Climate Exchange

The European Climate Exchange may have been a target of environmental protests in London last month, but shareholders in the screen-based carbon-trading bourse have little cause to complain.
Yesterday’s first-half figures showed the AIM-listed Climate Exchange (CE), which also owns America’s dominant carbon market, producing a maiden first-half profit exactly to plan. More impressive, when volumes of exchange-traded products have fallen across the world, CE’s have more than trebled in the six months to June 30, up 211 per cent in Chicago and up 252 per cent in London. Those gains come despite continued uncertainty over the direction of American environmental legislation that has caused prospective customers to drag their feet.
CE’s overwhelming attraction is as a geared play on America’s embrace of mandatory emissions trading. At an estimated six billion tonnes a year, the US carbon market is three times that of Europe. And a potential breakthrough is tantalisingly close, whether through the American Clean Energy and Security Act, which will be debated in the Senate this month, or the Copenhagen summit in December, when President Obama has the chance to sign up to the post-2012 phase of the Kyoto Protocol. Second-guessing the outcome of either is hazardous, especially given the difficulties to date of US healthcare reform.
The other worry is persistent moves by the New York Stock Exchange and the Chicago Mercantile Exchange to launch rival contracts, which, if successful, could force CE to cut its fees. At 880p, or a stock market value of £420 million, more than 80 times this year’s forecast pre-tax profits, the shares already discount stellar growth. There should be better times to buy.