Organic growth?

The growing appetite for global trade in emissions credits reveals that global warming may be an investment opportunity as well as a scientific theory.

The Green Exchange, a bourse for trading carbon emissions and other environmental products, will start trading this week. The bourse, to be launched by New York Mercantile Exchange parent Nymex Holdings and a group of trading houses, will provide tools for traders and companies to bet on the cost of carbon emissions, while letting emitters store carbon credits. The Chicago Climate Exchange was the first in the United States to create an exchange for trading carbon credits, but Nymex hopes to leverage its relationships with energy companies and traders to grab business from the Chicago exchange.

A 'green' public image

Interest in the exchange is bound to grow in the United States as regulatory caps on greenhouse gas emissions loom. Washington never inked the Kyoto treaty, so the market for trading carbon credits is voluntary. A company can offset its carbon footprint by purchasing credits, which then subsidise carbon-reducing environmental projects such as planting forests.

Yet big carbon emitters such as oil producers, mining companies and steelmakers will be seeking ways to reduce their business risk as Congress is expected to impose a cap and trade system in the country after the 2008 election. Senators Joseph Lieberman, independent of Connecticut, and John Warner, Republican of Virginia, have already seen their bill proposing a 70% reduction in global warming gases by 2050 make progress through the Senate.

Investors will watch Congress closely. The US market for voluntary credits is currently worth $100 million per year, but the worldwide market for carbon allowances is about $60 billion, according to USA Today. Cap and trade systems could boost the price of US credits from $2 to $5 per ton of carbon to $30 to $50 per ton.

European countries have already adopted a cap and trade system that limits carbon emissions according to industry and utility. Those that exceed their caps buy allowances from those that fall within the limits.