Climate Wedge Ltd. Oy

Climate Wedge Ltd. Oy

Climate Wedge Ltd. Oy

Climate Wedge Ltd is an independent carbon management and investment advisory firm pursuing principal investments and GHG reduction project development in the carbon markets, and providing carbon finance and emissions-trading related advisory and asset management services to corporations, financial institutions, and low-carbon technology providers around the world. Climate Wedge, together with its partners, develops, structures financing and transacts a pipeline of proprietary CDM- and renewable energy projects, which offers buyers of compliance credits a solid stream of high-quality emissions reductions.

Company details

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Business Type:
Service provider
Industry Type:
Environmental
Market Focus:
Internationally (various countries)

Our approach is to identify, structure, and monetize the environmental benefits associated with renewable energy and carbon emission reduction projects and technologies. We are exclusively focused on developing, financing, and maximizing the financial value of carbon assets.

Climate Wedge is devoted to leveraging the market to direct sufficiently large amounts of capital to accelerate the transition of the global economy towards a low-carbon future. Our aim is to drive and support novel market-based solutions to reducing greenhouse gas emissions through carbon finance and emissions trading.

The Climate Wedge management team is comprised of former senior members of PricewaterhouseCoopers' global Climate Change Services team in London, with strong backgrounds in carbon finance, corporate climate strategy, carbon markets/ transactions, and climate science and policy. Since inception in 2005, Climate Wedge has advised a diverse range of companies ranging from McKinsey & Company, Wartsila Oyj, the California Public Employees Retirement System (CALPERS), CheyneCapital, and News Corporation on carbon-related strategy and investment opportunities. Climate Wedge was also the original author of the first version of the Voluntary Carbon Standard.

OUR MARKETS:
Global carbon markets, focus on CDM / JI / voluntary / precompliance US carbon market.

OUR GEOGRAPHIES:
Global, direct offices in Europe and the United States, representatives/affiliates in China, Mexico, Brazil, and Middle East.

OUR BUSINESS ACTIVITIES:
GHG project development as principals, carbon fund management and proprietary trading, project finance, investment and transaction advisory services.

OUR TECHNOLOGY SET:
Renewable energy (wind, geothermal, solar, hydro, biomass), landfill gas, waste to energy, industrial gas capture, ozone depleting substances, greenfieldgas generation and fuel switching, biomass and biofuels, associated gas recovery, efficient cookstoves and household energy efficiency, coal mine/bed methane. We also work with emerging cleantechventure technologies.

OUR CLIENT / TRANSACTION COUNTERPARTY BASE:
Multinational corporates, industrial groups, utilities, IPPs, renewable energy developers, institutional investors (hedge funds, venture capital, private equity, pension funds), large financials, technology providers, sovereign governments.

OUR TRACK RECORD:
Acted as a principal, co-developer, or advisor on transactions exceeding 50 million tons of CO2 eq reductions across tens of carbon reduction projects in Europe, FSU, Asia, and the Americas.

Climate Wedge is devoted to leveraging the market to direct sufficiently large amounts of capital to accelerate the transition of the global economy towards a low-carbon future. Our aim is to drive and support novel market-based solutions to reducing greenhouse gas emissions through carbon finance and emissions trading.

The following discussions give an overview of several themes that have influenced our thoughts and approach to environmental finance and the emissions challenge:

  • The need for gigaton-scale reductions
  • The broader role of carbon finance
  • Why US companies should pay close attention

The need for a significant acceleration in global efforts to reduce of greenhouse gas emissions is apparent. Despite the best efforts of key regulators from many leading city, state, national and supra-national governments, it is unlikely that the reductions necessary to begin the process of stabilizing greenhouse gas concentrations in the atmosphere at risk-tolerant levels will be accomplished uniquely through government regulations and enforcement.

Scientific studies suggest that a total of roughly 600 GtCO2eq of greenhouse gas emissions need to be reduced or avoided by 2050 to prevent dangerous increases in atmospheric CO2 concentrations. By comparison, the current pace of climate regulation is likely to deliver only a fraction of the necessary reductions. Although momentum is building globally for carbon constraints, and mandatory regulation is the ultimate and most effective driver for ensuring emissions reductions at scale, regulation alone will not be sufficient to achieve this stabilization target.

Climate Wedge Ltd Oy was launched in part to address this gap between what governments will be able to achieve through formal regulations and what will be necessary to lower the risk of a global climate system adversely impacted by human activities. As our name suggests, we are devoted to originating, developing, and financing gigaton-scale emission reduction initiatives. In practice our aim is to drive and support novel, market-based and technology-strong solutions for large-scale GHG reductions.

Along these lines, we have to-date focused on three broad gigaton-scale carbon finance strategies (elaborated below):
1. Voluntary carbon markets
2. Ozone-depleting substances and the Montreal-Kyoto gap
3. Efficient cookstoves in developing countries;
and continue to actively explore new abatement strategies and technologies which are highly scaleable and can have a meaningful impact on global stabilization efforts. If you have an idea or initiative with such potential you wish to develop please contact us.

Voluntary Carbon Markets: Our first gigaton-scale focus was on the emerging global market for carbon offsets and their use by regulated and non-regulated companies interested in effectively managing and lowering their carbon footprint, and offering their customers carbon-offset products and services. To promote credibility, liquidity, and uptake of the voluntary carbon markets, Climate Wedge was the original author of the first version of the Voluntary Carbon Standard (VCS version 1), which was subsequently launched on March 28, 2006, by the International Emissions Trading Association and The Climate Group, and worked closely with the Bank of New York in the design and launch of their carbon registry. And we are continuing to work to create and disseminate a set of global standards, metrics, and market infrastructure for high-quality non-compliant carbon projects. This market continues to grow towards its full potential of financing hundreds of millions of tons of emissions reductions per year.

Ozone-depleting substances and the Montreal-Kyoto gap
Since 2008 we have been pursuing a second gigaton-scale opportunity presented by the permanent destruction and removal from the refrigerant aftermarket of existing stockpiles of high GWP ozone-depleting substances (ODS). While the Montreal Protocol has succeeded in phasing out production of CFCs and other highly potent substances that destroy the Earth's ozone layer, existing banks of ODS are legally allowed to continue in circulation, mainly in residential refrigerators and commercial air conditioning systems. These banks represent nearly 18 GtCO2eq worth of GHG emissions, and will be emitted over the next 10-15 years with certainty from leaking equipment stock, representing three years of the United States' total GHG emissions, or nearly a year of global GHG emissions. These emissions are not covered by either the Montreal or Kyoto Protocols.

To help solve this urgent gigaton-scale problem, Climate Wedge cofounded EOS Climate in 2008 with leading industry and CFC regulatory experts to harness carbon markets and incentivize private capital to aggregate and permanently destroy ODS banks. EOS has pioneered the development of ODS-destruction carbon offsets, seeding critical market infrastructure including ODS destruction methodologies, and helping achieve ODS destruction as one of the four eligible compliance offset protocols under California's AB32 carbon market starting in 2013. EOS has to-date destroyed over 1.5 million tCO2eq worth of CFC11 and CFC12 from US domestic refrigerant sources and has developed a comprehensive global platform for ODS destruction carbon projects which is now set to rapidly scale.

Efficient cookstoves in developing countries:
Globally nearly 500 million households representing over 2.6 billion people, predominantly in the developing countries of Africa, Asia, and Latin America, cook with inefficient wood, charcoal, or coal stoves. In addition to causing devastating health impacts from indoor air pollution (WH estimates over 1.5 million people die each year), inefficient cookstoves strain forests and ecosystems and have higher operating costs, all the while emitting billions of tons of GHG emissions each year.

Climate Wedge has partnered with San-Francisco based non-profit Impact Carbon, which has pioneered the use of carbon finance to distribute efficient, clean-burning, sustainably fueled biomass cookstoves to households in Africa, Asia, and Latin America. Each stove can reduce carbon emissions by 2-4 tons/household/yr, and when scaled over thousands of households, programmes-of-activities (PoAs) can generate millions of tons of Kyoto compliant GHG reductions each year. Impact Carbon was the original author of the Gold Standard cookstoves methodology, and developed the world's first successful cookstoves carbon project in Uganda.

Climate Wedge has recently teamed up with the founders of Impact Carbon and E+Carbon to launch a new social venture company, Up Energy Group focused on developing scalable carbon projects to distribute efficient biomass cookstoves and other household energy efficiency products in developing countries throughout Africa, Latin America, and Asia. Up Energy's first projects are are in Uganda and Central America.

International carbon markets, created to reduce greenhouse gas (GHG) emissions, have spurred innovation and efficiency across a range of industries, particularly those that are energy and GHG intensive. By creating price signals, carbon markets enhance the relative attractiveness of efficient, low carbon technologies.

Creation and management of carbon assets

Broadly speaking, any project, investment, or measure which reduces greenhouse gas emissions can generate a ?carbon asset?. Regulated companies falling under a cap-and-trade system ? such as the European Union Emissions Trading Scheme (EU ETS) ? which reduce their overall, company-wide emissions below their regulatory requirements can sell the excess reductions in the form of avoided carbon allowances on comparatively liquid open markets. Alternatively, companies or third-party investors can finance specific projects (such as a methane capture facility at a municipal landfill) which reduce emissions beyond any particular requirement or business-as-usual-scenario. The resulting carbon credits may have value in certain carbon markets, yielding a financial return on the investment. Our focus here will be on the latter opportunity, carbon assets generated by emission reduction projects.

In an ideal world, carbon assets would have intrinsic value, but in practice they must be monetized through a specific legal framework and market mechanism. The monetization process depends on the particular carbon market in which a company or project operates, but typically involves at a minimum:

  • An assessment of the emissions boundaries around a particular activity that reduces emissions;
  • An evaluation of specific options and motivations to undertake an emission reduction activity [i.e. establishing the ?baseline? or business-as-usual scenario];
  • A rigorous calculation methodology to quantify those reductions of emissions in tons of CO2eq;
  • Independent verification that the reductions occurred as stated by experienced 3rd party verifiers / environmental auditors;
  • Additional steps depending on the particular market mechanism employed (e.g. host government approval and additionality under the Clean Development Mechanism);
  • Contractual management of the legal title to the emissions reductions.

The actual asset at hand is intangible, simply represented as the legal ownership of the rights to the emissions reductions, as well as an independent verification/certification statement that the reductions are fairly represented. In best practice, the asset is ?registered? on an independent or government-backed registry which tracks the transactional flow and end uses of the credits. This ensures the proper accounting for a financial instrument which is otherwise not based on any underlying hard asset.

Examples of projects which can create carbon assets include clean / renewable energy generation facilities, switching to less carbon intensive fuel sources, energy efficiency measures, capturing fugitive methane emissions from landfills, coal mines, and oil and gas production and transmission systems. Certain ?sinks? projects which remove carbon dioxide from the atmosphere may also be able to create credits, for example large-scale reforestation or avoided deforestation projects.

The main existing mechanisms which have been created to recognize such project-based carbon assets are the Clean Development Mechanism [CDM] and the Joint Implementation [JI] markets of the Kyoto Protocol. The CDM in particular has experienced rapid growth over the past few years, with over US$ 12 billion in public and private capital being invested into a pipeline of over 2000 projects in Asia, Latin America, and Africa, representing emissions reductions in excess of two billion tons of greenhouse gases by the year 2012. Other, smaller regulatory markets also exist, as well as an emerging voluntary market for emission reduction projects which exists outside of any particular legal framework.

Putting Carbon Finance to Work: Use of Carbon Assets

Carbon assets ultimately derive their value as they can be used by companies and entities to comply with mandatory emissions reduction requirements. Currently these requirements apply only to companies with facilities covered by the European Union Emissions Trading Scheme [EU ETS], and governments which accepted binding reduction targets under the Kyoto Protocol (i.e. the EU-25 nations, Japan, and New Zealand). However, the spread of market-based policies to reduce GHG emissions is likely to expand the regulatory demand for carbon credits to new markets, regions, and sectors around the world, particularly in North America. Those corporations which have carbon intensive operations or assets in jurisdictions with such compliance obligations can either invest directly in projects which reduce emissions and take ownership of those reductions, or purchase credits from the open market.

Once management understands the cost implications of emerging carbon regulations on their companies, the decision of when and how to enter the carbon markets is best informed by a comprehensive carbon management plan. This exercise begins with an inventory of the company?s emissions and reduction obligations, followed by an investment analysis of the set of direct measures to reduce emissions internally. These steps could range from complex efficiency improvements such as upgrading to more efficient production equipment or substituting less carbon-intensive input materials, to simple steps such as minimizing employee air travel and installing on-site renewable energy generation. Each realistic measure available to management should be ?priced? by determining its marginal cost of reducing each ton of emissions (a technique known as ?marginal abatement cost analysis? which is simply a discounted cash flow analysis of an emission reduction project to determine the cost of reducing a ton of carbon emissions).

Undertaking this analysis helps management understand the internal cost of reducing emissions, compared to purchasing emissions credits on the open market. Internal measures which are more cost effective to implement ? and suitably aligned with corporate strategy as discussed above ? should be green-lighted, thus reducing the company?s emissions footprint when implemented. The remaining reductions required for compliance could then be achieved by purchasing credits in the open market.

As emissions credits are a tradable financial instrument, companies need not have regulatory obligations to benefit from carbon finance. Those companies with unregulated operations in regions covered by the CDM or JI can often derive an additional revenue stream or incremental boost to their returns by funding projects which reduce emissions at their facilities (such as an energy efficiency upgrade or fuel switch) or on their properties (e.g. on-site windfarms or clean energy generation), and selling the resulting credits to the market. Independent investors seeking new capital deployment opportunities and uncorrelated returns can also finance emission reduction projects or provide liquidity to the market through a growing number of investment vehicles and carbon funds.

The rapid growth and broad reach of carbon markets into critical regions and sectors of the world economy is increasingly catching the attention of US companies. For business leaders looking to move their companies away from a cost and compliance driven energy/emissions management strategy towards proactive carbon management there are a number of compelling reasons to actively enter the international carbon markets.

  • Compliance exposure: US corporations with existing operations or considering M&A activity in Europe or Japan may have compliance obligations requiring them to reduce emissions or participate in the CDM/JI markets to satisfy their targets. Such companies include AES and ConocoPhillips.
  • Unlock carbon value: US corporations with international business operations can unlock additional value from reducing the carbon intensity of their operations and monetizing the corresponding reductions through the CDM or JI mechanisms. An example would be Chevron, which has been actively developing CDM projects in Asia such as its Indonesian geothermal project discussed above.
  • New investment class: US investors and financial institutions can participate in investment vehicles and carbon funds directly active in the CDM/JI/EU ETS markets, or with exposure to carbon, such as in global infrastructure funds or real estate investment trusts. Nearly all the major investment banks have established carbon finance teams and investment products open to accredited investors.
  • Technology markets: US-based technology providers and venture/private equity investors can benefit from increased markets for their low-carbon products and services. Wind turbines, gas turbines, and methane digesters are all examples of products used in emission reduction projects under the CDM. Providers such as General Electric and Caterpillar are well positioned to profit from the growing carbon markets. Smaller innovative technology providers can also exploit new global opportunities through linking with experienced project developers.
  • Capacity building: US corporations without compliance obligations or international market exposure can also enter the international carbon markets in any of the above pathways to gain experience with project-based carbon trading mechanisms prior to the advent of climate change legislation in the US. The regulatory dialogs at both the state and federal level are evolving towards cap-and-trade systems, of which project mechanisms are a fundamental component. Building knowledge and capacity to identify carbon assets, navigate the monetization process, and manage project risks should be an integral part of any corporation?s strategy to prepare for domestic carbon constraints.
  • Information management: An active carbon management strategy requires a company to re-evaluate its need and use of all energy and process-related information, and enforce its analytical capacity to identify, structure and leverage this information to spawn carbon related business opportunities.
  • Compliance positioning: Finally, a number of corporate investors are exploring opportunities to secure rights to emission reduction opportunities in the US which may become valuable carbon assets under a future mandatory cap and trade system here in North America. US business executives are in good position to leverage the rapidly expanding knowledge base around emissions trading by making use of existing opportunities in the international carbon markets and embracing the new tools emerging from carbon finance. However, this will require a significant change in the mindset of the average US manager - switching from looking at carbon emissions only as part the policy/risk-management process, to making carbon management a profit-centre.

Climate Wedge is actively involved in transacting carbon instruments, developing GHG reduction projects, and creating, financing, and bringing to market new emission reduction technologies and project development ventures.

Our carbon investment, trading, and project development activities span the range of project types, technologies, and asset types in the global carbon market, and we are active in the United States, Mexico, China, India, Southeast Asia and across other regions of the world. We are particularly focused on backing innovative transactions and highly scalable abatement sources and platforms that push the boundaries of the carbon markets.