Go Green, Bring In the Green: Carbon Dioxide Is the New Commodity

Excerpt from our Wall Street Breakfast, a one-page summary of this morning's key market-moving and stock-moving stories:

Street Clears the Air [TheStreet.com]

Summary: Carbon dioxide, the gas linked to global warming, is fast becoming a hot commodity on Wall Street. Morgan Stanley is committing $3 billion over five years to expand its carbon and emissions trading business, including private equity investments in emissions reduction projects; while Goldman Sachs has bought a 10% stake in the Chicago Climate Exchange, an electronic exchange that trades greenhouse-gas emission allowances in the U.S. Carbon trading is a means by which companies can comply with guidelines for reducing greenhouse gases. These guidelines derive from the Kyoto Protocol, an international treaty combating global warming that President Bush rejected on the dual grounds that it is too hard on polluters and would ultimately hurt the economy by forcing mandates reducing emissions. Carbon trading involves buying and selling "allowances," which are the amounts of carbon dioxide companies are allowed to emit under the terms of Kyoto. Companies that pollute less can sell their excess allowances to companies that have been unable to reduce their emissions to required levels, thereby helping them avoid fines and sanctions. Carbon trading is still in its early days -- about 9.3 million metric tons of carbon dioxide equivalent, or 93,000 contracts, have been traded this year, versus 411,265 energy futures contracts that were traded this month alone on the New York Mercantile -- but the size of Morgan Stanley's investment suggests the Street is viewing carbon trading as an area with great potential. It also suggests that investment banks are looking toward the next administration, which might be friendlier toward Kyoto. Investment banks see opportunities in carbon trading for speculative trading, private equity investment and project financing, but it is also attractive to private investors and funds that want to invest in products that are unlinked to the securities market as a hedge.
Related links: Environmental Emissions Trading: A UK-Traded Stock That Should Profit • Global push to cut greenhouse emissions [Financial Times] • Regional Greenhouse Gas Initiative • Climate change: Member States need to intensify efforts to reach Kyoto emission targets [European Commission press release] • Investing in Solutions to Climate Change [World Resources Institute] • Carbon Market North America 25 October [Point Carbon]
Potentially impacted stocks and ETFs: Morgan Stanley (MS), Goldman Sachs Group Inc. (GS) • iShares Dow Jones US Broker-Dealers (IAI), Vanguard Financials ETF (VFH)

Seeking Alpha's Wall Street Breakfast summarizes today's key market- and stock-moving news. Receive it by email every weekday morning (free/no spam).

Seeking Alpha is not affiliated with TheStreet.com.