Yorkshire Bank deal set to trigger growth in carbon credits trade

01/11/07

A MANUFACTURING company has sold carbon emission credits on the forward commodities market to fund environmental efficiency investments in a transaction which is among the first wave of such deals in the UK.

Steetley Dolomite, Workshop, Nottinghamshire, has sold 50,000 tonnes of its carbon credit allowance through Yorkshire Bank's Leeds Financial Solutions Centre (FSC) in the first of a series of deals which will generate substantial sums under Phase 2 of the Euro Emission Trading Scheme which runs from 2008 to 2012.

The company, which also has a base in Thrislington, Co Durham, was created in a management buy out of quarrying giant Lafarge's lime business three years ago and specialises in burning lime to create dolomitic products for the steel industry, including its own Dolomet which reduces damage to kiln linings and helps to produce a purer quality steel.

The EU allocates allowances to force carbon-producing businesses such as Steetley to control emissions but these are tightening with each new phase amid climate change concerns and, as there are significant financial penalties for companies which exceed their limit, carbon credits have gradually been recognised as saleable commodities.

During Phase 1 of the Euro Emission Trading Scheme, from 2004 to 2007, businesses, including Steetley Dolomite, traded surplus carbon credits through specialist brokers on the spot market to generate one-off funds with no guarantee of future values as brokers do not generally access the forward commodities market.      

What differs with the latest sale is that Steetley Dolomite, which has a £27m turnover and employs 85 staff and sells its products worldwide, asked Yorkshire Bank's Leeds FSC to sell its surplus carbon credits on the forward market to guarantee prices up to 2012. The trade was handled by nabCapital, London, the institutional banking and capital markets business of National Australia Bank, in conjunction with Yorkshire Bank's Leeds corporate team.

Steetley Dolomite managing director, John Carlill, says: "The ever-tightening EU carbon emission allowances mean that, to meet them and ensure we have a surplus, we are scaling down production slightly by omitting some unprofitable business and implementing efficiency measures to reduce our emissions.

"The continuing need for emission efficiency needs to be funded and the most suitable way is to sell our carbon credits throughout Phase 2 of the Euro Emissions Trading Scheme. Like any commodity the value of carbon credits is volatile and, to hedge against this, we asked Yorkshire Bank's Leeds FSC to investigate if we could enter into forward sales contracts to enable us to have secure values and consistency in our investment budget.

"We have been with Yorkshire Bank's Leeds FSC since it assisted us with our MBO three years ago and consider them as financial advisors to the company rather than merely a bank. When it came to this innovative carbon trading idea they were helpful and supportive. We are very pleased with what has been achieved."      

For businesses able to sell carbon credits it is expected to be an attractive way to raise revenue, particularly at a time of high interest rates, recent stock market uncertainty and the credit crunch following concerns over the US sub prime lending market.

However, during Phase 2 of the Euro Emission Trading Scheme, there is generally expected to be a shortage of carbon credits compared to the volume of carbon being generated by the economy. This will mean that most businesses are likely to face the choice of having to cut production or buying credits.

A partner in the corporate team at Yorkshire Bank's Leeds FSC, who joined from Barclays Bank last year, Terry Reddington, says: "This transaction for Steetley Dolomite is among the first wave of this type of deal in the UK and is the first  worldwide by  nabGroup.

"The success of this transaction may present some businesses with the hard financial evidence that, if they can drive down emissions, they can create sellable assets and generate significant income.

"However, if they are a business with such assets to sell, or needing to buy, they can use this Yorkshire Bank solution to reduce the impact on their bottom line through averting price change volatility affecting carbon credits." 

FOR FURTHER INFORMATION CONTACT:

ALLAN BARR  0141 333 4008
NATASHA LOBLEY 0141 333 4007

NOTES TO EDITORS:

About Yorkshire Bank
Yorkshire Bank was founded in 1859 in Halifax, West Yorkshire.  Today, the Bank has 190 branches, a strong personal customer base and a growing business capability in the North of England and the Midlands.  In 2006, Yorkshire Bank was voted the UK's 'Best Business Bank' by the Forum of Private Business.

Financial Solutions Centres:
Yorkshire Bank Financial Solutions Centres (FSC) offer Members a tailored range of business and private banking services under one roof. A team of specialist partners, each with considerable local experience, work together to provide Members with end to end solutions for their business and private banking needs. In addition to banking services, the FSCs also operate as a hub for local business, with a range of networking opportunities and meeting facilities available as a benefit of membership. 
Over 70 FSCs are located around the UK and in 2006 represented over half of the National Australia Bank Group's UK income.