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Carbon Withstands Meltdown in Commodities

October 03, 2008 – Comments (3) | RELATED TICKERS: GRN , USO , UNG

During recent market turmoil and a meltdown in commodities, the Global Carbon ETN (GRN) (-10%) has held up much better than oil (USO) (-35%) and natural gas (UNG) (-45%) and about the same as the overall market S&P 500 ETF (SPY), with three month returns listed after each ticker.

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.

Since diverging from oil and natural gas in late July, the Global Carbon ETN has trended lower with other commodities but its downturn has not been as severe -- offering investors the potential for a new type of commodity that may prove to be only partially correlated to energy commodities because of its unique characteristics as an economic incentive to curtail air pollution.