For those people who have been busy planting trees and buying carbon offsets to help save the world from greenhouse gases, you might consider hedging your bets on the future of global warming. One recent international study found that carbon dioxide emissions went up by 35 per cent between 1990 and 2006. And looking ahead, the evidence suggests that emissions will keep rising for the foreseeable future. As the saying goes, hope for the best, but prepare for the worst.
That’s where the UBS Greenhouse Index might come in handy. Last week, the investment bank UBS said it will launch the first index that will allow investors to bet on greenhouse gas emissions and their effect on the weather. The index will track existing markets where emissions futures contracts and weather derivatives are traded. The aim is to make it easier for not only institutional investors, but for individuals to gain some exposure to these growing markets, and to gain some measure of protection against the economic costs of a warming planet. As emissions rise, so too will the value of the index.
The index will be made up largely of futures contracts on the Chicago Mercantile Exchange, where weather contracts are traded, and the European Climate Exchange, where carbon dioxide emissions are traded. It builds on the UBS Global Warming Index launched last year, which has already drawn about $100 million from investors. “If clients feel like they want to get into this, they can at least track what’s going on in the market,” says Graeme Harris, a spokesman with UBS. It will also help smaller investors follow these markets without having to deal with all the complexities and regulations that go with them, he adds.
The earth could well keep warming as emissions go up, but if you play the market just right, at least you’ll have a little money left over to buy that summer vacation home on Baffin Island. M
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