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Ed Wijaranakula, Ph.D.
Chief Investment Strategist, Infotix
Systems, Inc. - December
17,
2008
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In
2005, the
European Climate Exchange (ECX) was launched by
the CCX and is now the leading exchange operating in
the European Union Emissions Trading Scheme (EU
ETS). The CCX is owned by the Climate Exchange Plc,
which is listed on the London Stock Exchange (LSE) under
the symbol CLE.L.
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Futures contracts
of
Canada CO2e
units are traded on the Montréal Climate Exchange
(MCeX) in
collaboration with the CCX. The futures contract, based on 100 Canada CO2e
units as defined by the Government of Canada,
allows for the emission of one metric ton of CO2e.
In March 2008, the
New York Mercantile Exchange (NYMEX) began listings
for trading and clearing of carbon, nitrogen oxides
(NOx) and
sulfur dioxide (SO2)
based emission allowance futures and options
contracts. On the NYMEX Green Exchange, all EUA's,
CER's and RGGI's CO2 llowances options and futures
contracts are traded in a size of 1,000 metric
tons of CO2e.
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Investment
Strategies - In a complex and volatile
carbon market, investment strategies may include
investing in funds with professional management
and/or focusing on individual companies with sustainable
growth fundamentals and low debt/equity ratio.
iPath®
Global Carbon
ETN -
Investment in carbon commodities related to EU ETS
and CDM mechanisms can be done through the iPath®
Global Carbon
ETN [NYSE:GRN]. The iPath® Global
Carbon ETN is a senior, unsecured debt note linked
to the Barclays Capital Global Carbon Index Total
Return. The index is composed of allocations in
futures and forward contracts of carbon emissions
credits, both EUA and CER, and futures contracts
that trade on the European Climate Exchange (ECX).
It is maintained and periodically rebalanced or
reweighted by Barclays Capital,
a division of Barclays Bank PLC.
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Since
its inception in July of this year, the iPath®
Global Carbon ETN has lost about 40 percent of its
value, in part due to the decline in crude oil
prices, a slowdown in the global economy and hedge fund
redemptions.
AirShares™
EU Carbon Allowances Fund - In mid-December
2008, XShares Advisors LLC began offering the
AirShares EU Carbon Allowances Fund (NYSE: ASO) to
compete with the iPath®
Global Carbon ETN.
This fund, which is not a mutual fund, holds unleveraged long positions in
IntercontinentalExchange (ICE)
futures and/or ECX
CFI futures contracts. Because ECE CFI futures
contracts and most of the fund assets are in euros while the shares
are traded in U.S. dollars, AirShares fund
investors may be subjected to additional currency
fluctuation risks.
Climate
Exchange PLC [LSE.CLE] - Climate Exchange
Plc is an Alternative Investment Market (AIM) listed company on the London Stock
Exchange that specializes in emissions trading
and cap-and-trade schemes for all six
greenhouse gases. The company owns and operates
three climate exchanges including the European Climate Exchange
(ECX),
the Chicago Climate Exchange (CCX) and the Chicago Climate Futures Exchange
(CCFE). The company has also joint
ventures in China, India, Canada, Australia and
Japan.
The
company growth strategies are to continue to expand
membership and trading volumes as
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well as to continue
developing new climate exchanges around the globe,
such as the California Climate Exchange (CaCX), the New York Climate Exchange
(NYCX), the Northeast Climate Exchange (NECX) and India Climate Exchange
(ICX), the first pilot cap-and-trade program in India.
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In
2007, the
UK-based Climate Exchange posted a loss of $4.05 million,
or 8.6 cents per share. Total revenue
rose over ten-fold to $28.22 million, compared to $2.24
million the previous year, in part due to triple-digit growth in trading volumes on its flagship European
Climate Exchange. In September, CEO Neil Eckert
told Reuters in an interview that he is pretty
bullish about the foreseeable future and does not
see a slowdown in their business.
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iPath®
Global Carbon ETN performance since
its inception |
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The company
is virtually debt free with a debt/equity ratio of 0.00. CLE's share price, which has been
trading as high as $3,064.5 per share in May 2008,
closed on December 10 at $1272 per share.
Camco
International Ltd. [LSE:CAO] - Camco is a
leading carbon asset developer with one of the
world’s largest carbon credit portfolios. Camco generates carbon credits by partnering with
companies to identify, co-develop and manage CDM,
JI and voluntary projects that reduce greenhouse
gas emissions. Camco then arranges the sale and
delivery of carbon credits to international
compliance buyers and into the voluntary market.
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The Jersey, UK-based
Camco International lost $20.15 million, or
54.7 cents per share, last year. Total revenue
rose to $23.25 million in 2007, compared to $8.02
million the previous year. The company has a
debt/equity ratio of 0.03. Camco International's
share closed at $34.65 per share on December 10,
retreating about 75 percent from its all time high in
May 2007.
Falling
oil prices, growing recession fears and hedge fund
redemptions continue to hit carbon prices. ECX
FCI futures contracts have fallen from their July
1 peak of €29.33 to a new low on December 5 of
€13.72.
We
could see the recovery of carbon prices in the
second half of 2009, assuming that the global
economic recovery in the early 2010 is on track.
The carbon price recovery could take place slowly
if hedge funds and private equity funds shy away
from the investment due to price volatility and
their constraints on the amount of leverage.
*
Currency exchange rate £ 1 = $1.5
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About the Author: Dr. Ed Wijaranakula is presently the
Chief Investment Strategist at Infotix Systems, Inc. Prior to Infotix Systems, he has worked with
Intel, Hewlett-Packard, Micron, Motorola and Texas Instruments and has held senior as well
as managerial positions in semiconductor manufacturing companies. Dr.
Wijaranakula's portfolio does not hold any positions in any of the
financial products mentioned in the article.
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