On a hot and hazy summer day, it's hard to see a silver lining in global pollution. But a new exchange-traded investment, the iPath Global Carbon ETN (NYSE: GRN ) , is designed to let investors benefit from the fumes of the modern world. The global carbon emissions market is experiencing explosive growth, and the Carbon ETN is the first fund to provide investors a direct way to access this market. If you are looking for a way to profit from global warming, the Carbon ETN is one of the newest ways to profit from regulations limiting carbon emissions.
Inception date: June 24, 2008
Expense ratio: 0.75%
Net assets: $4.9 million
The Carbon ETN is linked to the Barclays Capital Global Carbon Index, which tracks the performance of carbon credits associated with the world's major greenhouse gas emissions trading schemes. The index currently includes two plans, the European Union Emissions Trading Scheme and the Kyoto Protocol's Clean Development Mechanism. Often known as cap-and-trade systems, carbon emissions trading is one of the ways a country can meet its obligations under the Kyoto Protocol to reduce carbon emissions. Carbon emission credits are traded by companies that get tax breaks and other incentives for lowering the pollutants they put into the air.
U.S.-based companies with some of the highest CO2 emissions include PG&E (NYSE: PCG ) , International Paper (NYSE: IP ) , Occidental Petroleum (NYSE: OXY ) , and El Paso Electric (NYSE: EE ) . Should the U.S. begin a carbon emissions trading system of its own, these are likely to be some of the first companies that would be affected.
As an exchange-traded note, the Carbon ETN is an unsecured promise of Barclays PLC (NYSE: BCS ) , a London-based bank. Barclays has an AA credit rating for long-term debt, which it has held since 1994. Unlike exchange-traded funds (ETFs), ETNs have specific maturity dates. The Carbon ETN matures in 2038, and as it approaches its terminal date, its price may be affected by the time remaining to maturity.
More generally, emissions trading markets operate in an environment with political, regulatory, and environmental risks. The markets can therefore change suddenly, which could hurt the ETN's value. In addition, these markets are relatively young, so it's less clear what effect certain events could have on trading.
The World Bank estimates that the global carbon market grew to roughly $60 billion in 2007, more than doubling from 2006 levels. This rapid growth is an indication of the increased political pressure companies face to make positive efforts to reduce their carbon footprints, and is a strong argument that a fund focused on carbon emissions may have some sizzle. Yet as narrowly defined as this investment is, for most investors, it should constitute only a small portion of their overall portfolio.