Budding Billionaire? Will Neal Dikeman’s Software Be Key to Creating a $3.5 Trillion Carbon Trading Market?
Submitted by EnergyTechStocks.com
In its October 2008 “Carbon Industry Intelligence Research Note,” UK-based New Carbon Finance, the carbon trading market’s leading intelligence source, predicted carbon emissions trading will be a $3.5 trillion global market in 2020 compared with a little more than $100 billion in 2008, “assuming a US market does materialize.”
While such an assumption looks reasonable now that “green” economy advocate Barack Obama is about to take power, New Carbon Finance overlooked a second necessary assumption, namely, that somebody will develop the sophisticated software needed to keep track of this rapidly expanding, increasingly complex marketplace.
Enter Neal Dikeman, patent holder on a suite of software capable of providing transparency, credibility and timeliness to a market which, at this point, needs more of all three.
Dikeman is co-founder of CarbonFlow Inc., a private U.S. software development firm that has suddenly catapulted into the big leagues thanks to an exclusive relationship with the world’s largest verifier of carbon credit projects, Det Norske Veritas (DNV) of Norway.
DNV is a 150-year-old risk management firm whose auditors underpin roughly half of all carbon emissions transactions, providing project verification and certification. Among its relationships, DNV works with Morgan Stanley clients, assisting them in becoming “carbon neutral.”
Dikeman is one of many carbon trading experts who believe the market will rapidly grow as a sharply rising number of market participants buy and sell “credits” based on a sharply rising number of carbon reduction projects around the world (i.e., wind farms, solar power plants and multi-plant energy efficiency projects). He forecasts that eventually there will be 10,000 carbon-reduction projects started every year in countries around the world, compared with only about 200 per year currently.
Each project won’t just have to be certified at the outset and assigned a credit value based on the number of tons of CO2 emissions it is deemed to eliminate. Each project also will have to be tracked over the following decade to make sure it is being properly managed so that the emissions reductions remain legitimate. Complicating matters, any one project may cover industrial, agricultural and/or other types of facilities located on different continents and audited by different locally-based auditors. As the market matures, new projects will likely generate smaller and smaller reductions in CO2 emissions, resulting in a further increase in the complexity of, and demand for, project verification and certification services for a market whose players will be under rising pressure to meet pre-set annual reductions in their carbon “footprints.”
For CarbonFlow, the goal is to take all the information being developed by DNV and others and quickly make it available, along with price and other information, so that market participants are able to customize their buying and selling strategies.
For example, say a company decides that it would be cheaper to buy credits generated by carbon-reduction projects than to spend money reducing its own CO2 emissions in order to get in under its government-prescribed annual “cap.” That company may need to put together a buying strategy that encompasses buying emissions credits that are for sale from as many as 20 different projects located around the world, mixing and matching in order to come up with the lowest-cost solution.
Even after it buys the needed credits, that company may find a better mix of credits to buy, or choose to spend more on reducing its own emissions. In both cases that company likely will sell some or all of the credits it owns.
That company may further want to buy options on credits that will be for sale in future years, thereby creating a typical commodity hedge that will allow that company to decide, when the time comes, whether to get under the cap by buying credits or further cutting its own CO2 emissions output.
“We’re the only ones working on these multi-party problems,” Dikeman said in an interview, adding that his goal is to make CarbonFlow the dominant software provider for a marketplace where millions of participants could be executing a myriad of complex transactions every year based on information available through CarbonFlow.
CarbonFlow will begin selling its software by the end of the year, Dikeman said. While he declined to estimate what he expects revenues to be in a few years, he said investors don’t put money into start-ups unless they expect minimum revenue of $50 to $100 million in five years’ time. (CarbonFlow’s investors include Clean Pacific Ventures, OVP Venture Partners, Meridian Energy Ltd. and @Ventures.)
Asked whether that’s what CarbonFlow’s investors should expect, Dikeman called that a minimum, then added, “Some serious fortunes have already been made in carbon trading in a very short period of time.”
