AE Feldman - UBS Greenhouse Index - EUA CER CO2 Carbon Emission Derivatives - ilija Murisic


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AE Feldman - UBS Greenhouse Index - EUA CER Carbon Emission Derivatives - ilija Murisic

Keywords: Carbon, CO2, Emission, EUA, CER, climate change, Index ,Kyoto, UBS, derivatives, hybrids, trading, structured products

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AE Feldman - UBS Greenhouse Index - EUA CER CO2 Carbon Emission Derivatives - ilija Murisic

  1. 1. Global Carbon Job Market BoomingThe global carbon market is heating up at a fast and furious pace. Point Carbon predicts that theglobal carbon market will see 4.2 billion tons carbon emissions (CO2e) transacted during 2008, up56% from 2007. The group also contends that carbon prices are now seen as an important factor inthe operating and investment decisions of companies. According to a recent FINalternatives report,Peter Fusaro, Co-Founder of the Energy Hedge Fund Center, kicked off the Wall Street GreenTrading Summit in New York City with one message for attendees: “Carbon is the new gold.” Thereport quotes Fusaro as saying the U.S. is entering a “carbon-constrained world” faster than anyonerealizes, and the country will have to reduce its six-billion-ton carbon footprint “through innovationand markets.”Carbon trading and finance is accelerating this year due to impending climate change legislation onCapitol Hill. The global carbon market could see a significant boom in the next decade, especially ifthe U.S. gets involved. Executive search firm, A.E. Feldman, says banks will be scouring the globaltalent pool for qualified candidates in the growing carbon trading sector.Carbon IndexesSecurities houses are developing products that allow companies to hedge their carbon exposure.Back in December, Barclays Capital announced the launch of the Barclays Capital Global CarbonIndex (”BGCI”). The BGCI tracks the performance of carbon credits associated with the world’smajor greenhouse gas emissions trading schemes. It was the first time that such an index was madeavailable to asset managers, private banks and institutional investors looking for a comprehensivebenchmark for the growing carbon emissions markets.Roughly one month later, UBS introduced its Greenhouse Index - the first integrated greenhouseindex that takes into account both Carbon Emissions and Weather.Most recently, Merrill Lynch introduced a new global emissions benchmark, the MLCX GlobalCO2 Emissions Index, which is designed to provide investors with insight into the rapidly growingglobal CO2 emissions market. Abyd Karmali, Merrill’s Managing Director and Global Head ofCarbon Emissions, says, “The MLCX Global Carbon emissions indices are an important addition toour growing suite of carbon finance and environmental sustainability solutions and have come inresponse to strong demand from our institutional, asset management, and wealth managementclients who seek exposure to the rapidly growing global carbon market.”Global Carbon Market GrowingPoint Carbon predicts that the global carbon market will see a 56% jump this year to 4.2 billion tonscarbon emissions (CO2e) transacted. At today’s prices, that would make the market worth $92billion. Last year, markets were worth more than $60 billion, up 80% from 2006. “We expect thatthe general trend of increasing traded volumes will continue to expand exponentially as the globalmarket becomes more mature and sophisticated. An increase in contract types, more players and
  2. 2. markets and greater competition between market players together will generate momentum forhigher volumes,” says Kjetil Røine, Manager of Point Carbon’s Carbon Market Research team.Currently, the carbon market is focused in Europe, which set up a cap-and-trade system in 2005 tocomply with greenhouse gas emission limits mandated by the Kyoto Protocol. But the U.S. will behome to a $1 trillion U.S. dollar carbon emission market by 2020 if federal and state policymakerscontinue pursuing a comprehensive “cap-and-trade” program that is confined to domestic tradingonly. That’s among the findings of new research conducted by New Carbon Finance - a division ofNew Energy Finance - as reported by Environmental Leader.Under a “cap-and-trade” system, the federal government would ration the amount of carbon dioxideand other greenhouse gases that businesses emit by issuing permits. A business wanting to emitmore than it is allowed may buy the right to do so from a business that emits less than itsentitlement.Right now, 9 Northeastern and Mid-Atlantic states are committed to developing a multi-state cap-and-trade program in a bid to reduce greenhouse gas emissions by 10% compared to 1990 levels by2018, under the Regional Greenhouse Gas Initiative (RGGI ).First U.S. Regional Carbon Compliance TradesIn a separate report on the outlook for the Regional Greenhouse Gas Initiative (RGGI) market in2008, Point Carbon states that the first two trades of RGGI allowances were announced in the pastmonth, establishing the first ever U.S. regional carbon compliance trades. Both trades were in therange of $5 - $10 per ton much higher than the official price estimate of $2.32 per ton. Point Carbonsays the initial price signals point to the creation of a billion-plus regional carbon market. The groupalso concludes that by engaging in trading now, companies are gaining exposure to the markets andestablishing themselves as market makers.