The accompanying table [click to enlarge] includes 19 companies in the ETF Innovators [ETFI] Global Carbon Trading Index along with the prices of seven benchmark commodities and funds. Most of the pure plays on carbon credits are very small, with 12 of the 19 companies having market caps below $100M.
As I wrote yesterday, Climate Exchange (CXCHF) represents the most established company poised to benefit from the global expansion of the exchange-based trading of carbon credits, with a market cap of $620M. With the launch of AirShares Carbon Fund (ASO) yesterday, investors have another option to trade the price of carbon.
Other established companies in the index include Waste Management (WMI), CNX Gas (CXG), and Clean Energy Fuels (CLNE), which generate carbon credits through their business operations such as landfill methane gas capture, waste-to-energy initiatives, and coal-bed methane gas capture.
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 of 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 natural gas declining more than coal over the past one and six-month time frame, the demand for carbon credits also fell as reflected in the iPath Global Carbon ETN (GRN) since it began trading in early July. However, the decline in carbon prices has not been as severe as the drop in crude oil and natural gas prices, as measured by the U.S. Oil (USO) and Natural Gas (UNG) Funds, which have both dropped over 60% in the past six months.
Along with the major declines in oil and natural gas, alternative energy companies have also suffered – with the Market Vectors Global Alternative Energy ETF (GEX) down by 62.2% in the past six months. Companies in the renewable energy and carbon credit industry face the dual headwinds of major energy commodity price declines and the global economic slowdown, which threatens both the funding and viability of many companies which do not generate operating profits and are dependent on external funding from distressed credit and equity markets.
$30.43 (12/16/08)
