Carbon Holds Up Against Other Commodities

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:

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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 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.

Some notable movers in the Global Carbon Trading Index which have bucked the overall market downturn include Clean Energy Fuels (CLNE), Camco [London: CAO], and Trading Emissions [London: TRE]. Camco has successfully completed several carbon credit auctions while Clean Energy Fuels has been rising on the prospect of using natural gas as a cleaner, alternative fuel for vehicles as part of The Pickens Energy Plan.

Overall, the index is down by 3.3% in the last month, which is better than the S&P 500 ETF (SPY) and other benchmark alternative energy funds such as PowerShares Clean Energy (PBW) and Market Vectors Alternative Energy (GEX). 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.

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Disclosure: None

Comments

[Paul Killinger:]

Thanks for the post. This stuff is truly fascinating.

I really don't understand it, though, although I am generally aware of the importance of these new carbon markets to electric utilities.

2008 Sep 12 10:40 PM

[WILLTK:]

I am pleased that SA editors are following this carbon thing closely - 5 yrs ago it didn't exists . Now we are certain to see it grow , specially with all the Goreites and Envirofreaks about . Hope SA keeps us abreast of new developments . Waiting till GRN has greater volume to ever invest in same - their are foreign exchanges that EUA's and Credits may be bought on i.e. the ECX - for another look at carbon do a search on Graphene - toughest substance that exists , and in its infant stages - will replace silicon in electronics - simple pencil lead streaks - amazing

2008 Sep 13 05:57 PM