JP Morgan goes into Carbon Finance

I found one interesting article about JP Morgan's new business at Fortune magazine (Aug 12, 2008): JP Morgan started selling stoves in Africa! Did they decide to change their business model? Not really. They are going to carbon finance. How does it work?

JP Morgan subsidizes fuel efficien stove (picture at left) selling in Africa. Then, Morgan can claim carbon credits for the finance. It can sell the credits at the international carbon market. It seems small business, but it is potentially huge. According to the Fortune article, each stove can reduce two to three tons of carbon dioxide a year, and each ton of carbon worths $10 to $15 a year. Imagine that they sell millons of stoves!

I had a chance to discuss this stove project with my colleagues. Their immediate reaction was negative: "how could such a big company take advantage of poor countries to make profits? It may give some tiny benefits to the poor in developing countries, but possibly worsen the environmental quality in developed countries by selling cheap carbon credits." 

I didn't fully agree with them. My question to them was then who are losers in this project? There is possibility of emission increase in developed countries, but that seems not the case, considered strong emission regulations in the countries. The poor receive benefits from the project: improved health and fuel saving. At global level, we can expect less carbon emission.

This project is related to my research interst. Input-output structural decomposition analysis can help varify whether and how much the project contributed in cardon reduction. The article mentioned that the fuel efficient stove can reduce 2 to 3 tons of carbon dioxide a year, but it is just direct reduction. With systems approach, we need varify total reduction generated by the project. It means that the stove may reduce fuel usage, but also it requires carbon emissions to build and transport the stove. So, the total effect of the stove will be less or greater than the direct effect. The project seems very interesting, and may have some good opportunities there.