Proliferation of Emissions Offsets Threatens to Depress Europe's Carbon Trading

Proliferation of Emissions Offsets Threatens to Depress Europe's Carbon Trading - New York Times

A huge influx of international greenhouse gas emission offsets looms over the carbon markets, but traders and banks don't know yet what to make of the situation.

Participants in Europe's Emissions Trading System (ETS), the main market for the credits, are normally used to worrying about an oversupply of government-allocated emissions allowances sinking carbon prices. Many of them are now wondering if they're now facing an oversupply of offsets having a similar effect.

Procedural reforms and new hires at the Clean Development Mechanism (CDM), an agency established by the Kyoto Protocol and headquartered in Bonn, Germany, have led to record issuances of offset credits from that office since December. As a result, credits are getting approved and flying out the door faster than ever before.

Some experts worry that the incoming rush of new offsets could depress the total value of carbon trading globally this year.

"If it continues accelerating like it has since the end of November, it will, because obviously, this is not what is priced in today," said investment analyst Emmanuel Fages at Orbeo, the carbon market arm of Société Générale. "What was priced in even some weeks ago was very regular, average issuance level."

But Fages and others also caution that the influx could be a temporary phenomenon not likely to last for the entire year. Indeed, most carbon market experts expect supplies of the CDM's Certified Emission Reduction (CER) credits to become much tighter into 2012, because uncertainty of whether the CDM will even exist after that year is causing the number of new projects to shrink fast.

"Our predictions for the issuance volumes are very high in the third week, but going into week four or five, that goes down significantly," said carbon market expert Milo Sjardin at Bloomberg New Energy Finance. "In the longer term, we're still having the problem that the issuance volumes in general are not as high as they could be."

For the moment, more feast than famine

Last week, the office that runs the CDM hit a milestone when it announced that the program had hit 500 million CERs allocated to offset project developers since the system began. About 60 million more credits are pending, and up to half of these are expected to be delivered this month.

The end of 2010 saw monthly CER issuance hitting new record highs, and January is on track to again break the record, with up to 47 million CERs possibly heading to the offset projects that are requesting them.

CERs can be sold to governments seeking to meet their Kyoto Protocol emission reduction targets or to firms facing compliance rules under the European Union's ETS. For years, supply into the carbon markets was predictably slow, as project approval and CER issuance had difficulty navigating the CDM's cumbersome bureaucracy, but reforms to the system and more manpower are speeding things up much faster than analysts had earlier predicted.

CDM officials express confidence that the new quicker pace is now permanent, and not a temporary rush to clear up a backlog of work at the end of the year as some observers theorize.

"We'll be keeping a close eye on the number of submissions and will be working to reduce the wait times to 15 days," CDM spokesman David Abbass said. "As a result of the concerted push in December, which made use of outside experts, the secretariat now has a pool of contractors that it can draw on to help deal with peaks."

Point Carbon expects 253 million more CERs will be issued in total this year, more than half the amount of all CERs put out since 2006 and about 90 percent above the volume issued in 2010, 132 million.

Fages and his team at Orbeo only expect issuance to be about 30 percent higher this year, rising to 170 million CERs by the end of 2011. But they admit that they may have to revise this figure upward if the current trend continues.

Bloomberg New Energy Finance predicts a 40 percent growth in CER allocations this year. Predictably, CER prices have been trending lower in recent days.

From a high of about €14 per metric ton of carbon dioxide equivalent pollution reductions, CER prices are now running in the €11 range, and some market analysts are warning that they could dip lower. Thus far, the dip has not affected prices for E.U. allowances (EUAs) traded under the continent's ETS, but that could change should the downward momentum continue.

Newly approved HFC-23 projects add to offset influx

The spike in CER levels is attributable not only to the end-of-year push that Abbass described, but also to the release of credits requested by hydrofluorocarbon-23 (HFC-23) destruction projects that were earlier held up while the CDM Executive Board investigated accusations of fraud. HFC-23 is a potent greenhouse gas caused by manufacturing refrigerant gases in the developing world.

A large quantity of CERs were also recently issued to projects that destroy the greenhouse gas nitrogen oxide (N2O) recently, further inflating the numbers. Together, HFC-23 and N2O destruction have historically accounted for around 75 percent of all new CER supply entering the markets.

Though some argue that the picture will return to normal once these three factors are accounted for, available data suggest that CER supply could continue to rise even without the help of HFC-23 and N20.

For instance, numbers available on the CDM's website shows that the majority of new CERs are being issued to renewable energy projects, mainly large wind and hydroelectric operations in China. Of the more than 4 million credits issued on Wednesday last week, none went to large industrial gas projects.

Analysts at the investment bank Barclays Capital in London see a trend here. They predict that industrial gas destruction's share of the CDM will continue to slide, from about 75 percent today to 68 percent by the end of the year, and moving further lower after then.

CER issuance volumes will continue to stay high for some time, they predict.

Longer-term trade prospects remain 'strong'

"We do expect that heavy CER issuance in the coming weeks and we have seen some pressure on prices," said Barclays Capital analyst Trevor Sikorski in an e-mail. "Generally the supply of CERs will help moderate price gains across 2011 and this was reflected in our recent revision downwards of our price forecasts."

But despite the inundation, most experts don't see carbon prices falling through the floor this year.

Sikorski and his research team see plenty of support to hold CER prices at an €11 to €12 per ton range. Compliance purchases by companies in Europe will help firms hedge their supplies in anticipation of future shortages, and new trading in New Zealand should keep the market buoyant, he said.

And the sudden explosion of new offsets supply shouldn't be a drag on EUA prices, either, experts say.

"The European market has a lot of other fundamental drivers that impact the carbon price there," said Sjardin at Bloomberg New Energy Finance. "And if you look at the longer term, longer-term, the prospects are still strong."

One analyst with a major Wall Street bank, speaking on background, even argued that the faster tempo at the CDM will actually hurt the system in the longer term. The European Union's plans to ban HFC-23 and some N20-derived CERs from its system beginning in 2013 could cause some players to raise concerns about the quality of other offset projects.

The analyst worries in particular about the large hydroelectric projects being awarded CERs. A seeming push to please developing nation governments and project developers may lead some to turn away from CERs if they conclude that the CDM has given up on assuring "additionality," the industry term for verifying that a carbon abatement project would not have existed were it not for the offsets trading system.

Abbass at the CDM headquarters in Bonn says the Executive Board is well aware of this perception problem and is carefully managing it. Reforms at the CDM have been carefully tailored "to the need for changes to the way requests for registration and issuance are assessed, to make the process quicker without compromising environmental integrity," he said.

But Fages at Société Générale also expressed concern that the CDM has seem to have undergone a fundamental change in culture -- from one focused on stringency and quality assurance toward a heavier emphasis on getting projects approved quickly and feeding as many CERs into the system as possible.

"Why I'm surprised is that now they're shifting to accelerated issuances, as if they have changed their stance more than they're staff," said Fages.

"I'm a bit hesitant to change my [CER supply] forecast just now because I'm not completely sure yet that they have changed their attitude," he added. "But if they are considering the projects differently from now on, then yes, I will have to increase my supply forecast."

Clean Technology in China -- a Difficult Balance Between Cooperation and Competition

Clean Technology in China -- a Difficult Balance Between Cooperation and Competition - New York Times

Executives of ECOtality Inc. believed in 2009 that their battery charging technology would be a winner when plug-in electric vehicles began to hit the market this year. But with debts running far ahead of revenue, the San Francisco firm needed immediate financial support to stay in the game.

The help came from China, through a $2 million investment that year by a Chinese company. In return, the Chinese company received the rights to make and sell ECOtality's chargers in its country and in other Asian markets. The relationship is one example of the complex linkage between American clean energy technology and Chinese capital and markets that will be a subject in this week's U.S.-China summit in Washington led by President Obama and Chinese President Hu Jintao.

¶The relationship is contentious and collaborative at the same time, commented Georgetown University's Joanna Lewis, writing in the latest assessment of China's environmental activities for the Woodrow Wilson International Center for Scholars.

¶The United States contends China is illegally subsidizing its wind power equipment manufacturers, effectively locking U.S. and other foreign suppliers out of key parts of its booming market. The Obama administration has taken the dispute to the World Trade Organization for adjudication. U.S. officials and American commentators noted progress, however, on the dispute over wind turbine technology during the December meeting of the Joint Commission on Commerce and Trade.

¶A key emphasis at this week's meetings will be on clean energy collaboration, says David Sandalow, assistant secretary of Energy for policy and international affairs. "The United States and China are the two biggest energy producers and consumers in the world. We have many shared interests in finding climate solutions," he said.

¶Robert Kapp, former president of the U.S.-China Business Council, said he assumes that U.S. companies have saved up announcements of new clean energy projects for this week.

¶Cooperative research to get another push

¶At the government level, in the past year, the two nations have been implementing a $150 million joint program of Cooperative Energy Research Centers, which includes research on carbon capture and storage at West Virginia University, on electric vehicles at the University of Michigan, and on building efficiency at Lawrence Berkeley National Laboratory. This program will get another push forward this week, Sandalow said.

¶"We are focused on protecting U.S. interests, but in the course of that, there are ways we can learn from each other," he said.

¶Other high-level technology partnerships under way include a U.S.-China Steering Committee on Clean Energy Science and Technology Cooperation, a U.S.-China Electric Vehicle Initiative, and a U.S.-China Renewable Energy Partnership, Lewis noted.

¶But, she added, "Despite the long list of official bilateral agreements signed between the United States and China in the area of clean energy and climate change, there have been many challenges to following through on the successful implementation of agreed upon activities," beginning with inconsistent funding. "Cooperation is also hampered by the increasingly competitive relationship between the United States and China in the global economic marketplace," Lewis said in the recently published Issue 11 of the Wilson Center's China Environment Series.

¶"Clearly there is a long way to go to build the trust that will be crucial to scaling up clean energy cooperation between the United States and China that the world needs," she said.

¶As the fastest-growing market for wind and nuclear power and the leader in solar power modules, and with a commitment to expand electric vehicles and carbon capture from coal plants, China is the place to be for American clean energy companies with global aspirations.

¶"Certainly we should find something in between to make it win-win," said Zou Ji, China country director for the World Resources Institute in Beijing. "Some people believe now Chinese [clean] technology has been advanced, but that depends.

¶"In manufacturing, China has made great progress, but for R&D and design, China is still very weak." The United States and China can collaborate on joint research and development and scale the technology up in China, where costs are lower, he said.

¶Concerns about China's 'very tough game'

¶But if access to China is tied to a drain of leading-edge U.S. technology, the hopes for future American leadership in clean energy development -- a top priority for Energy Secretary Steven Chu -- could be erased.

"China is America's fastest-growing export market but it still maintains significant barriers to U.S. goods and services," said Nina Hachigian in an overview of U.S.-China issues on the Center for American Progress' website.

While the trade frictions between the two countries over clean energy are improving, in Kapp's view, serious issues remain, he said.

"In many commercial negotiations, the Chinese play a very hard game of trying to trade market access for technology, and American companies are always faced with the question of how much they're willing to part with, in terms of crown jewels or other advanced technologies ... in return for opportunities to make money in China," Kapp said. "The Chinese are not saints, and they play ... a very tough game," he told reporters last week.

A report last year by a U.S. National Research Council panel criticized China's recent anti-monopoly law that prohibits "abuses" of intellectual property rights by foreign multinationals in China, an element of the country's "indigenous innovation" strategy.

The policy pressures foreign companies to transfer their technologies in return for market access to state-directed markets, the report said. "China is also likely to use the standards-setting process to compel multinationals to transfer the technology that is implicated in the standards or face the legal consequences of noncompliance," the report added.

"While still clouded with suspicions and disrupted by setbacks, the broader trends in the U.S.-China relationship today are fundamentally positive," concluded the report by the council team, led by C.D. "Dan" Mote Jr., former president of the University of Maryland, and John Gannon, an executive with BAE Systems Information Technology and former chairman of the National Intelligence Council.

The challenge -- and solution -- to the issue of technology transfer lies with the protection of intellectual property, Kapp said. "And on that," he said, "the jury is still out."

Case studies suggest caution

Every U.S.-Chinese clean technology venture seems to have its own story and unique issues. For example, First Solar, the leading U.S. solar power company, made headlines in September 2009 with its agreement with Chinese officials to build a 2,000-megawatt photovoltaic energy project in Inner Mongolia.

More than a year later, the project has not gotten off the ground. Under pressure from Chinese energy companies, Chinese officials have not yet approved a feed-in-tariff that would subsidize the cost of the solar farm's electricity.

"Until that happens, it is not economical to make the commitments and take the risks of undertaking a project like this," said First Solar spokesman Alan Bernheimer.

When the project was announced, a local Chinese official expressed the hope of having a local factory make the First Energy solar cells, which are based on an advanced -- and closely guarded -- technology employing thin films of cadmium telluride as the photovoltaic material.

"No question the Chinese would love to have us site manufacturing facilities there, to work with our technology and gain experience using it," Bernheimer said.

"There has been no commitment to putting manufacturing facilities in China," said Bernheimer. "We've only discussed the construction ... of solar generation plants. We've left open whether that could eventually involve manufacturing ... it's an open question."

First Solar's research and testing occur at its factory in Ohio. The solar cells for the Mongolian project would most likely to produced at First Solar factories in Malaysia or Vietnam, he added, but that would not entail technology transfer to those countries. "We have not done that to date with anybody. Our manufacturing processes are the crown jewels of our technological advantage."

Protecting the 'crown jewels'

ECOtality also has traced a careful line in its relationship with its Chinese partner, according to company officials and its public statements.

The company had invested in research on hydrogen-power vehicles during the George W. Bush administration, and when that initiative was cut short by the Obama administration, ECOtality turned its efforts toward electric vehicle charging, where it has a base in equipment it produces for airline use.

The $2 million investment by Shenzhen Goch Investment Ltd. came at a crucial time. A month after it was announced in July 2009, ECOtality won a $99.8 million stimulus grant from the Energy Department -- later raised to $114 million -- to supply 15,000 of its Blink chargers for the Nissan Leaf and Chevrolet Volt plug-in vehicles that form the vanguard of the U.S. electric vehicle industry.

The company got a validating $10 million investment this month from ABB, the Swiss energy technology giant, and will use ABB electronics in its charger products.

The chargers for the DOE project will be made in the United States by a leading auto parts supplier, said ECOtality Vice President Chip Read. "We're spending a lot of money to get manufacturing up to speed in the U.S. That's not something we want to abandon."

But ECOtality sees its chargers as contenders in a worldwide market that is just beginning to take shape. Shenzhen Goch Investment is the majority partner in two joint ventures to build and market the chargers in China, and to export them to Asian markets. ECOtality has the minority position in the venture, which includes technology transfer under license agreements that the U.S. company controls, Read said.

Read said that ECOtality's strongest intellectual property position -- its crown jewels -- lies not in manufacturing, but in the back-end software and electronics that will control the customer charging operations, vehicle interfaces, billing and possibly linkages to the grid. These are likely to vary to some degree country by country, he said.

"We have to take into account that we have a high-quality product, not just low-cost one. That will play a big role on where we source components."

Goldman Offering Clients a Chance to Invest in Facebook

Goldman Offering Clients a Chance to Invest in Facebook - New York Times

Tony Avelar/Bloomberg NewsThe deal could double the personal fortune of Mark Zuckerberg, Facebook’s co-founder.

Goldman Sachs has reached out to its wealthy private clients, offering them a chance to invest in Facebook, the hot social networking giant that is considering a possible public offering in 2012, according to people familiar with the matter.

On Sunday night, a number of Goldman clients received an email from their Goldman broker, offering them the opportunity to invest in an unnamed “private company that is considering a transaction to raise additional capital.” Another person briefed on the deal said that Goldman clients would have to pony up a minimum of $2 million to invest and would be prohibited from selling their shares until 2013.

A Goldman spokesman declined to comment.

Facebook has raised $500 million from Goldman Sachs and a Russian investor in a transaction that values the company at $50 billion, according to people involved in the transaction. As part of its deal with Facebook, Goldman is expected to raise as much as $1.5 billion from investors for Facebook.

The email sent to Goldman clients warns that recipients who trade in secondary markets where private firms like Facebook trade may want to steer clear of participating because if they opt in they may receive material non-public information on the unnamed company that will restrict future trading.

The email said that even clients who receive the non-public information and decide not to invest would have to wait at least six months and possibly longer before they would be able to trade Facebook shares in the secondary market.

These restrictions are lifted if Facebook goes public in the interim.

Even though Facebook is not a public company it trades on secondary markets. The sellers in these markets are typically former employees of companies like Facebook and investors looking to unload their stakes. The buyers are mostly wealthy speculators looking to snag a piece of the next Apple or Google before the rest of the investing public can.

Goldman clients who opt to receive more information will receive a private placement memorandum from Goldman in the coming days. That document will confirm the company involved is Facebook, and give other more detailed information about the investment.

The original article is below:

By ANDREW ROSS SORKIN and EVELYN M. RUSLI

Facebook, the popular social networking site, has raised $500 million from Goldman Sachs and a Russian investor in a deal that values the company at $50 billion, according to people involved in the transaction.

The deal makes Facebook now worth more than companies like eBay, Yahoo andTime Warner.

The stake by Goldman Sachs, considered one of Wall Street’s savviest investors, signals the increasing might of Facebook, which has already been bearing down on giants like Google.

The new money will give Facebook more firepower to steal away valuable employees, develop new products and possibly pursue acquisitions — all without being a publicly traded company. The investment may also allow earlier shareholders, including Facebook employees, to cash out at least some of their stakes.

The new investment comes as the Securities and Exchange Commission has begun an inquiry into the increasingly hot private market for shares in Internet companies, including Facebook, Twitter, the gaming site Zynga and LinkedIn, an online professional networking site. Some experts suggest the inquiry is focused on whether certain companies are improperly using the private market to get around public disclosure requirements.

The deal could add pressure on Facebook to go public even as its executives have resisted. The popularity of shares of Microsoft and Google in the private market ultimately pressured them to pursue initial public offerings.

So far, Facebook’s chief executive, Mark Zuckerberg, has brushed aside the possibility of an initial public offering or a sale of the company. At an industry conference in November, he said on the topic, “Don’t hold your breath.” However, people involved in the fund-raising effort suggest that Facebook’s board has indicated an intention to consider a public offering in 2012.

There has been an explosion in user interest in social media sites. The social buying site Groupon, which recently rejected a $6 billion takeover bid from Google, is in the process of raising as much as $950 million from major institutional investors, at a valuation near $5 billion, according to people briefed on the matter who were not authorized to speak publicly.

“When you think back to the early days of Google, they were kind of ignored by Wall Street investors, until it was time to go public,” said Chris Sacca, an angel investor in Silicon Valley who is a former Google employee and an investor in Twitter. “This time, the Street is smartening up. They realize there are true growth businesses out here. Facebook has become a real business, and investors are coming out here and saying, ‘We want a piece of it.’ ”

The Facebook investment deal is likely to stir up a debate about what the company would be worth in the public market. Though it does not disclose its financial performance, analysts estimate the company is profitable and could bring in as much as $2 billion in revenue annually.

Under the terms of the deal, Goldman has invested $450 million, and Digital Sky Technologies, a Russian investment firm that has already sunk about half a billion dollars into Facebook, invested $50 million, people involved in the talks said.

Goldman has the right to sell part of its stake, up to $75 million, to the Russian firm, these people said. For Digital Sky Technologies, the deal means its original investment in Facebook, at a valuation of $10 billion, has gone up fivefold.

Representatives for Facebook, Goldman and Digital Sky Technologies all declined to comment.

Goldman’s involvement means it may be in a strong position to take Facebook public when it decides to do so in what is likely to be a lucrative and prominent deal.

As part of the deal, Goldman is expected to raise as much as $1.5 billion from investors for Facebook at the $50 billion valuation, people involved in the discussions said, speaking on the condition of anonymity because the transaction was not supposed to be made public until the fund-raising had been completed.

In a rare move, Goldman is planning to create a “special purpose vehicle” to allow its high-net-worth clients to invest in Facebook, these people said. While the S.E.C. requires companies with more than 499 investors to disclose their financial results to the public, Goldman’s proposed special purpose vehicle may be able get around such a rule because it would be managed by Goldman and considered just one investor, even though it could conceivably be pooling investments from thousands of clients.

It is unclear whether the S.E.C. will look favorably upon the arrangement.

Already, a thriving secondary market exists for shares of Facebook and other private Internet companies. In November, $40 million worth of Facebook shares changed hands in an auction on a private exchange called SecondMarket. According to SharesPost, Facebook’s value has roughly tripled over the last year, to $42.4 billion. Some investors appear to have bought Facebook shares at a price that implies a valuation of $56 billion. But the credibility of one of Wall Street’s largest names, Goldman, may help justify the company’s worth.

Facebook also surpassed Google as the most visited Web site in 2010, according to the Internet tracking firm Experian Hitwise.

Facebook received 8.9 percent of all Web visits in the United States between January and November 2010. Google’s main site was second with 7.2 percent, followed by Yahoo Mail service, Yahoo’s Web portal and YouTube, part of Google.

For Mr. Zuckerberg, the deal may double his personal fortune, which Forbes estimated at $6.9 billion when Facebook was valued at $23 billion. That would put him in a league with the founders of Google, Larry Page and Sergey Brin, who are reportedly worth $15 billion apiece.

Even as Goldman takes a stake in Facebook, its employees may struggle to view what they invested in. Like those at most major Wall Street firms, Goldman’s computers automatically block access to social networking sites, including Facebook.

New Capital for Groupon Sets Stage for an Offering

New Capital for Groupon Sets Stage for an Offering - New York Times

Tim Boyle/Bloomberg NewsGroupon employees at the company’s headquarters in Chicago.

The 30-year-old founder and chief executive of Groupon, Andrew Mason, could raise as much as $950 million from investors in the next few weeks, laying the groundwork for a multibillion-dollar initial public offering in 2011.

The social buying site, which offers coupons for local businesses, has so far locked up $500 million in fresh capital from Fidelity Investments,Morgan Stanley, T. Rowe Price, and other large investors — allowing Mr. Mason and eight other directors to take a significant amount of cash off the table.

In the coming weeks, the company could bring in another $450 million, according toa Securities and Exchange Commission filing on Thursday.

If successful, Groupon’s latest fund-raising effort would be the largest ever for a start-up, a venture capital record held by DreamWorks Animation SKG for the last 15 years, based on Thomson Reuters data.

A spokeswoman for Groupon declined to comment on the outside investments.

The fund-raising is all part of the typical life cycle for an Internet start-up. But Groupon has gone from a quirky idea to Web darling in about two years — an especially fast evolution that got a turbo charge when the Chicago-based company spurned a $6 billion takeover offer by Google in the first week of December.

A frenzy of activity followed the failed bid.

Within days, institutional investors started lining up, ready to provide significant capital infusions. On Dec. 20, Groupon hired its first chief financial officer, Jason Child, a former Amazon.com executive. By Thursday, Fidelity, T. Rowe Price, Morgan Stanley and others had committed $500 million, according to two people with knowledge of the fund-raising who asked for anonymity because they said they were not authorized to speak publicly.

Meanwhile, Groupon, with revenue above $1 billion, continues to grow at a breakneck pace. In the last month, the site’s subscriber base has jumped 42.3 percent to more than more than 50 million worldwide, the company said. On private exchanges that facilitate trading in tech start-ups, Groupon has an implied valuation approaching $5 billion, up from $1.2 billion in June.

With its giant war chest and investor excitement, Groupon is planning to hold an I.P.O. at the end of 2011, these people said.

The company’s eagerness to enter the public markets stands in stark contrast to another Internet star, Facebook. The social media giant reluctantly — almost grudgingly — seems headed for an I.P.O. in the next two years. The S.E.C. is looking at private trading in Facebook shares, which may prompt the company to go public earlier than it wants.

If either company holds a public offering, it would be the most highly anticipated since Google’s in 2004. A multibillion-dollar deal would also go a long way to reviving the moribund I.P.O. market, which has been in a slump since the financial crisis. In the last three years, only 61 tech start-ups have gone public — and none valued at more than $1 billion, according to boutique investment firm Renaissance Capital.

“The market has been waiting a long time for that innovative young company, like a Groupon, to hit,” said Paul Bard, a vice president at Renaissance Capital. “Having one of these companies go public would validate the I.P.O. market for a lot of smaller companies waiting in the wings.”

Groupon could be rushing its debut, in part, to cement its dominance in the online advertising market. While Groupon is the 800-pound gorilla, it is a highly competitive space that has spawned scores of clones that are becoming viable threats. The No. 2 player, LivingSocial, has more than 10 million subscribers and recently raised $175 million from Amazon.

For now, Groupon has first-mover advantage. But that edge can quickly evaporate as Friendster and MySpace learned when Facebook entered the social media fray years ago.

“If they raise all this money privately and then become the first to go public in this space, they will become the de facto winner,” said Peter Falvey, co-head of technology investment banking for Morgan Keegan. “They have a good lead, but the idea is to go for the knockout punch — an I.P.O. would be a huge branding event.”

For Groupon’s new class of investors, it is all about that eventual payday. By jumping in now, T. Rowe Price, Fidelity and Morgan Stanley get an opportunity to peer into the company’s books and more important, get in before the public offering so the potential for a windfall is greater.

T. Rowe Price and Fidelity have participated in venture capital deals before. In 2008, the two firms teamed up on a $50 million fund-raising effort for Slide.com, a Web application developer. T. Rowe Price also has a stake in Twitter, which recently raised $200 million.

“Institutional players are dealing with a competitive environment, and they’re looking to put capital to work in a differentiated way,” said Tige Savage, a board member at LivingSocial. “They see it as an opportunity to get involved earlier at a better price and lock themselves into larger positions at these companies.”

As institutional investors patiently wait for their payout, Groupon’s directors could soon get a windfall. The company plans to use $344.5 million from the latest fund-raising round to let Mr. Mason and the rest of the board cash out some shares.

That would be the second time this year the company’s founder banked profits. “Historically, most private company investors don’t get meaningful liquidity from other private investors,” Mr. Falvey said. “Groupon is the exception, not the rule.”

Is 2011 the Year of the Blockbuster Tech I.P.O.?

Is 2011 the Year of the Blockbuster Tech I.P.O.? - New York Times

Evelyn M. Rusli asks in New York Time's Deal Book if 2011 will be the Year of the Blockbuster Tech I.P.O.? A question that merits our attention!

FarmVille, Zynga’s online game.

For technology start-ups, the initial public offering has long lost the sheen of the dot-com era, when it seemed like anyone with an idea could go public. At the peak of the bubble, the Silicon Valley factory was in overdrive, pumping out hundreds of I.P.O.’s. a year.

In the wake of the financial crisis, there were just 45 offerings of tech companies in 2010, according to investment firm Renaissance Capital. The year before, only 16 debuted.

Now, Silicon Valley could see a modest return to the prerecession days — and even a hot brand-name initial offering from the likes of Groupon, Facebook or Zynga analysts say.

“If the equity markets remain stable, I expect a solid I.P.O. market,” said Peter Falvey, co-head of technology investment banking for Morgan Keegan. “We could see 20 percent more deals by value and by number.” Mr. Falvey and others also see increasing odds for a “Death Star explosion” — a blockbuster, multibillion dollar offering from a major Internet company. That theory gained credence on Thursday, when DealBook reported that that social-buying site Groupon is preparing for to I.P.O. at the end of 2011.

Silicon Valley is waking from a deep slumber.

The credit crisis paralyzed the technology I.P.O. market, as investors shunned unproven ventures. Only 20 companies went public from 2008 to the end of 2009, according to data from Renaissance Capital.

Meanwhile, initial offerings have become less attractive to young entrepreneurs who do not want to be burdened with the costly bureaucratic challenges of going public, including increased regulatory scrutiny, constant filings and high investment banking fees.

Instead, more founders are delaying initial offerings in favor of additional venture capital. Facebook raised more than half a billion dollars from the Russian firm Digital Sky Technologies. As DealBook noted, Groupon is negotiating with Fidelity, T. Rowe Price and Morgan Stanley for another round of financing that could be as large as $950 million.

Still, several analysts say I.P.O.’s may be regaining favor again, thanks to the improving stock market and a better economic environment.

“We may be nearing an inflection point,” said Paul Bard, a vice president at Renaissance Capital. “Companies are feeling good about their businesses, the buy side is more interested in growth and new money is coming into the market. When you have those three things happening in concert, that creates the potential for a very vibrant market for tech I.P.O.’s.”

The market may also be supported by the steady flow of Chinese companies, looking to go public on American exchanges. Eleven technology companies based in China had initial public offerings in the United States this year, including DangDang, an online retailer that experienced higher-than-expected demand in its debut, raising $272 million.

After a sluggish start, I.P.O. performance and pricing has picked up in the second half of this year. The shares of technology companies that have recently gone public are up 50.3 percent from their initial offer price, according to Morgan Keegan.

Although there are a few well-known names in this group, including the electric-car marker Tesla, the vast majority are little known, small-cap stocks. And some have done very well.

Shares of the software maker RealPage, which began trading in August, have roughly doubled. RealD, the 3-D technology company that went public in July, is up 60 percent.

The average first-day increase in share price was 18 percent, said Mr. Bard, adding that the recent rally would encourage small and midsize tech start-ups to take the plunge next year. He says he expects 2011 I.P.O. activity for technology stocks to match the levels of the years preceding the recession. In those years, the market averaged 53 public offerings a year with a value of $9.6 billion, according to Renaissance Capital.

There are 22 companies in the tech I.P.O. pipeline, including the Web chat serviceSkype, which many predict will be a billion-dollar offering.

The latest parlor game, however, is placing bets on whether Internet companies like Groupon or Facebook, which already have multibillion-dollar valuations, will join the fray. There has been significant demand for these Web darlings in the secondary markets, private exchanges that match buyers and sellers, including former employees looking to sell their stock. Facebook, at the center of the frenzy, is trading at an implied valuation of $42.4 billion, according to SharesPost.

Although the company’s founder, Mark Zuckerberg, has said that he is in no rush to go public, the company may face increased pressure in the near term. As more investors pile into Facebook shares, often through special investment pools, the company could soon surpass 500 shareholders. That milestone would subject the company to a Securities and Exchange Commission rule that would require Facebook to register with the S.E.C. and submit financial results.

As DealBookreported, the S.E.C. has started to ask for information about secondary-market trading in the shares of Facebook, Twitter, Zynga and LinkedIn.

If Groupon or Facebook, or one of their peers, do go public in 2011, Mr. Falvey said it would be a game changer for the industry.

“There’s a chance that you get that Death Star I.P.O. in the tech market that draws huge attention to I.P.O.’s,,” he said, “the kind of attention we haven’t seen since the tech bubble burst in 2000.”

Probable Carcinogen Found in Tap Water of 31 U.S. Cities

Probable Carcinogen Found in Tap Water of 31 U.S. Cities - New York Times

In 25 of 35 U.S. cities where tap water supplies were tested for hexavalent chromium -- deemed likely to cause cancer in humans in a U.S. EPA draft review this year -- levels of the chemical exceeded the minimum set by the state of California to protect public health, according to a report released today by an environmental group.

The Environmental Working Group's (EWG) new findings mark a public flare-up in the behind-the-scenes battle over estimating the carcinogenicity of oral exposure to hexavalent chromium, also referred to as chromium-6. The draft EPA assessment released in September could pave the way for a national drinking-water standard for the chemical, best known for polluting groundwater in Hinkley, Calif., where activist Erin Brockovich won a multimillion-dollar settlement for locals and became a household name.

The outcry over cancer cases in Hinkley helped push California to set a tap-water public health goal of 0.06 parts per billion (ppb) of chromium-6, an early move on the way to a binding state standard (Greenwire, Aug. 21, 2009). Of the 35 cities where EWG tested drinking supplies, 31 contained some level of chromium-6, and 25 -- including Washington, Los Angeles and Norman, Okla., where samples showed 12.9 ppb -- contained levels higher than the California goal.

EWG senior scientist Rebecca Sutton, an environmental chemist who crafted today's report, said her group's data provide new ammunition for measuring and restricting chromium-6 in drinking water nationwide. The federal government made "a very poor choice" by mandating its current drinking-water tests for total chromium, a metric that blends hazardous chromium-6 with the essential nutrient trivalent chromium.

Sutton added that while "industry is doing its very best to slow the process down even further," she hopes to see California advancing its chromium-6 limits to serve as a potential model for broader action. "Sometimes the state of California can lead the way, can show, 'Hey, this is possible,'" she said.

Brockovich, now an author and full-time consumer advocate, predicted in an interview that further chromium-6 water contamination issues would emerge "not only at a national but a global level."

"There is no reason why we can't address this without sounding some kind of panic alarm, which [critics] are going to accuse us of doing," Brockovich said.

A heavy metal commonly used in industrial dyes and coatings that also occurs naturally in small amounts, chromium-6 is known to be carcinogenic via inhalation. The cancer-causing effects of oral exposure through water, however, remain the subject of intense debate between environmentalists and industry.

The recent EPA draft review of chromium-6 incorporated the results of a 2008 National Toxicology Program (NTP) study that found a higher occurrence of gastrointestinal tumors in exposed rodents. The American Chemistry Council and the American Water Works Association, which represents water utilities that could bear the costs of broader chromium-6 testing, have both questioned the application of the NTP study to human exposures at lower levels.

ACC and AWWA have called on EPA to postpone further action on its chromium-6 risk assessment until new studies, including one funded by industry, are released next year.

A senior official at the Southern California Water Committee (SCWC), an alliance of industry and local governments active on water quality issues in the state, also asked EPA to delay the chromium-6 assessment until more studies are released.

Using the 2008 NTP data to assess the cancer-causing effects of lower exposures to chromium-6 "may not reflect the true risk and will have significant consequences for the public's confidence in the quality and safety of their drinking water," SCWC Executive Director Richard Atwater wrote to EPA in October. "Furthermore, it would prematurely trigger regulatory levels that water supply agencies simply don't have the equipment to monitor and detect."

Click here to read EWG's full report on hexavalent chromium in drinking water.

Wyoming Natural Gas Fracking Rules for Point the Way for Public Disclosure of Chemicals Used

Wyoming Natural Gas Fracking Rules for Point the Way for Public Disclosure of Chemicals Used - New York Times

To coax more oil from a wildcat well named "Mad Hatter," Halliburton Co. is planning to inject water mixed with small concentrations of napthalene, ethanol, "1,2,4-Trimethylbenzene" and "hydrotreated light petroleum distillate" into a hole in the ground near Casper, Wyo.

Such detailed chemical information was once a closely guarded secret. But it is available to anyone with an Internet connection now that Wyoming is demanding that drillers disclose each chemical that they are putting in each well.

Led by Gov. Dave Freudenthal (D), state regulators decided that the best response to fears about water contamination and the prospect of federal regulation was to order the country's most detailed disclosures of the ingredients used in hydraulic fracturing.

Though companies had long argued that fracturing fluid recipes are trade secrets worth millions of dollars, there has been relatively little grumbling since the rules kicked in Sept. 15.

"I'm not hearing many complaints," said John Robitaille, vice president of the Petroleum Association of Wyoming. "I think we're OK."

And Wyoming's regulations could be the shape of things to come. The Obama administration is looking to the Cowboy State as a model for fracturing disclosure on federal lands in the West. Interior Department officials figure it would be hard to argue against an approach developed in petroleum-friendly Wyoming.

If that led to Western state governments adopting similar rules, Eastern states such as Pennsylvania could feel pressure to demand similar information from drillers tapping into the rich Marcellus Shale.

"It will certainly become a model for disclosure," said Dave Alberswerth, a former Clinton administration Interior official now with the Wilderness Society. "It'll be more difficult for industry to argue against this."

In fracturing, crews inject tanker-loads of water and sand underground to blow apart the rock and release gas. A small fraction of that concoction is a mixture of chemicals as mundane as ice cream thickener and as toxic as benzene.

Improvements in fracturing technology have opened the vast shale formations in Pennsylvania and other states that were previously considered too difficult and expensive to tap.

But the rapid expansion of drilling and fracturing has intensified fears that the toxins and carcinogens in fracturing fluid might contaminate drinking water. Environmentalists and congressional Democrats have pushed not only for public disclosure of fracturing chemicals but also stricter federal regulation of the practice.

Drilling companies, though, say fracturing is safe and existing state regulation is sufficient. They stress that the fracturing fluid is injected thousands of feet below drinking water aquifers and maintain that there has never been a proven case of groundwater contamination from the fracturing process.

Hushing the debate

With the regulations, Wyoming has done what Washington failed to do: quiet the burgeoning debate about fracturing.

The rules accomplish much of what congressional Democrats and environmental groups were seeking in the arena of disclosure. Though they cover only one state, that state accounts for a tenth of all gas production in the United States. Neither industry nor environmentalists are completely happy with the disclosure regulations, but both have accepted them.

The oil and gas industry has arrived at this point after years of struggle. Companies have long maintained that public disclosure of fracturing fluid ingredients would unfairly cost them millions of dollars. In a filing with the Securities and Exchange Commission earlier this year, Halliburton said federal or state requirements to disclose the composition of fracturing fluid would be a regulatory burden that could decrease profits.

Halliburton spokeswoman Teresa Wong referred questions about the Wyoming regulations to trade groups such as the Petroleum Association of Wyoming.

"As for Halliburton, we will of course continue to comply with all laws and regulations," Wong said.

But as pressure grew, companies such as Exxon Mobil Corp. insisted that they actually were disclosing the ingredients because they posted "material safety data sheets" (MSDS) at work sites. But those information sheets are for industrial accidents, not groundwater monitoring, and they often omit key data.

When Colorado overhauled its regulations in 2007, it required more disclosure, but not to the public. Colorado now requires drillers to keep a detailed inventory, but they only give a copy to regulators if asked.

But as the public profile of fracturing has risen to become the subject of independent film documentaries and network shows like "CSI: Crime Scene Investigation," more companies have embraced the need for full public disclosure.

"Giving the public a greater sense of transparency is an important step forward," Anadarko Petroleum Corp. spokesman John Christiansen said. "Once the process is better understood, we think the public will be more comfortable with it."

Industry advocates say that the quiet compliance of drillers of Wyoming proves that their objections were not so much about informing the public so much as opposition to giving more power to a federal agency such as U.S. EPA.

Arkansas has approved well-by-well disclosure regulations that go into effect next year. Also, an association of state oil and gas regulators called the Ground Water Protection Council is developing a voluntary system for well-by-well disclosure that has been endorsed by drilling companies.

Interior studies Wyo. model

Still, other Western states have even fewer requirements for disclosure. New Mexico regulations, for instance, do not address disclosure of fracturing chemicals.

In the East, Pennsylvania currently requires public disclosure of fracturing chemicals, but only the MSDS sheets, which are available at regional offices. But amid a strengthening gas rush, the state is still determining how it will tax and regulate oil and gas production. New York has banned most high-volume fracturing while it studies the process and develops rules.

Congressional efforts to force disclosure of chemicals stalled this year and will likely disappear when Republicans take over the House next year. But at a forum on fracturing late last month, Interior Secretary Ken Salazar announced his department plans to develop rules on public disclosure of fracturing chemicals used on the vast public lands of the West (E&ENews PM, Nov. 30).

"I'd like to see that happen," Wyoming Oil and Gas supervisor Tom Doll, who shepherded the new regulations, said in an interview. "What we're saying is have something that's working. Nothing beats success like success."

Interior officials confirmed that they are looking to Wyoming as a model for such regulations, which would primarily affect lands and minerals overseen by the Bureau of Land Management. And Salazar gave Doll a keynote role at Interior's fracturing forum. Administration officials used the forum to explore how public disclosure has worked on federal lands in Wyoming.

Still, Salazar's announcement sparked outrage from Republicans on Capitol Hill.

"I oppose adding burdensome, new red-tape that will further discourage oil and gas production on public lands in the West," Sen. John Barrasso (R-Wyo.) wrote to Salazar after the announcement.

Barrasso declined to comment about how he would react to Interior adopting Wyoming's rules, saying through a spokeswoman that he would not comment on a "hypothetical situation."

Drillers also remain wary of the idea of federal regulation, even if it is modeled on rules they have accepted at the state level.

"If they copied it verbatim, we'd have no problem with it here in Wyoming," the state petroleum association's Robitaille said. "But in my experience, that's not how it works."

As gratified as they are to see movement toward greater disclosure, environmentalists say they still want to see stricter regulation, preferably by U.S. EPA under the Safe Drinking Water Act.

"Disclosure helps only after your water is contaminated. It doesn't prevent your water from being contaminated," said Amy Mall of the Natural Resources Defense Council.

'Trade secrets'

And environmentalists are also worried that Wyoming is agreeing to too many industry requests to shield compounds as "trade secrets."

"While we've been getting disclosure, it looks like that will be tightening up," said Jill Morrison, an organizer with the Powder River Basin Resource Council in Sheridan, Wyo.

But Doll said secrecy will be the exception, not the rule. He said his staff has been careful not to shield the chemical ingredients of broadly used "plain vanilla" fracturing fluid.

"Initially, I think people thought, 'They'll say that everything is a trade secret,'" Doll said. "That hasn't been the case."

The application for the Mad Hatter well, a "frack job (pdf)" for Strachan Exploration Inc. of Englewood, Colo., was denied (pdf) last month because it failed to list the ingredients of compounds for which Halliburton had not yet received trade secret protection.

The Wyoming Oil and Gas Conservation Commission website lists 16 approvals for trade secret protection, some for single products and some for long lists of compounds.

Halliburton has gotten five fracturing products shielded. BJ Services won trade secret status for 36 products, including fracturing sand.

Their requests are public record, and their reasoning points to the importance of fracturing chemicals, even though they amount to a tiny fraction of the total volume of what is injected.

ChemEOR Inc., a Los Angeles-based oilfield chemical company, told Wyoming regulators it spent more than $400,000 directly on research and development of a product called InFlo 250 W. Halliburton said it spent "tens of millions of dollars" researching new fracturing fluids during the past five years. The company said that public disclosure of its proprietary formulas could cost it $375 million.

Halliburton also argues that public disclosure of the chemicals in the compound would discourage research into fracturing fluids that reduce damage to the environment.

Wyoming regulators gave trade secret protection to many products that are toxic, which could keep raising questions about the value of secrecy. An MSDS sheet (pdf) on file with Ohio regulators, shows that ChemEOR's Inflo 250 W contains toxic methanol and 2-Butoxyethanol, a fracturing ingredient cited in several contamination allegations, and other hazardous components.

In several cases, Wyoming regulators granted trade secret status to compounds used by Halliburton and BJ Services but stated that they "are not approved for use in groundwater." That generally means they include some form of hydrocarbon, such as a petroleum distillate.

"The thing about trade secret protection," NRDC's Mall said, "is that it's only going to work if the public thinks its credible."