Where to sink carbon

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The rise of the sink

NOT all industries are worried about the Kyoto accord. In fact, many investors in agriculture and forestry are hoping that the price of carbon emissions shoots sky high. They even think that the deal will create lucrative new markets for them.

Sound odd? The World Resources Institute, an environmental think-tank, explains: “Drawing carbon dioxide out of the air and into biomass is the only known practical way to remove large volumes of greenhouse gas from the atmosphere.” Biomass is jargon for trees and plants, which consume carbon dioxide and emit oxygen.

The final Kyoto treaty may include provisions to allow a trade in the carbon stored naturally in “sinks”, such as tropical forests and farms. If so, polluting firms may pay the owners of such “sinks” handsome sums; in return, they would receive credits to help them meet the emissions standards accompanying the Kyoto treaty.

Farmers are keenly eyeing this market. Agriculture, argue Helen Durrant and Graham Ford of PA Consulting, has become such a commodity business that it has been deprived of investment. “If the market for carbon management really does take off,” they say, “we could see huge investment flows to rural areas.”

Growing such crops as switchgrass not only absorbs carbon, but also produces a fuel that some power plants can use instead of oil, coal or gas. Techniques that keep greenhouse gases trapped in the soil, such as injecting seeds rather than tilling, have already led to lucrative contracts.

In forestry, Australia is forging ahead. The State Forests of New South Wales, a government firm based near Sydney, has worked out a clever way to measure, and trade, the carbon dioxide stored in trees. Firms pay the company to plant and manage forests on land leased from local farmers. In return, they get tradable emissions credits. Already, Pacific Power and Delta Energy, two local firms, and Tokyo Electric Power Company have signed on. Encouraged by this flurry, the Sydney futures exchange now wants to create an electronic market for trading carbon credits.

And if the forest burns down? That’s yet another business opportunity. Several insurers have come up with policies; and one of them, America’s Aon, is about to launch a unit dedicated specifically to dealing with carbon risk-management.