Tuesday, March 18, 2008

The Greening of Wall Street

From The Economist via CFO.com:

Tackling the carbon crisis amid the credit crisis.

When better to further the cause of financial greenery than St Patrick's Day? On March 17th the first carbon-linked derivatives contracts will begin trading on the Green Exchange, a joint venture between the New York Mercantile Exchange, Evolution Markets, a broker, Morgan Stanley, Merrill Lynch and others. America already has a small emissions-trading market in the Chicago Climate Exchange, run by one of the founding fathers of financial derivatives, Richard Sandor. Nevertheless, the NYMEX venture is seen as America's boldest step yet towards the carbon-trading big league.

Thanks to its participation in the Kyoto protocol on climate change, Europe dwarfs America in carbon trading. The bulk of the €40 billion ($62 billion) of credits traded last year—up 80% on 2006—changed hands on European markets. But with the science of climate change no longer widely disputed and all three remaining presidential candidates in favour of bringing a similar cap-and-trade system to America, Wall Street is taking the environment a lot more seriously. The potential rewards are huge. New Energy Finance, a research firm, thinks the American market for carbon emissions could reach $1 trillion by 2020 if the front-runner among the several climate-change bills wins approval in Congress. Add in derivatives and it could be many times bigger, points out Blythe Masters of JPMorgan Chase....MORE