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The New York Times: In London’s Financial World, Carbon Trading Is the New Big Thing

Published: July 6, 2007

LONDON, July 5 — Seeking to match a desire to make money with his environmental instincts, Louis Redshaw, a former electricity trader, met with five investment banks in 2004 to propose the trading of carbon dioxide. Only one, Barclays Capital, was interested.

Three years later, the situation has turned, and carbon specialists like Mr. Redshaw, 34, are among the rising stars in the London financial district. Managing emissions has become one of the fastest-growing specialties in financial services, and companies are scrambling to find workers. Their goal is a slice of a market now worth about $30 billion and that could grow to $1 trillion within a decade.

“Carbon will be the world’s biggest commodity market, and it could become the world’s biggest market over all,” said Mr. Redshaw, the head of environmental markets at Barclays Capital.

If greed is suddenly good for the environment, then the seedbed for this financial experiment may be London. More carbon was traded here than in any other city, according to a study by International Financial Services London, a company promoting British-based financial business.

Carbon could become “one of the fasting-growing markets ever, with volumes comparable to credit derivatives inside of a decade,” said Chris Leeds, 38, who is the head of emissions trading at Merrill Lynch here and who plans to expand his team to five traders from two by the end of the year.

Investment banks like Goldman Sachs and Morgan Stanley have rapidly expanded their carbon businesses. Scattered among the hedge funds and private equity funds in the Mayfair district of London are recently arrived niche investment banks that generate one of the main currencies of this emerging sector: carbon emissions reductions.

The emergence of carbon finance in London — not only trading carbon allowances but investments in projects that help generate additional credits — is largely the result of a decision by European governments to start limiting the amounts that industries emit.

Factories that pollute too much are required to buy more allowances; those that become more efficient can sell allowances they no longer need. The system, started in 2005, is part of the terms of the Kyoto Protocol and bears the imprimatur of the United Nations. Even so, doubts remain as to whether carbon finance can deliver tangible emissions reductions, let alone the vast economic transformation needed to deal with climate change.

For now, green-minded graduates and an eclectic range of professionals from banks, consulting companies and aid organizations are pushing to join the new sector.

“We don’t have to advertise,” said Mark Woodall, 45, chief executive of Climate Change Capital, an investment company based in an elegant 18th-century townhouse in the heart of Mayfair. ”People feel quite good about working in an organization like this.”

Mr. Woodall has 120 employees with an average age around 30 and more than 10 full-time employees in China. He expects to hire 80 people in the next two years.

A former British Army officer, he started his first company 15 years ago, cleaning up waste and chemical spills.

The industry has not avoided criticism. One reason is that European governments handed out too many free allowances in preparing for the start of the program, rendering the system less effective than was hoped. The overallocation fueled volatility, and some traders reaped larger-than-expected profits.

Controversy has also dogged some projects promoted by the financiers to generate new credits.

But over all, prospects for the industry are good, especially if the United States joins the Europeans in establishing a trading system, said Imtiaz Ahmad, 34, senior carbon trader for Morgan Stanley in London. Mr. Ahmad has already lured a European Union environment official and a BP employee to join his three-member trading team, and he plans to hire more.

Human activity creates some 38 billion tons of carbon dioxide each year, and governments regulate only a fraction of that. But if more governments decide to cut billions more tons of emissions, as leaders of top industrial nations discussed recently in Germany, and if the existing system in Europe is enlarged to cover transportation, there will be many more credits available — and a lot more finance and trading.

Early in the decade, Wall Street firms like Cantor Fitzgerald, which calls its environmental subsidiary CantorCO2e, were successfully using markets to reduce industrial pollutants that caused acid rain in North America, and had begun investing in credit-generating projects. But New York lost its lead in carbon finance after President Bush refused to submit the Kyoto Protocol for ratification in 2001.

“Technically, U.S. companies had the expertise,” said Garth Edward, 37, trading manager for environmental products in London at Shell Trading, a unit of the oil company, who formerly worked in New York for Natsource, one of the first greenhouse gas brokerage firms. “Then the Europeans really delivered.”

Mr. Edward, a Scot who studied Chinese at Oxford and worked in Kenya for the United Nations Environment Program, was among those who headed for London, where interest in carbon finance was developing after the introduction of a voluntary market by the British government in 2002.

His team of five traders sits next to power and natural gas teams, buys and sells carbon for Shell and devises investment projects that generate additional credits. Across town at Barclays Capital, Mr. Redshaw’s team of three helps power companies and investors manage the costs of emissions from coal or natural gas plants now and in the future, when the cost of emitting could rise sharply.

Lionel Fretz, chief executive of Carbon Capital Markets, a trading and finance company also in Mayfair, is among those who are fiercely critical of projects to clean up refrigerants in China that generated hundreds of thousands of credits and large profits for investment companies like Climate Change Capital.

Mr. Fretz said those projects had done too little to alter other substandard environmental and labor practices and promote renewable energy.

“The moral issue is that we shouldn’t be providing a subsidy to a plant that operates at lower standards than our own,” he said.

He has concentrated his funds, worth 150 million euros, or $204 million, on projects to capture and burn methane, another greenhouse gas, that is emitted at landfills in countries like the Philippines. Those projects are a new source of electricity. They also produce some carbon dioxide, but in quantities far less harmful than the methane, earning carbon credits.

Even though Mr. Fretz’s projects are far more modest than some of those at Climate Change Capital, a company he helped found before he sold his stake in 2004, he also has no shortage of qualified applicants for jobs.

“We’re getting fantastic people,” said Mr. Fretz, who was a financial adviser on road and pipeline projects for PricewaterhouseCoopers before taking a year off in the late 1990s to sail and rethink his career. “Maybe it’s a generational thing, but there seem to be plenty of people from world-class companies who want to do something more meaningful with their lives.” and its sister non-profit websites,,,,,, and are owned by John Donovan. There is also a Wikipedia feature.

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