Waiting for the green light…
Leon Watson, December 10th, 2009
Will the Copenhagen climate change summit change the way we invest?
IT has been hailed as an opportunity the world can’t afford to miss – and could be an event for traders to keep a keen, green eye on.
The UN’s climate change conference in Copenhagen kicked off this week amid calls for an urgent agreement to combat global warming. With delegates from 192 countries – including more than 100 heads of state – the stage is set for some significant announcements before the conference ends on December 18.
Never have so many countries come together to thrash out decisions that could change the global economy in such a way. However, opinion is divided over what this will mean for financial markets.
With proposals on the table such as investment in green technologies and a new tax on carbon emissions, some analysts have predicted a long-term boom in renewable energy markets. But experts have also told 247Bull.com that speculators should not expect the market to reap rewards just yet.
Paddy Power Trader market analyst Brian Monaghan, who specialises in spread betting, said: “Green markets will benefit but it won’t happen overnight because the large oil companies just aren’t going anywhere any time soon.
“If a carbon tax is brought in it will inevitably have an effect on the carbon price and it is likely to rise, but that’s about it.
“There are companies that are moving into technologies such as wind turbines. ExxonMobil is an example. The other large oil companies like Royal Dutch Shell will also look further towards wind turbines and other cleaner energy sources. But they’re not going to start from nothing.
“They’re going to be looking at companies that are already in that market, and they might benefit a lot from this. That’s the way it is going to go. But we are talking five to 10 years before we see big changes in the renewable market.”
City Credit Capital’s director of business development, John Murray, a Wall Street trader for 10 years, said: “As far as I am concerned this is all just part of the leftie green agenda.
“We have been trying to wean ourselves off oil for 20 to 30 years and not managed it – it is a complete waste of time. Copenhagen is going to have little or no effect on the markets for me and I don’t pay much attention to it.
“Green technologies are not going to attract my money. They just aren’t sexy and exciting enough. I don’t see how they are going to attract the interest.”
But he added: “Certain metals like lead will do well off the back of it.”
Measures being discussed by world leaders at Copenhagen include an attempt to reach a binding agreement on carbon emissions. This could mean that emissions are taxed or a more complex cap and trade system of permits is introduced, as is favoured by Barack Obama.
Under cap and trade, a total cap on greenhouse gas emissions would be set and companies would buy (or be given) permits allowing them to emit a share of this total amount. If a company runs out of permits, it could either reduce its emissions, buy more permits from other companies via an exchange or earn credits by helping developing countries to reduce their emissions.
The idea is to create an incentive for companies to clean up their act by creating a market for greenhouse gas emission permits. Added to an investment in clean technology and low-carbon alternatives, proposals like carbon taxes and cap and trade could make green markets more stable and attractive.
Typically, green markets have been subject to violent fluctuations which has made investing in them a risky business. But a firm commitment to deeper cuts in greenhouse gas emissions could mitigate this risk and enable investors to hedge their positions.
China and the US have already said they want to limit and even reduce greenhouse gas emissions in the future – but, although a Bill is going through the US Senate, binding agreements are still to be signed.
One thing is not in doubt, though: if a commitment is made, emitting greenhouse gases will become more expensive and could act as a drag on all global economies. This may have the potential to change the shape of the global economy and could have big consequences for investors down the road.
One area that speculators should keep an eye on is the firms that are able to innovate and cut their emissions. Companies that achieve this could have a real edge on their rivals. For example, Cisco and Microsoft have already investigated the possibility of reducing their carbon footprints by creating server farms in Iceland that would be powered entirely by renewable energy.
Andrew Gibson, head of research at CFD and spread betting specialist Galvan, has identified some of the companies that could prosper.
He said: “Many commentators are already dismissing the Copenhagen climate change summit as just another talking shop that will lead to more hot air – at least metaphorically.
“But even if the summit says a lot and does little, there are some likely winners and losers on the markets. Clearly, the main idea is to work out ways of reducing CO2 emissions and dependency on fossil fuels. But going short on crude oil and natural gas may not necessarily be the way forward because a decline in consumption could take years to filter through to these markets, especially in the wake of the recent peak oil production controversy.
“Instead, the likes of National Grid, which could benefit from its plans to bury CO2 underground via its converted gas pipelines, may be the smart players. An alternative is PV Crystalox Solar which produces components for solar panels.
“But perhaps the prize goes to the most obvious beneficiary – at least in terms of its name and business model. Climate Exchange is a holding company whose subsidiaries own, operate and develop exchanges to facilitate trading in environmental financial instruments including emissions reduction credits.
“The emissions exchange operator reported a 153 per cent rise in the past year in the amount of contracts placed on its European Climate Exchange. In July it said it expected strong growth, and last week the company reported continued strong activity in the European market, representing the fourth consecutive month of volume growth.
“Whatever the outcome of the Copenhagen summit, it is hard to see the event doing anything other than driving the shares higher.”
But, at least in the short term, some analysts are holding fire with their money.
IG Index’s chief market strategist, David Jones, told 247Bull.com: “I just don’t think Copenhagen is anything to be concerned about. Markets are still focusing on things like unemployment so the summit’s effect will be negligible. It is difficult enough for G7 and G20 meetings to have an effect, but not this.”
Tags: Andrew Gibson, Brian Monaghan, City Credit Capital, climate change, Copenhagen, David Jones, Galvan, IG Index, John Murray, Paddy Power Trader
This entry was posted on Thursday, December 10th, 2009 at 6:35 pm and is filed under Blog, Featured, News.