taken a pre-emptive position in the Australian carbon market supplying Certified Emissions Reduction units (CERs) to Australian industry,” according to the company’s website.
  14. Mabanaft is expanding its current portfolio of trading activities into the carbon credit business,” according to a 2009 announcement on the company’s website.
  15. Olam International, as well as trading in commodities, also owns forestry operations covering 2.3 million hectares in Africa. In December 2010, the company announced that it may enter the carbon market by building a biomass power plant. “The carbon potential is certainly something that we will be looking at seriously over the coming years,” Robert Hunink, Olam’s global head of wood products business announced.
  16. As far as I’m aware, the sixteenth company in the Reuters report, Hin Leong, has not expressed any interest in carbon trading.

Vitol, founded 1966 in Rotterdam by Henk Vietor and Jacques Detiger Geneva and Rotterdam Oil, gas, power, coal, industrial metals, sugar $195 billion (2010) Ian Taylor 2,700
Glencore, founded 1974 as Marc Rich and Co. renamed Glencore in 1994 Baar, Switzerland Metals, minerals, energy, agricultural products $145 billion (2010) Ivan Glasenberg 2,800 people directly; 55,000 at Glencore’s industrial assets
Cargill, founded 1865 by William Wallace Cargill Minneapolis, Minnesota Grains, oilseeds, salt, fertilizers, metals, energy $108 billion (2010) Greg Page 130,000
Koch Industries, founded 1920s by Fred Koch Wichita, Kansas Oil $100 billion (2010) Charles Koch 70,000
ADM, formerly Archer Daniels Midland, founded 1902 by John Daniels and George Archer Decatur, Illinois Grains, oilseeds, cocoa $81 billion (2010) Patricia Woertz 30,000
Gunvor, founded 1997 by Swedish oil trader Torbjorn Tornqvist and Russian/Finnish businessman Gennady Timchenko Geneva Oil, coal, LNG, emissions $65 billion (2010) Torbjorn Tornqvist Fewer than 500
Trafigura, founded 1993 by former Marc Rich traders Claude Dauphin, Eric de Turkheim and Graham Sharp Geneva, Switzerland Oil, metals $79 billion (2010) Claude Dauphin 6,000
Mercuria, founded in 2004 [*] Geneva Oil, coal, gas, carbon emissions $47 billion (2010) – energy turnover Marco Dunand 890
Noble Group, founded 1986 by UK scrap metal man Richard Elman Hong Kong Sugar, coal, oil $57 billion (2010) Richard Elman (Executive chairman) 11,000
Louis Dreyfus, founded 1851 by Leopold Louis-Dreyfus Paris Cotton, rice, grains, orange juice $46 billion (2010) Serge Schoen 34,000
Bunge, founded 1818 by Johann Peter Gottlieb Bunge in Amsterdam White Plains, New York Grains, oilseeds, sugar $46 billion (2010) Alberto Weissner 32,000
Wilmar International, founded 1991 Singapore Palm oil, grains, sugar $30.4 billion (2010) Kuok Khoon Hong 88,000 plus
Arcadia, founded 1988 by Japan’s Mitsui & Co London Oil $29 billion (Reuters estimate) John Fredriksen 100
Mabanaft Rotterdam Oil $15 billion (Reuters estimate) Jan-Willem van der Velden 1,772
Olam, founded 1989 by the Kewalram Chanrai Group Singapore Coffee, cocoa, rice, grains, sugar $11 billion (2009/10) Sunny Verghese About 100
Hin Leong, founded 1963 Singapore Oil and tankers $8 billion (2010) Lim Oon Kuin About 100

[*] Some of the information about Mercuria in this table comes from the company’s website, not the Reuters report.

Back to table ^^

PHOTO credit: The Story of Cap and Trade.

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  1. These companies are commodity traders, so if any market they are involved in moves at all – they will make money, or at least be trying to. Maybe your article should have focused on your view of the system rather than trying to tie carbon credits to a bunch of commodity traders.

    If global trading booms and African markets take off, these commodity traders will make money; When the Euro busts these traders will make money; if the euro doesn’t go bust – these traders will make money.

    What about the other companies that might make some money if the carbon market takes off?
    Solar companies, waste to energy companies, energy efficiency consultants, companies making goods out of recycled materials, all those companies currently pumping millions into renewable energy R&D might even make some money.

  2. @Andrew – Thanks for your comment. Which “system” are you referring to when you say “Maybe your article should have focused on your view of the system”? If you mean I should have written about carbon offsets, I’ve written several articles, available here.

    I wasn’t really trying to tie carbon credits to commodity traders in this post. I was just trying to point out that if carbon markets take off some of the major players in the carbon trade will be the commodity traders. One of the problems with this is that a small number of commodity traders will probably come to dominate the trade, which means they will be able to manipulate the price of carbon. This example from the Reuters article shows the sort of things the traders do with oil:

    That’s what Koch, Vitol and others did in 2009 when they parked 100 million barrels of oil in seaborne tankers. Thanks to a market condition known as contango — a period when buyers pay more for future delivery than to receive their cargoes promptly — they could sell futures and lock in profits of $10 a barrel or more.

    Do you really think it’s a good idea to attempt to reduce greenhouse gas emissions based on a carbon price controlled by a small group of commodity traders?

    True, solar companies and the others you mention might make money through carbon trading. But I think there are several problems here:

    1. They could currently qualify as clean development mechanism projects, but they are competing against things like HFC23 credits or coal(!) projects.

    2. Carbon trading does not reduce emissions, because every credit sold allows pollution to continue somewhere else.

    3. Carbon trading is perverse. One of the reasons that the EU carbon price is so low at the moment is because there is little demand and market is flooded with pollution permits from Greece, which has plenty to spare at the moment because its emissions have reduced because of the economic crisis it is going through. So emissions have been reduced, but at the expense of reducing the carbon price (meaning that cheap pollution permits are available for companies to buy up for future expansions – although some companies currently have such an oversupply of permits that this is hardly necessary).

    A better alternative to carbon trading would be one that leaves fossil fuels in the ground. That would both address climate change and help solar companies etc to make money.

  3. Thanks for your response Chris.
    It is a worry that a small group of companies might control the market and is something that should be monitored, but this problem is not unique to carbon credits and I haven’t seen evidence that it has has happened yet.
    In terms of ‘the system’, (I think) I was referring to the system that let’s this clique of companies control markets rather than carbon credits. I know you’ve written plenty about carbon credits.


  5. @AFEWEREK – I’m delighted to see that people working at the World Bank are reading REDD-Monitor. Perhaps you should start by contacting the IT department and asking them to show you how to switch off the CAPS LOCK on your computer.

  6. lol at comment number 5!

    More seriously,

    I think that the article itself is quite misleading. The heading states “If carbon markets boom, who will benefit? Meet the trillion dollar club”

    To be honest having met some of these firms, only 3 to 4 of the above are ever likely to be significant beneficiaries of a booming carbon market and they would be Vitol and Mercuria and possibly Bunge, Noble & Mabanaft.

    All the rest of the ‘trillion’ dollar club wouldn’t go anywhere near a market as unprofitable and policy created/driven as the carbon markets. It is much much harder to create a ‘dominant position’ in a virtual commodity than a physical commodity. Realistically, there will always be an upper cap on carbon prices – even if it is not stated. If carbon prices spiked to levels that significantly undermined economies then the political pressure to introduce measures to calm the price would be too intense. Unlike physical markets, governments can intervene with carbon markets quite easily.

    It makes much more sense for the trillion dollar club to stick to what they know…

  7. @Anon – Thanks for this comment. You’re probably right that not all of these commodity traders are likely to get involved in carbon trading (just as not all of them trade in, say, sugar). So the headline should read “meet the US$350 billion club”. The more interesting story is the current state of the carbon markets.

    This week, Noble reported its first loss in 14 years. According to this Bloomberg article, the company issued a statement saying that “Earnings were hurt by ‘extreme volatility’ in carbon-credits trading and cotton prices.”

  8. This is interesting, while the others were talking about how carbon trading could provide benefit to the community as a carbon owner in terms of the recognation the forest dependent community right. A lot of NGO’s are still confusing in describe the idea of benefit sharing mechanism and some are also doubt to the implementation of carbon trading.

    Thanks for provide this information as an learning towards conflicts of the interest among all parties to the benefit from the carbon program.

  9. Here’s more on the Bunge takeover of Climate Change Capital: “Bunge Climate Unit May Cut Staff by End of April, Evans Says”.

    There are some interesting quotations from Alfred Evans the new chief executive officer of Climate Change Capital:

    “You make most of your money by investing at the bottom of the business cycle.”

    “There’s a lot of doom and gloom. A lot of it is misplaced. We are definitely somewhere near the trough.”

    “We think there are some great opportunities in the carbon market. The trajectory has turned into a period of fragmentation.”

  10. Financial Instruments to save the planet shows how idiotic the project of “Sustainability” is.

    It starts with the individual not the established corporate oligarchs.

    A real revolution in sustainability is when WE as consumers stop supporting this unsustainable economy of greed.