Green ETF Investors Hopeful as Obama Takes Office

The above table [click to enlarge] includes statistics and a short description of the 20 companies included in the ETF Innovators Global Carbon Trading Index along with benchmark energy commodities and exchange-traded products. The 20 companies in the Carbon Trading Index posted a gain of 5.6% over the past month, despite declines in the overall market, the global price of carbon, and major energy commodities.

With the launch of AirShares Carbon Fund (ASO) in mid-December, investors have another option to trade the price of carbon with the iPath Global Carbon ETN (GRN) already on the market since early July. As a proxy for the global price of carbon, GRN declined by about 18% in the past month while ASO debuted with a 21% decline in its first month of trading. Both exchange-traded products for the global price of carbon have failed to attract significant interest from investors and traders, with less than $5M in net assets for each product and little in the way of average trading volume.

Major energy commodities also declined during the past one and six months, with the U.S. Oil (USO) and Natural Gas (UNG) funds losing 8.8% and 14.6%, respectively, in the past month and over 60% each in the past six months. Central Appalachian Coal Futures [QL] declined by about 10% in the past month and 43% over the past six months.

The Market Vectors Global Alternative Energy (GEX) and Environmental Services (EVX) ETFs both saw previous gains evaporate, resulting in smaller gains of 0.6% and 2.5%, respectively in the past month while the Elements Global Warming ETN (GWO) declined by about 4% in the past month and 48% in the past six months.

With the inauguration set for today, green activists and investors are hopeful that the new administration will enact legislation for a cap and trade system in the U.S. to reduce greenhouse gas emissions. Climate Exchange (CXCHF.PK) represents a pure-play on the operation of financial exchanges for carbon credit trading and is poised to gain from the global expansion of carbon trading.

The exchange-based trading of carbon allowances in the U.S. began this past summer with the Regional Greenhouse Gas Initiative [RGGI]. The 10 RGGI states in the Northeast and Mid-Atlantic have enacted a voluntary, regional cap and trade system to regulate carbon dioxide emissions from power plants. The Chicago Climate Futures Exchange offers trading for RGGI futures contracts, which trade at just a fraction of the prices for the two leading proxies for the price of carbon (EUAs and CERs, which are tracked by GRN + ASO) since the caps in the U.S. are voluntary and do not represent aggressive emission reductions.

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 GRN and ASO. The Company’s three main businesses include the European Climate Exchange [ECX], the Chicago Climate Futures Exchange [CCFE], and the Chicago Climate Exchange [CCX]. The ECX operates an exchange for the European Emissions Trading Scheme while the CCFE handles environmental futures contracts in the U.S. and the CCX operates the voluntary, contract-based cap and trade system to reduce the emission of greenhouse gases.

Climate Exchange currently trades at a market cap of around $600M U.S. Dollars and represents the largest pure-play exchange in the emerging and fast-growing market for exchange-based trading of carbon credits and related instruments such as the Insurance Futures Exchange Services [IFEX], which trades futures derivatives contracts to hedge against losses and damage from hurricanes and tropical storms.

Comments

[bbowen7:]

In the financial world there are companies that add value (loan to start-ups and small companies; provide a return to investors for money borrowed; brokerage services; insurance; provide legitimate mortgages; etc.) and there are those who just bundle and distribute, adding friction cost without creating value. This has collapsed, and brought much of the system down with it.
In the "green energy" world it is the same. There are those who create value with wind or solar systems, smart grids, nuclear, or such - and then there are those who create an overhead burden which produces nothing. Eventually, this will collapse too.

Jan 20 02:18 PM

[danno:]

PWND and PZD are both probably better choices than what this guy's recommending. I mean that Elements stuff is quantitative gobbledygook masking vapid strategy.

Jan 22 05:53 PM

[Mike Havrilla:]

Climate Exchange (CXCHF) is the only stock or fund I would buy of the entire green, alternative energy, or carbon credit space as a spec play on the expansion of carbon credit trading in the U.S., China, and other countries outside of Europe where it is already established. Rick Santelli just mentioned Climate Exchange on CNBC as the topic of discussion at the Chicago Merc amongst the traders based on its potential for expansion in the U.S. market now that Obama is in office.


On Jan 22 05:53 PM danno wrote:

> PWND and PZD are both probably better choices than what this guy's
> recommending. I mean that Elements stuff is quantitative gobbledygook
> masking vapid strategy.

Jan 23 03:03 PM