Carbon credit offer: great buy, or rip off?

We look at an offer to ‘invest’ in voluntary carbon credits at a price of $15.47 per ton.

JOHANNESBURG – The SMS sounded promising. “Invest in carbon credits and earn up to 30% per annum,” it said. I was intrigued, so I replied “yes” and waited for the sales call.

Sure enough I was contacted by a representative of Advanced Global Trading (AGT). On the face of it, AGT is no fly-by-night company. It has offices in Dubai, Abu Dhabi, Doha, Zurich, and Melrose Arch, Johannesburg. It is also an official partner of the Lotus F1 team.

I attended a sales presentation at AGT’s Melrose Arch offices.

The salesman told me how AGT clients achieved returns of 30.2% in 2011 and 15% last year.

AGT deals in voluntary carbon credits. These credits are created for companies who voluntarily wish to reduce their carbon footprint. In contrast, compliance credits are for companies who are compelled by law to offset emissions.

In South Africa, a well-known buyer of voluntary credits is the ‘green’ bank, Nedbank. Nedbank buys credits to offset its own emissions and become carbon neutral.

AGT offered me voluntary credits at $15.47 per ton. These credits are verified under the Verified Carbon Standard (VCS). The verification confirms that the credits are genuine, and allows the buyer to trace the credit to its origin, be it a tree-planting project, wind farm, or hydroelectric dam.

I had no idea whether the $15.47 was cheap or expensive, so I decided to do my own research before making a decision to buy AGT’s credits.

The first thing I discovered was that the price for carbon credits has collapsed in most parts of the world. Thus the soaring price of AGT’s credits is something of an anomaly.

The second discovery is that it’s possible to buy VCS-verified carbon credits for much cheaper than $15.47. In fact you can pick them up for less than a dollar. Readers who are interested in the market for carbon credits can download State of the Voluntary Carbon Markets 2012. This 110-page document shows that voluntary credits can trade at prices ranging from less than $1 to over $100 per ton.

Much depends on the type of credit, including its vintage, location and associated community benefits. For example, Nedbank doesn’t just buy any old carbon credits. It pays a premium for credits that originate from projects in Africa with a focus on community upliftment and conservation. An example is its Rukinga Deal in Kenya.

AGT does not typically give its clients the option to choose credits from a specific project. However, spokesman Ian Hainey says AGT will consider requests for specific projects from a client on a case-by-case basis. If you are tempted by AGT’s offer, this seems a sensible thing to do, in order to be sure you’re not buying really cheap VCS credits that are available in abundance from projects in China.

Advanced Global Trading operates in an industry that plays host to several charlatans and unscrupulous operators. Thus it has a hard task to convince potential clients that it is acting in good faith.

The UK’s Financial Services Authority warns investors of the perils of carbon credit investing. In a notice on its website, the FSA says: “We are concerned that an increasing number of firms are using dubious, high-pressure sales tactics and targeting vulnerable consumers.”

It says: “Investors are usually called out of the blue by salespeople promoting carbon credits… You could lose money on your investment by not being able to sell, or at least get a competitive rate, when trading a small volume of carbon credits.”

In the end I decided not to purchase credits from AGT. I have no way of knowing that they weren’t bought for less than a dollar from some project in China. And if the credits are such a good deal, why is AGT offering them to me? This is a market best left to the experts.

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