Green S.A.

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South Africa goes for green (Times)

Companies are making millions out of someone else’s greenhouse gases, writes Rowan Philp

South Africa’s biggest companies are boosting their profits by millions — by getting paid to cut their pollution. The managing director of fertiliser giant Omnia Holdings, Trevor Grant, told Business Times the company expected to add a bonus of at least R60-million to its bottom line for years to come — over 10% of its average profit figure — by simply reducing the amount of environmentally damaging greenhouse gases it produces.
European companies unable to meet emission reduction targets set out in the international Kyoto Agreements purchase “credits” from companies in developing countries that are able to reduce theirs.


Grant said Omnia had already “forward-sold” its first year’s worth of pollution saving through the World Bank and Dutch bank Rabo after just three months of clean production. Meanwhile, Fred Goede, Sasol’s environment team leader, revealed that the oil producer’s first approved CDM (clean development mechanism) project produced its first carbon credits last month. He said the project, based at two Sasol fertiliser sites, would yield more than R100-million-worth in its first year — about a tenth of the normal profit projections for those plants — but, unlike Omnia, the credits would be stockpiled.
However, if all of Sasol’s eight carbon credit projects come on line by 2012, the company expects to earn billions in value — assuming reasonable carbon credit prices — as some of its major plants switch from coal to gas.
Goede admitted that Sasol would not have cut the emissions without the credit incentive, and said the company had already been “inundated” with offers from European companies to buy its credits.
Fertiliser and explosives companies — including African Explosives — have been the first to cash in because the nitrous oxide waste gas they produce (popularly known as laughing gas) is 310 times more valuable than carbon dioxide on the carbon market. However, experts said the “serious money” for the economy would lie in carbon dioxide reductions in switching from coal to gas.
Approval for SA’s other planned carbon projects would mean a foreign exchange inflow of more than R6-billion a year by the end of 2012 — making it one of the country’s biggest earners. At a conservative sales price of R165 per credit, Highveld Steel and Vanadium alone would make an extra R2-billion annually, if its carbon-cutting project goes ahead.
Now, South Africans will be able to invest their rands in the global carbon credit market for the first time from tomorrow, when the JSE offers R400-million worth of shares in carbon credit investments.
This follows a surprise return of 250% for South African investors who bought a sample offering of “feel-good” carbon credits in 2005, and found they outperformed virtually every other asset class.


Grant said he thought investment in carbon credits on the JSE was a “good idea”, but warned investors that ‘‘this is still a high-risk commodity”.
Following a landmark agreement by the Reserve Bank last month, investors will be allowed to use rands to purchase a new offering of 2.5 million carbon credit notes this week at a total value of R400-million, listed under Asset-Backed Securities.

In a trial offering of R100-million worth of carbon credits at the JSE in 2005, offshore investors paid R54 per “share”, which realised R190 at maturity in June this year. For this issue, Cape Town-based asset managers Sterling Waterford sought out emission-reducing projects in India, South Korea and Brazil.
In Sao Paulo, for instance, the local municipality channelled harmful methane gas — normally released into the air from its massive landfill sites — into electricity generation, and sold the “credit” from this environmental saving to developed-world companies, creating a dividend for South African investors.
This week’s Carbon Credit Note 2 offering by Waterford is backed by a broader portfolio of carbon-cutting projects in countries including Vietnam and Azerbaijan, administered by BNP Paribas bank.
Gregor Paterson-Jones, CEO of Waterford, said: “All analyst forecasts are consistently bullish for the Carbon Credit Market to 2012. The growing interest in this market globally has generated a bull cycle which has not been affected by the global downturn brought about by the sub-prime woes of the US.”
Paterson-Jones said the greatest challenge was to educate investors on the complicated and unfamiliar mechanics of the market.
One Cape Town-based private investor, Sakie Rust, said he had already committed funds for this week’s credit note investment, having made “a very nice and unexpected return on the first one, and helped the environment a bit at the same time”.
Roy Bradley, one of a new breed of carbon brokers, said: “Big investment returns used to be a case of ‘greed is good’. Now it’s ‘green is good’, which is a whole lot more palatable.”