Lehman quietly shuts down its carbon-trading desk 7

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1. 

   Adam Stein Posted 3:00 am
   16 Sep 2008

   Not a big dealFunny, I was just reading about Lehman's carbon desk yesterday and wondering whether they have any projects we can try to rescue. (Answer: no.)
   But basically this doesn't really matter much. Lehman appears to have a stake in 10 Chinese CDM projects. These projects will retain their value regardless of what happens to Lehman, and presumably the stake will be sold on to some willing buyer. My guess is that this will have absolutely zero effect on the projects themselves.
   And of course Lehman's trading desk is now gone, but it was small and the exit of a trading desk doesn't really affect the market much anyway.
   More generally, though, the general financial badness does have all sorts of effects on the development of renewable energy. Carbon markets are a small piece of this picture. Large renewable energy projects are funded through complex transactions involving lots of equity and debt. When banks start going down, well, lots of stuff happens. But basically it gets harder to find capital for projects. Lehman was apparently a particularly big player in solar.
   
   www.terrapass.com/blog

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2. 

   Sean Casten Posted 3:08 am
   16 Sep 2008

   I agree with AdamThe only setback I see is that it takes a long time to go from a spot market for a commodity to a fully robust trading system that starts to affect capital.  
   One of the great un-noted consequences of the US' failure to sign Kyoto is that most of the real financial sophistication when it comes to buying, packaging and selling CO2-denominated financial instruments is now based in London and Brussels rather than the US.  On the one hand, this means that the collapse of a US-domiciled trading desk doesn't really affect the varsity in the industry.  On the other hand, we do still need those domestic skills.  But on balance, this is a relatively insignificant event as compared to the rest of the banking crisis.

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3. 

   Tom Philpott Posted 3:26 am
   16 Sep 2008

   Thanks, guys...One more question: Did Lehman bail on its carbon desk because it's relatively such a low-income-generating activity for them?
   
   Victual Reality

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4. 

   Sean Casten Posted 3:32 am
   16 Sep 2008

   I have no ideaBut with some current experience looking at the waves of detritus being tossed up on the shores as a result of the Bear Stearns collapse, I'd speculate that it's not entirely rational.  Things collapse and the junky stuff is the first to be jettisoned, but there's never enough time to carefully separate the wheat and the chaff.  (How's that for three conflicting metaphors in a single sentence.  Where's my editor?)
   I'm not personally familiar with their carbon desk, or of their decisions about what to cut - but am sure that there will be plenty of good and bad decisions made in the upcoming weeks as the collapsing banks (and those being absorbed by others) make decisions about how to break up their assets.

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5. 

   Gar Lipow Posted 3:35 am
   16 Sep 2008

   Guess: transaction costs in the midst of chaosI'd guess that it is a matter of size and transaction costs in the midst of chaos and people walking out ahead of chaos. It is probably marginal to their overall business and requires a fair amount of administration at a time they have other things to worry about. As big a critic as I am of carbon trading I doubt it has anything to do with carbon trading's weaknesses - I suspect the same thing is happening to all the marginal desks within Lehman.

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6. 

   Platts Posted 2:51 am
   17 Sep 2008

   Short/LongThe Lehman CDM portfolio is apparently short on CERs exchange and long on CERs deliverable, it's quite a healthy portfolio in the sense that it's not overly invested in HCFC and CFC recycling projects. Rumors now are that, in the wake of Barclays buying Lehman's trading assets in the US, they'll do the same in the UK as well, including the carbon portfolio. But that's still to be decided. Overall, the market feels that, if this portfolio is sold off correctly, then it should have zero impact on the market if its broken up.

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7. 

   Pangolin Posted 3:16 am
   17 Sep 2008

   Another imaginary commodity bites dustThe carbon trading market seems to be somewhat like the mortgage equity market in that you have to trust that actors on the far side of the globe will behave in good faith. The system of credit and trades themselves are so confusing as to be opaque to the average investor.
   In the wake of the default of other complicated trading schemes carbon trading might not have much of a future.  
   
   Put the Carbon Back

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