Hedge fund managers in the U.S. are starting to set up funds to trade greenhouse gases because they think prices for carbon dioxide credits are set to skyrocket. "A hedge fund's best bet is to start buying carbon credits now while they are relatively cheap," said Mark Cox, ceo of the New York-based New Energy Fund. He thinks carbon prices, which now stand at about USD1.50 per ton, will surge once the government regulates the market. "Some sophisticated hedge funds are [buying carbon credits] now because they know they will be able to put them back into the market, to U.S. companies, for USD40.00 per ton," he said.
Cox's fund does not directly trade greenhouses gases, which include CO2, sulfur dioxide and nitrogen oxide, but instead invests in sustainable energy companies that stand to win from future reductions in emission allowances and carbon credit trading. "For us, the greenhouse gas markets are icing on the cake," Cox said.
Peter Fusaro, chairman of Global Change Associates in New York, knows of a dozen funds that trade carbon speculatively, which he declined to name. It's a cross-commodity arbitrage with coal, oil and gas contracts and funds like the market's volatility, he said.
The New York Mercantile Exchange plans to trade SO2 and NOX futures contracts this year, following the example of the Chicago Climate Exchange whose roughly 80 members, which includes TECO Energy, the city of Chicago and Ford Motor Company, began trading greenhouse gases in 2003. Yet, the over-the-counter market is substantially deeper than the exchange-traded one, Fusaro said. OTC trades are much larger, he explained, pointing to a transaction put on by Entergy, a New Orleans-based energy company, which exercised an option in December to buy one million carbon dioxide emission reductions credits from BlueSource, a carbon credit aggregator. Cox added, "There's a rush for this opportunity."
