Monday, September 15, 2008

Lehman Brothers lets carbon sink (without trace)

The day the big banks fell cannot pass without a Lehman Brothers related post.

Whilst thousands are losing their jobs we must consider the environmental implications. One of the most obvious is the closure of the carbon trading desk. This is basically a none story cooked up by journalists looking for an environmental angle.

Lehman Brothers Shuts Carbon Trading Desk [PlanetArk]

LONDON - Lehman Brothers shut down its carbon emissions trading desk after the bank filed for bankruptcy protection, a source close to the company told Reuters on Monday.

"Everything's stopped, blocked ... it's a bit anarchic," he said.

Lehman declined to comment on the matter.

The US investment bank filed for Chapter 11 protection on Monday while Merrill Lynch, also plagued by toxic, mortgage-related debt, agreed to be bought by Bank of America Merrill's carbon desk was open as usual on Monday, a source familiar with the bank said.

Lehman's membership on the IntercontinentalExchange, which includes access to the European Climate Exchange, the world's largest emissions trading exchange, was suspended, an ICE spokesman said.

This effectively disallows Lehman from closing any open positions on its trading books.

LCH.Clearnet, which handles clearing for ICE, also restricted Lehman's trading, citing the company as a "defaulter", the clearing house said in a statement.

"Lehman's were relatively small, they were late coming into the (emissions) market," one London-based broker said, adding that Lehman is thought to have been more involved in the Clean Development Mechanism (CDM) market than in day-to-day trading.

In the US$13 billion CDM market, a trading scheme under the Kyoto Protocol, companies from rich nations can invest in clean energy projects in developing countries and in exchange receive offset credits, called CERs, which they can use toward emissions targets or sell for profit.

Lehman has stakes in up to 10 CDM projects, the first source said. "There are some very good projects in the pipeline," he said, adding that they would probably be sold by liquidators.


The projects, mostly in China, are expected to generate 10 million to 12 million CERs by 2012, worth up to 275 million euros (US$385.4 million) at current market rates.

The source said the projects are of high quality and not involved in the destruction of hydrofluorocarbons (HFCs), a lucrative trade considered controversial by many in the emissions market.

One potential implication of Lehman's demise is the effect felt by those on the other side of these CER deals, often small companies in developing countries.

"If Lehmans have entered into direct contracts with counterparties in the developing world, chances are these contracts are probably not that complex," the broker said.

"Provisions in the case of bankruptcy probably won't have been included unless Lehmans introduced them unilaterally ... to protect themselves in case of the small (project owner) declaring bankruptcy," he said, adding that these provisions may now have backfired against Lehman.

European emissions markets were lower on weakness across the global energy markets on Monday.

European Union Allowances for December delivery lost one euro or 4.2 percent at 22.90 euros a tonne on volume of 2,300 lots traded. Benchmark CERs lost close to three percent at 19.20 euros a tonne.

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