'Carbon' Job Market Poised For U.S. Takeoff

As trading in emissions credits increases, so do the opportunities for those with the right financial background and skills.

Global banks, energy companies and a handful of niche investment funds are actively hiring traders to buy and sell emissions credits, bankers to source and negotiate deals for emission-reduction projects and related credits, and policy analysts to keep tabs on national and international regulations on emissions and climate change. They're also hiring environmental engineers to perform due diligence and ongoing monitoring of individual projects.

Although most current jobs are in London, experts tell us the U.S. market is coming on strong after a late start.

Trading emission credits began just a couple of years ago but is already a $35 billion business, according to Sam Fankhauser, managing director at IDEACarbon, a boutique research firm. It's expected to double by 2010. A London-based Merrill Lynch trader recently told the New York Times that within a decade carbon trading volume could equal that of credit derivatives, currently a $30 trillion market.

The market owes its existence to governmental efforts to limit releases of carbon dioxide, methane and other greenhouse gases that cause global warming. There are actually three distinct markets: one for emissions-reduction project credits overseen by the U.N.-brokered Kyoto Protocol, a second "voluntary" market in credits for projects outside of the Kyoto mechanism, and a third, European Union system of tradable emission "allowances" granted to some 10,000 existing industrial plants.

U.S. Playing Catch-Up

Carbon trading in the U.S. was initially held back by the Bush administration's rejection of the 1997 Kyoto pact. The 169 governments that ratified Kyoto agreed to reduce carbon emissions by 5 percent of 1990 average levels in developed countries by 2012. "It is true that the U.S., having opted out of the Kyoto treaty, is late to the party. However, the level of 'chatter' is now raising antennas and activity is on the rise," says Joe Ziccardi, chief executive of Cromwell Partners, a New York-based search firm.

"It is difficult for U.S. investment firms to commit to something that is not yet being supported by regulatory authorities. However, it is expected that public policies requiring firms to reduce their greenhouse gas emissions and increase development of renewable energy will proliferate."

Authorities in several states are picking up the ball. California is taking a lead role, moving to create an emissions cap and trading regime compatible with the European Union system. And 10 northeastern states joined forces to establish the Regional Greenhouse Gas Initiative (RGGI), which comes into force in 2009.

"If you wait another two years or whatever it takes, I don't think you will notice a difference any more" between the pace of carbon trade activity and hiring in the U.S. versus Europe, says Fankhauser.

What Employers Are Looking For

Because the field is so new, most hires lack previous experience with carbon trading. Employers are taking candidates with backgrounds trading energy commodities, arranging deals or managing development projects.

Some roles require knowledge of environmental economics and policy issues. Before he joined London-based IDEACarbon earlier this year, Fankhauser was deputy chief economist at the European Bank for Reconstruction and Development, a multilateral lending institution. His group is currently looking to add "four or five" analysts to monitor carbon and climate policy developments, and to produce reports assigning formal risk ratings to various carbon-reducing projects, modeled after the way credit rating firms grade borrowers' default risk. Successful candidates probably will have been energy traders, or economists who specialized in energy markets, Fankhauser says.

Major investment banks also are hiring. Ziccardi says Goldman Sachs and Morgan Stanley have a strategic advantage given the strength of their commodity trading businesses. Other leading employers in the carbon arena are large commodity/natural resources firms such as Swiss-based Glencore International, and specialized asset management and advisory boutiques such as New York-based Natsource and London-based Climate Change Capital.

Cromwell Partners recently placed a CFO at a firm that specializes in carbon trading and related asset management services.

Carbon asset management firms operate much like private equity funds. For dealmaker roles, they seek people with banking skills who understand markets and risk from both a strategic and a financial standpoint. In contrast, pure trading positions generally are located within a financial institution's energy commodity trading desk. Firms also are hiring associates and analysts who gather information and prepare analysis about carbon markets, counterparties and projects.

Ziccardi says some job specifications may call for expertise in a particular function, such as fund accounting or compliance, without regard to the market sector where it was obtained. "However, hiring a trader, portfolio manager, or investment banker in this space is a different story," he says. "This will require specific industry knowledge and experience, which are usually obtained in the energy/commodity space."