Institutional Investor's Alpha Magazine - April 2008 - (Page 79)

backed by federal regulation are now actively traded on the Chicago Climate Exchange. But the reduction of carbon dioxide emissions has proceeded with stops and starts. Gore, an early advocate of government action, lost probably his best shot at advancing the agenda when he failed to win the 2000 presidential race. Still, he went on to win the Nobel Peace Prize for raising the global-warming alarm and has played a key role in keeping the cap-and-trade argument alive. The Kyoto Protocol, meanwhile, has served as a guide for carbon emission programs, particularly in Europe. In addition, some individual countries in Europe, such as Germany and the Netherlands, have introduced their own carbon reduction programs. China — despite its reputation as an enormous industrial polluter — has a ﬂedgling program; Russia and several other former Soviet bloc countries have programs as well. Some of these systems are countrywide, some target speciﬁc industries, and credits earned in one region may sometimes be transferable to another. Despite carbon trading’s inherent complexity, as well as the political uncertainty surrounding it, the sector has managed to grow rapidly. The 2007 report by Celent estimates that E23 billion ($36 billion) worth of carbon was traded worldwide in 2006, the latest date for which ﬁ gures are available, up from E9 billion in 2005. The report projects the market value will reach $100 billion by 2012. The vast majority of those trades — 72 percent, by Celent’s estimate — are done over the counter. But if Europe is any guide, the carbon market may be gaining traction, thanks to improvements in government oversight and monitoring and to the increasing liquidity created by new carbon-credit investors. “We have been going through an early learning stage in the EU emissions trading scheme,” says Climate Change’s Hughes, whose familiarity with the issue is rooted partly in a previous series of appointments to U.K. government-sponsored groups tasked with promoting environmentally sensitive development. “At ﬁ rst there was an oversupply of allowances, because there was no accurate means of measuring reductions,” Hughes says. “There was a lot of guessing. Now governments are starting to tighten the caps.” And if the U.S. adopts a national cap-and-trade program, the market will likely surge, opening a vast new investment opportunity. “There will be a lot of positioning over the next two years in the U.S.,” Hughes predicts. By then the action in carbon trading may have shifted from London to New York and Chicago. And Hughes may ﬁnd himself across the pond, holding forth on his cell phone from a cab on Wall Street or in the Windy City. Providing In-Depth Coverage to the World’s Most Influential Corporate and Financial Decision Makers TO ADVERTISE USA: Christine Cavolina 212 224 3319 ccavolina@iimagazine.com Europe: Spencer Wicks 44 207 303 1703 swicks@iilondon.com Asia: Wendy Gallagher 44 207 303 1702 wgallagher@iilondon.com APRIL 2008 • INSTITUTIONAL INVESTOR’S ALPHA • 79

Table of Contents Feed for the Digital Edition of Institutional Investor's Alpha Magazine - April 2008

Institutional Investor's Alpha Magazine - April 2008 Contents Letter from the Editor Longs & Shorts Pension Corner: Here to Eternity The Good Guys: Voice of Hope Cover Story: The Kings of Cash Where the Money Is Into the Light Interview: Proceeding with Caution Strategies: A Convenient Truth Alpha Bytes: Village Voice Unhedged: Commentary: No Time for Complacency

Institutional Investor's Alpha Magazine - April 2008

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