WorldCity Business Magazine

(7-a) Who's Here Profile - MGM International, Carbon Credit Matchmaker

by Karen-Janine Cohen

Millions of people read about the 1997 Kyoto Protocol, a multi-nation agreement designed to decrease emissions implicated in global warming. Marco Monroy went further. He actually read the document itself. Buried in the details of the accord were the seeds of MGM International Group. The Miami-based firm, started by Monroy and his wife Maria Pia Iannariello, is a go-between, matching companies that, under the provisions of the Kyoto Protocol, must decrease
emissions of environmentally harmful gasses with projects in developing countries that need an incentive to adopt less polluting strategies. In the process carbon credits are generated that can be traded on global climate exchange markets.

The sector is so promising that last year financial giant Morgan Stanley bought a 38 percent stake in MGM. In August it launched Morgan Stanley Carbon Bank focused on carbon emission monitoring and verification.

That kind of interest from Wall Street is good news for MGM, which learned early how to navigate the system. We had the firstmarket advantage, Monroy said. The privately held firm is involved in 60 projects around the world with about 100 more under consideration. Monroy and Iannariello would not reveal revenue except to say that last year it was in the millions of dollars.

It all began with Kyoto, which outlined an emission reduction system crafted to include both industrial and developing countries. One of MGMs projects serves to illustrate how it works.

MGM brought together a Japanese electrical utility, which needed offsets to meet its emissions limits, with a Nestl plant in Chile that makes ice cream and dulce de leche. The coal-fired plant wanted to switch to natural gas, but was concerned about the cost.

After consultations with MGM, Nestl agreed to make the changes. The Japanese utility agreed to buy the emission reductions what the Nestl plant did not emit using the new equipment. Those changes are expected to generate 100,000 tons of Co2-equivalent (the unit of measurement the system uses) between 2006 and 2012, that the Japanese utility will buy for less than $5.00 a ton.

They (the Nestle plant executives) were able to feel comfortable with the capital investment having the contract, Iannariello said of the deal, inked in 2003 and 2004. Since then, the market has taken off. Today it would be about $15 a ton, she said.

Those transactions, along with other kinds of instruments, fuel the regulated European climate exchange market that flows from the Kyoto accords. The United States shut out of the Kyoto-based system because the Bush administration did not sign the accord has a voluntary program.

Monroys conviction that he could help clients maneuver through the system prompted him and his wife to start the company in 2000 when they lived in Washington, D.C. Monroy has a law
degree from his native Colombia and a masters in environmental law from American University. Iannariello holds a PhD in international finance from George Washington University.

They started out offering consulting services to amass the funds needed to begin project work. At first they also fronted the thousands of dollars required for project registration and validations under Kyoto. We took the entire project risk, Iannariello said, adding that people didnt at first believe that the system would work.

The company charges a commission on the value of the emissions saved, ranging from a tiny percent for enormous projects, up to 30 percent for the smallest ones. MGM relocated to Miami in
2002 in part to be closer to Latin America where it has many projects. It now has nine offices worldwide, including in China.

Meanwhile, brand names are joining the early visionaries who helped establish the sector one reason MGM made the deal with Morgan Stanley. A lot of projects need financing and that is what Morgan Stanley is helping us do, Iannariello said.

Indeed, transactions in the international carbon market in 2006 were worth about 22.5 billion Euros, up from 9.4 billion Euros in 2005, according to Point Carbon, an Oslo, Norway-based news, analysis and consulting firm. Experts also expect the U.S. voluntary market to expand.

Still, critics including governments acknowledge system problems from fraud to the fact that some developing-country projects in a cap-and-trade program planned to use cleaner technologies anyway.

David Kelly, who specializes in environmental economics at the University of Miami, said that companies vary widely in how well they avoid problems. Whats more, the program can have unintended consequences. For example, a switch in some factories to a cleaner technology in a country without emissions caps could exert downward pressure on the price of a more polluting fuel. In that case, the factory down the street might increase its use of the now cheaper but dirtier fuel. Its not that offsets are bad, he said, They just have to be carefully designed so you keep the good aspects of it.

MGM is aware of the pitfalls. Gautam Dutt is a senior technical expert at MGM and a contributor to the United Natoins climate change panel that won this years Nobel Peace Prize in tandem with
former Vice President Al Gore. In an email message, he explained that the company adheres closely to protocols designed to weed out firms that would have undertaken cleaner energy projects anyway. He also noted that energy price issues are complex and influenced by
international markets, local governments and other factors.

Asking developing countries to cap emissions is a touchy subject worldwide. It would be akin to telling children in Sierra Leone to go on a diet because there was a global food shortage, Dutt told WORLDCITY.

A scenario now being discussed would individually tailor emission growth and reduction to each country with all nations eventually harmonizing. That will likely be part of the global carbon-trading system after the Kyoto Protocol expires in 2012. And thats where people are now focusing as climate change gains urgency.

Monroy said in the next few years MGM expects to become more involved in the U.S.-based voluntary sector while also looking at new technologies. I see us coming up with some new ideas to help reduce greenhouse gasses, he said. Im a lawyer by profession, but at heart Im an entrepreneur.