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A Global Carbon Trading Index

September 30, 2008 – Comments (1) | RELATED TICKERS: GRN , WMI , CLNE

During recent market turmoil and a meltdown in commodities, the Global Carbon ETN (GRN) has held up better than oil (USO) and natural gas (UNG), but fared slightly worse than the overall market as illustrated in the accompanying three-month chart. Key factors in the demand for carbon credits include overall power demand and the relationship between natural gas and coal prices since burning gas results in the release of less than half of the greenhouse emissions versus coal. Currently, the simplest way for power utilities to reduce greenhouse emissions is to convert from coal to gas. With the price of coal easing over the past few weeks, demand for more carbon credits resulted; although this effect was mitigated by a sharp decline in natural gas as well which has dropped even more than crude oil.

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My Global Carbon Trading Index is designed to track public companies involved in the nascent industry of carbon credit generation and trading activities. Because this is an evolving industry, I expect to add new stocks to the index in the future to accurately track the performance of pure-play carbon credit companies -- just as the iPath Global Carbon ETN (GRN) specifies on its website that it will incorporate new financial derivatives for carbon prices as they become established as industry standards.

The accompanying table presents the MikeHav Global Carbon Trading Index (sorted from highest to lowest market caps) along with tracking of related commodities and benchmark funds -- including coal prices, iPath Global Carbon ETN (GRN), US Natural Gas Fund (UNG), US Oil Fund (USO), Market Vectors Global Alternative Energy ETF (GEX), PowerShares WilderHill Clean Energy ETF (PBW), and the pending AirShares EU Carbon Allowances Fund. Key factors in the demand for carbon credits include overall power demand and the relationship between natural gas and coal prices since burning gas results in the release of less than half of the greenhouse emissions versus coal.

Currently, the simplest way for power utilities to reduce greenhouse emissions is to convert from coal to gas. Since natural gas prices have declined in sympathy with oil while coal prices have remained at high levels, power companies in Europe have shifted to burning a larger percentage of gas to generate power -- resulting in less greenhouse emissions and thus less demand for carbon credits. The MikeHav Global Carbon Trading Index is equally-weighted and includes 17 companies which are involved in carbon credit generation and trading activities. I will track the index on my blog in the area underneath the last post and will add new public-traded companies which enter the business of carbon credit trading.

The blue-chip, large-cap company in the index is clearly Waste Management (WMI), which is one of the largest private holders of greenhouse gas emission reduction credits in the US thanks to its green initiatives such as the capture/use of landfill gas and waste-to-energy business. As an alternative to the pure-play carbon credit generation and trading companies such as Camco (London: CAO), EcoloCap Solutions (OTCBB: ECOS), and EcoSecurities Group (London: ECO), investors who are bullish on the future of carbon credit trading might also consider an investment in UK-based Climate Exchange (London: CLE). As its name implies, Climate Exchange is engaged in developing financial exchanges that allow for the trading of environmental financial vehicles such as the carbon credits tracked by the iPath Global Carbon ETN. The Company’s three main businesses include the European Climate Exchange [ECX], the Chicago Climate Futures Exchange [CCFE], and the Chicago Climate Exchange [CCX].