The Kyoto Protocol is certainly a hot-button issue right now. Following a major heat wave in the United States and Al Gore’s global-warming documentary, An Inconvenient Truth, which has grossed $21 million at the box office to date, the environment is back on the forefront of many people’s minds.
Naturally, with this kind of attention, I try to find a profit opportunity somewhere in the mix. I started with a look at the Kyoto Protocol guidelines to get a better understanding straight from the source.
To my surprise, I noticed a “flaw” in the treaty that has created a colossal profit opportunity for an innovative company, Solar Energy Ltd. (SLRE:OTC BB). But let me give you a little background on my findings first.
The treaty’s designers, through either incompetence or pure genius, left a window of opportunity wide open. The flaw can be found at the beginning of Article 3, Paragraph 3 of the Kyoto Protocol:
“The net changes in greenhouse gas emissions from sources and removals… .”
The key term here is net. Countries will have to invest significant amounts of capital into reducing the company’s carbon dioxide footprint and away from investing in new equipment to increase productivity.
Kyoto compliance costs will soar
Under the Kyoto Protocol, carbon dioxide pollution credits are divvied up among member countries. Those countries then create carbon dioxide credits to sell to businesses. This way, businesses can purchase these credits and delay purchasing lower carbon-producing equipment. Through the sale of carbon dioxide credits, governments create economic incentives for businesses to reduce carbon dioxide emissions.
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Economists have already determined that some companies in Europe have been paying between $10 and $13 for credits that will help them meet their obligations under the Kyoto system. Businesses in developing countries are spending between $3 and $5 to reach their governments’ own Kyoto compliance mandates.
Owning the credits allows businesses to put off reducing their “carbon dioxide footprints.” But the amount of credits available is slowly being reduced. The reduction must be completed in order to meet the carbon dioxide emissions reduction goals established by the Kyoto Protocol. In other words, supply is decreasing.
The supply-demand situation for carbon credits is starting to get seriously imbalanced and it’s only getting worse. The credits are becoming very expensive. The prices of the credits are going to cost much more over the next few years. Carbon credits are already selling for over $30 each on special exchanges. The United States Environmental Information Administration is projecting prices for these credits to soar to $348 each by the end of the decade.
Eventually, pollution compliance is going to become incredibly expensive for businesses all over the world. I know what you’re thinking: If only there was a way to reduce pollution compliance expenses for businesses?
Solar Energy Ltd. has come up with a way to save billions of dollars for almost every company in the world. The proprietary process Solar Energy has developed is called carbon sequestration.
Carbon sequestration sounds complicated… but it’s not. The process basically involves Solar Energy engineers dumping iron into the ocean. The iron will have multiple benefits for the ocean with the most important being an increase in plankton levels.
The company’s scientists claim, “Reseeding a stretch of this sea with a single ton of fine iron particles generates dramatic [plankton] blooms which can inhale thousands of tons of carbon.”
The process is based on the research of oceanographer Dr John Martin. He is noted for having famously stated, “Give me a half-tanker of iron, and I will give you an ice age,” to clarify the impact of carbon sequestration will have on global warming.
You see, increased plankton levels will allow the ocean to absorb more carbon dioxide. This will reduce the carbon dioxide levels in the air that are the most plentiful greenhouse gas effect and primary cause of global warming.
An increase in plankton levels will not throw the whole global ecosystem out of whack. Oceanic plankton levels are already 30% below what they were a century ago. Restoring plankton levels to previous levels will only help the environment, not destroy the global ecosystem.
Solar Energy Ltd.’s scientists are not the only believers in carbon sequestration. The majority of the scientific community is abuzz about the potential of this revolutionary solution. Leading institutions in the academic community and elsewhere have already gotten in on the ground floor of carbon sequestration. Harvard University, Duke University, United States Coast Guard, and the Massachusetts Institute of Technology have already been involved in validating the effectiveness of carbon sequestration.
Show me the money
This brings me back to the loophole I have identified in the Kyoto Protocol. The loophole only holds treaty members responsible for “net changes in greenhouse gas emissions.” This single line in the 37-page Kyoto Protocol will allow Solar Energy Ltd. to reap significant profits.
Under this provision, as long as a country’s net carbon dioxide production is in line with their allowances defined under Kyoto Protocol, they are good to go. No penalties or outside political pressures. Everyone is happy. In order to ensure capital is invested in productive assets instead of pollution reducing assets, governments will allow businesses to purchase carbon-offset credits.
Solar Energy Ltd. will be the only option place to turn to buy affordable carbon-offset credits. Solar Energy’s bank account is going to grow into the billions by providing carbon-offset credits.
For the doubters, carbon sequestration has already proven successful. To date there is one company with zero net carbon production in the world today. Solar Energy has already offset $40,000 worth of carbon dioxide production to make Diatom Corporation the first 100% carbon-offset company in the world.
Forty thousand dollars is only the tip of the iceberg. Thousands of polluting manufacturing businesses and utility companies will be vying for Solar Energy’s offset credits. The carbon market has been valued at over $1 billion. And it is going to be dominated by Solar Energy Ltd. and their plentiful carbon offsets.
Even if Solar Energy Ltd. only charges 10% of what its credits are worth, it will be reaping $100 million in revenue each year. Not too bad for a company with a market capitalization of around $10 million. Not to mention, profits will be nearly as high because of the low cost of operations.
Solar Energy Ltd. has a lot of potential, but even more risk. Once you look past the great story, you’ll find a struggling company. The company has a current ratio of 0.23 and a quick ratio 0.08. For a company with no revenues and liquidity ratios as low as these, it’s going to be very tough to pay the bills.
This is why the company received the dreaded “going concern” comment from its auditors in the company’s annual report. According to the Association of Investment Management and Research, 10% of all companies declare bankruptcy within one year of receiving the “going concern” comment in their reports.
As of right now, it’s only a matter of time until this company runs out of money.
I recommend holding off on any investment to see if Solar Energy Ltd. can get more financing from other sources than aggressive share dilution.
Enjoy your day,
Andrew Mickey
Editor, Fear and Greed
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