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BofA Merrill Enters California Carbon Market

Bank of America Merrill Lynch is entering the nascent California carbon trading market with an agreed option to buy several million tons of offsets from TerraPass, through 2020.

The offsets will be generated from a pool of agricultural methane projects located throughout the U.S., and are all expected to be compliant with the forthcoming cap-and-trade regime.

The system, based on Californian climate legislation AB32, has been held up by lawsuits. In an April decision, a San Francisco Superior Court judge said that the board had failed to sufficiently study alternatives to carbon trading.

But earlier this month, the California Supreme Court ruled that air-quality regulators may establish a cap-and-trade system while the state appeals the lower court judge’s order.

If approved, the system is set to become the second-largest carbon market in the world, with its first auction scheduled for mid-2012.

Abyd Karmali, the global head of carbon markets in BofA Merrill’s global commodities group, said the partnership will provide U.S. clients with an integrated hedging service including power, fuels, and carbon risk management. He said that by acting as a first mover in California, the bank is positioning itself as the offset provider of choice for companies that need to comply with the climate regulations.

This is the second long-term transaction that BofA has entered into with TerraPass.

In other carbon offset news, Chevrolet has announced support for 16 carbon reduction projects across the U.S., from biomass to wind turbines. It said the agreements account for half of its goal of preventing up to eight million metric tons of carbon dioxide from entering the air during the next five years.

The projects include:

  • Metrolina Greenhouse in Huntersville, N.C.: Replacing natural gas with renewable biomass – mostly waste wood – to heat greenhouses that grow gardening plants.
  • Crow Lake Wind Farm in Mitchell, S.D.: A 108-turbine wind farm, including seven community-owned wind turbines, that provides rural farmers and residents with locally generated power and financial returns.
  • Waste heat recovery at gas pipeline pumping stations in Culbertson, Mont. and Garvin, Minn.: Capturing the heat that would otherwise be vented from natural gas pumping station motors and recovering it to generate electricity, which is fed back into the grid.
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