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. Last Updated: 07/27/2016

Merrill Buys Stake in Carbon

U.S. investment bank Merrill Lynch said it has bought a minority stake in clean energy project developers the Russian Carbon Fund in a financing package worth around $200 million.

Carbon trading under the Kyoto Protocol on global warming allows rich countries that face caps on their greenhouse gas emissions from 2008 to 2012 to meet these by funding cuts elsewhere, especially in poorer and former Communist countries.

The market is attracting Western intermediaries and speculators, which hunt potential projects to reduce or destroy emissions of greenhouse gases -- buying the resulting carbon credits in order to sell them on.

"This deal shows our commitment to the global carbon market," Merrill's Chris Leeds said Monday.

The U.S. bank has bought a minority stake in the Russian Carbon Fund, which specializes in cutting emissions in Russia of the greenhouse gas methane, for example by plugging leaks in natural gas pipelines, and of nitrous oxide from fertilizer manufacturers.

As a part of the deal, Merrill has also arranged debt financing for the company and bought a certain volume of carbon credits in a forward off-take contract.

Russia could be a source of rich emissions-reduction pickings because there is so much scope to clean up its oil and gas industry. The Russia Carbon Fund says it has originated a portfolio consisting 82 projects with the potential to produce 140 million tons of emission reductions, in carbon dioxide equivalent, from 2008 to 2012. Credits for sale direct from projects were trading at around $13 per ton Monday, one broker said.

Interest in carbon markets is surging after a power shift in the U.S. Congress saw hopes raised for a U.S. carbon market -- which would increase the demand for carbon credits -- as well as on expectations of tougher rich-country emissions caps amid growing evidence of a global warming threat.

Earlier this month, the investment arms of U.S. bank Citigroup and agribusiness Cargill bought a minority stake in Sindicatum Carbon Capital, another carbon project developer that specializes in destroying methane.