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Hedge funds see carbon trading opportunities

Date: Friday, June 22, 2007
Author: Gulf Daily News.com

DUBAI: The world's largest provider of hedge fund investments yesterday said the emergence of carbon trading in the developing world is creating major opportunities for international funds.

Man Investments said in a report that the financial volumes of carbon markets tripled last year.

"Carbon markets, already trading significantly, have sprung up as the result of measures taken to reduce carbon emissions, such as the sale of carbon credits.

The European Union's Emission Trading Scheme last year saw financial volumes on exchanges and through brokers totalling 14.6 billion euros ($19.5), about three times the total for the previous year," the report reads.

Man Investments' head of research and one of the authors of the report, Thomas Della Casa says that, based on these opportunities, hedge funds have introduced, or are working on, new investment strategies, including trading emissions, financing carbon projects, trading electric power, cross-commodity trading, long/short listed equity and private equity.

The report, An Update on the Carbon Market, is published in Man Investments' April Quarterly Review, which examines developments and trends in the hedge fund industry.

It observes that putting a value on emissions has now become mainstream financial thinking.

"Carbon trading is emerging as one of the most significant new sectors for hedge funds and we can expect continued rapid growth, particularly if the US and China in due course join in and establish their own carbon markets, as is widely anticipated," Mr Della Casa said.

The report further concludes that thermal power production will remain dominant for decades, despite action taken and planned to use alternative green energy sources and to reduce carbon emissions

Its authors say the potential for innovative clean coal burning technologies is immense. Despite the push for clean energy, global energy use is still rising. Hence, emission-free thermal power plants are, potentially, revolutionary technology.

Elsewhere, they note carbon projects reduce emissions elsewhere and generate credits that can be given monetary value.