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Green Hercules subsidiary aims to be giant in cap-and-trade offsets And you probably thought Cargill Inc. just traded farm commodities.
Cargill, whose 2008 revenues of $120 billion make it one of the world’s largest privately owned companies, is best known as a major player in the world of agribusiness, trading grain and other farm commodities.
But the Minnetonka giant is quietly developing another revenue stream – the burgeoning, and potentially lucrative, business of cap-and-trade carbon offsets.
And as the world’s industries and governments prepares to do battle with global warming, the implications could be huge.
Emissions trading, better known as cap-and-trade, sets an overall limit (“the cap”) on how much pollution an industry can produce. Individual companies within that industry get pollution permits, which can be traded. By investing in equipment that reduces pollution, a company can sell its credits to competitors that haven’t reduced pollution. Thus, companies have a financial incentive to cut their emissions of greenhouse gases.
Traders can also speculate on the future value of the credits, just as they can with such commodities as pork bellies or precious metals. With more production, there’s more pollution, which makes the credits that much more valuable.
Cargill spokesman Bill Brady said the company will not comment on its carbon offset trading activities, which currently involve trading greenhouse gas offsets through its London-based, wholly owned subsidiary Green Hercules Trading Ltd.
But that subsidiary is one of several Cargill business units already listed on the Chicago Climate Exchange, the world’s first legally binding greenhouse gas offset exchange. And on its website, Cargill says it is positioning itself as a “global partner to help solve a global issue.”
Cargill joined the Chicago exchange, also known as CCX, in March 2007, when the company announced its intention to reduce its own greenhouse emissions some 6 percent by 2010.
According to the website, Green Hercules Trading has a diversified portfolio of carbon offsets from hydro, wind and biomass power projects.
The site references project locations in Mexico, Kenya, Pakistan, India and China, and positions the commodities trading giant as a “leading investor in offsetting projects in developing countries” and commitment to social development there.
Cargill stands to gain revenue from credits given to the company for not releasing greenhouse gases, then selling those credits to polluters as federal and state governments increasingly pledge to slash emissions
The federal government’s goal is to reduce greenhouse gas emissions 80 percent from their 2005 levels by 2050. Minnesota lawmakers passed legislation in 2007 requiring electric utilities to produce 25 percent of their power from renewable resources by 2025.
That same law requires Minneapolis-based Xcel Energy to generate 30 percent of its energy from renewable sources by 2020.
Driven by federal and state efforts to reduce such emissions, CCX has been the antithesis of the New York Stock Exchange and other financial markets that have tanked during the recession.
The Chicago Climate Futures Exchange, a wholly owned subsidiary of CCX, reached a record number of contracts in February – and then broke that record in just 13 trading days this month.
During those trading days, CCX trading volume traded 60,676 contracts, 7.5 percent more than the 56,429 contracts traded in February.
Offsets are required for a wide range of GHG-producing projects of industries.
According to a roster of offset projects on the CCX website, projects range from fuel switching offsets, agricultural and coal mine methane offsets, renewable energy offsets for wind, biogas and hydropower projects, an ozone depleting substance destruction offset in Arizona and forestry offsets.
Among offset projects specifying Minnesota as a project location are forestry and agricultural soil offsets, landfill methane offset and agricultural methane offset.
Even generating energy in a way that produces lower GHG levels has become a marketable practice.
The University of Minnesota, for example, reduced emissions by 25 percent from a coal-burning boiler on campus by blending wood chips and oat hulls into the fuel mix.
From 2003 to 2007, the university earned more than $1 million by trading reduction credits through CCX. And a similar approach was pursued by the University of Iowa, decreasing its coal consumption by 30,000 tons.