Aldyen Donnelly: Enron’s methane reduction programs were nothing but hot air

When I first started speculating in the US CO2 market in the late 1990s, I found that Enron had already bought 100% of the methane rights at countless municipal landfills across the US – and did so for pennies per TCO2e. This meant they owned control over any methane management strategy, but had no obligation to cut emissions. As far as I could tell, by 1998 they had secured control of methane rights – translating into a potential portfolio of 200 millionTCO2e/year of low cost greenhouse gas (GHG) reduction options.

Enron used their ownership control to PREVENT municipalities from implementing cost-effective (without a price on CO2) methane capture and utilization projects – banking that those projects already profitable without cap-and-trade GHG reduction opportunities would be even more lucrative once cap and trade regulation kicked in. At $10/TCO2e, that portfolio of methane rights would be worth $2 billion today.

Fortunately, the Enron bankruptcy meant those methane rights went back to the municipalities who had signed them away before fully understanding what they had done.

Of course, I discovered Enron’s landfill gas methane rights position because at the time I was scouring the US market trying to buy up methane rights from the same sector. The difference between the Canadian companies that paid my expenses and Enron is that when we found landfills with large, but slightly uneconomic methane utilization opportunities, we added the net present value of our estimates of the future market price for emission reductions to our project pro-formas and brought forward the development of the GHG reduction projects.

In Canada, we financed roughly 130,000 TCO2e per year in methane reduction projects –   that would not have materialized had we not put a value on carbon – between 1998 and 2002. In short, Enron and GEMServ were not competing with one another. Enron was scooping up methane rights at landfills where gas utilization was already economic before we put a price on carbon and preventing those projects from development until there was a price on carbon. Whereas we were discounting the price on carbon to get projects that were not yet economically developed.

In 1999, the governments of BC, Alberta and Canada signed a Memorandum of Understanding, committing to award GEMServ’s large emitter investors credit for GHG reductions deriving from one of our BC-based early reduction projects in the event that any of those governments later introduced "cap and trade" regimes. Unfortunately, Alberta has since reneged on that commitment and it looks like both BC and the Government of Canada also intend to renege, largely under the influence of the anti-large emitter lobbyist Pembina Institute.

Before it was apparent that the governments were going to renege on their commitments to credit this specific pre-approved project, Natural Resources Canada reneged on a prior crediting commitment a couple of GEMServ member companies had received, in writing, from Anne McLellan when she was Natural Resource Minister. This was in respect of tree-planting projects that the companies financed which were implemented by the government-run Tree Plan Canada.

When it became abundantly clear that our governments had no intention of keeping their commitments to our pre-approved early reduction commitments – even when the commitments were unambiguous and in writing – the large emitters’ appetites to further develop truly additional early reduction projects died across Canada. That is why the majority of "reduction" credits now being sold in voluntary markets and governments are typically not additional.

This entry was posted in Aldyen Donnelly. Bookmark the permalink.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s