As an alternative to the pair of investment vehicles tracking the price of carbon, AirShares Carbon Fund (ASO) and iPath Global Carbon ETN (GRN), Climate Exchange (CXCHF) is poised to profit from the global expansion of the exchange-based trading of carbon credits.

In November, the Company reported that trading volumes on the European Climate Exchange rose to 322M tons (up 228% from the year-ago period) while the Chicago Climate Exchange experienced a 52.5% increase from the year-ago period in the number of contracts traded. Only the Chicago Climate Futures Exchange experienced a decline of 30.2% in the number of products traded.

The exchange-based trading of carbon allowances in the U.S. began this past summer with the Regional Greenhouse Gas Initiative [RGGI]. The 10 RGGI states in the Northeast and Mid-Atlantic have enacted a regional cap and trade system to regulate carbon dioxide emissions from power plants. The Chicago Climate Futures Exchange offers trading for RGGI futures contracts, and the last closing price for the December 2008 contract was $3.38 per ton of CO2, which is less than one-quarter of the prices for the two leading proxies for the price of carbon (EUAs – last trade at $19.89 and CERs – last trade at $17.42) since the emission caps in the U.S. scheme do not represent aggressive reductions.

In mid-September, Climate Exchange posted strong operating results as the Company's two climate exchanges (European – ECX + Chicago – CCX) demonstrated health growth during the first half of 2008. The ECX posted gains from the year-ago period of 150% on over 1 billion tons while the CCX registered a 286% increase on 46 million tons of carbon traded.

Climate Exchange also narrowed its pre-tax loss to $0.6M (from a $5.1M loss in 1H07) on revenue that nearly doubled to $19.8M compared to the year-ago period, resulting in a cash balance of $24.7M (all amounts in USD). The CEO, Neil Eckert, was most bullish on the emissions trading plans for China since Climate Exchange is the only Western company with a stake in that country, which is one of the largest producers of greenhouse gases due to rapid expansion and industrialization.

The accompanying six month chart [click to enlarge] shows a decline of about 60% in the market value of Climate Exchange, compared to declines of about 65% for the U.S. Oil Fund (USO), 40% for iPath Global Carbon (GRN), and about 35% for the S&P 500 SPDR (SPY).

http://www.etfinnovators.com/2008/12/cli...

As its name implies, Climate Exchange is engaged in developing financial exchanges that allow for the trading of environmental financial vehicles such as the carbon credits tracked by GRN and ASO. The Company’s three main businesses include the European Climate Exchange [ECX], the Chicago Climate Futures Exchange [CCFE], and the Chicago Climate Exchange [CCX]. The ECX operates an exchange for the European Emissions Trading Scheme while the CCFE handles environmental futures contracts in the U.S. and the CCX operates the voluntary, contract-based cap and trade system to reduce the emission of greenhouse gases.

Climate Exchange currently trades at a market cap of around $600M U.S. Dollars and represents the largest pure-play exchange in the emerging and fast-growing market for exchange-based trading of carbon credits and related instruments such as the Insurance Futures Exchange Services [IFEX], which trades futures derivatives contracts to hedge against losses and damage from hurricanes and tropical storms.