UBS to launch â€œclimate change derivativesâ€ index
By Paul J Davies
Financial Times of London
The first derivatives index designed to track the greenhouse effect is set to be launched in coming days by UBS, allowing investors to bet on the combined impact of carbon emissions and rising global temperatures.
The index follows on from the Swiss bank’s launch of the first global warming index last year and adds to a growing number of products from banks aimed at encouraging a broader range of investors to bet on the effects of climate change.
Both retail and institutional investors will be able to buy exposure to, or short sell, the UBS Greenhouse Index in much the same way they would the FTSE or Dow Jones stock market indices.
The level of the index will rise as the price of carbon emissions credits and global temperatures rise.
Ilija Murisic, executive director of hybrid derivatives trading at UBS, said that the new index increased the sophistication of the climate exposure investors could take oncompared with its global warming index, which had attracted more than $100m of trades since its launch last April.
“If the Global Warming Index was the iPod, the Greenhouse Index is the iPhone,” he said.
The index will be based half on the global warming index, which uses weather derivative contracts traded on the Chicago Mercantile Exchange, and half on exposure to emissions futures from two sources.
The larger part of the emissions side is based on the European Climate Exch-ange, the most liquid market for EU carbon emissions credits, which traded about 1bn tonnes of carbon last year. The remainder is based on the Kyoto Clean Development Mechanism traded on Nord Pool, which tracks the value of credits awarded to groups for investment in clean energy or emissions reductions projects.
Barclays Capital launched a global carbon index last month based on the same two markets.
The EU emissions trading system and the Kyoto carbon credits created a market worth $30bn in 2006, said the World Bank, which should release data for last year in coming weeks.