The business of carbon finance has huge potential. If all goes according to plan, a market approach to lowering carbon emissions can help curb global warming, transfer clean technology to the developing world and help alleviate global poverty. What’s more, carbon finance offers an intriguing opportunity to investors who are willing to take on risk and do their homework.
I’ve been fascinated by the carbon markets since starting to report on them early this year. (See Carbon Finance Comes of Age at fortune.com.) In the current issue of the magazine, I’ve got a story looking at carbon finance as an investment opportunity for retail, i.e., individual investors. The business is ridiculously complicated , very volatile and dependent on government regulation, so buying into the carbon business probably doesn’t make sense for most investors. But it’s worth a look, in part because it’s one of those places where you can feel good what your investments will accomplish.
Here’s how the story begins:
Has your latest brokerage statement got you down? Maybe it’s time to try something completely different: a $96 billion market built entirely on the certifiable absence of a colorless, odorless gas.
That would be the curious and high-growth business of carbon finance. Its primary purpose is to curb global warming by stimulating the trade of a new commodity known as a carbon-emissions reduction credit. Scoff if you like, but know this: During 2008 (through Oct. 15), the value of an index of carbon credits – which you can now purchase on the New York Stock Exchange – grew 5.4%. Can you say that about anything in your portfolio?
What’s more, almost everyone expects carbon trading to really take off once the U.S. government regulates greenhouse gases, as both presidential candidates promise to do. Of course, if Washington doesn’t act, the market could vaporize. “These are political markets, and you can’t take the politics out,” says Véronique Bugnion, an analyst with consultancy Point Carbon.
The story goes on to look at two pure plays in the carbon finance business, Eco-Securities and Camco Global. You can read the rest here or find it in the Nov. 10 issue of FORTUNE.