Investment banks flock to booming carbon trade

By Gerard Wynn

LONDON (Reuters) - Banks are jostling for a piece of what may be the world's fastest growing market, trading carbon emissions permits: Citigroup has just waded in, Bank of America is set to and Deutsche has doubled its team.

Societe Generale, Fortis Bank and Morgan Stanley have all added to their carbon trading desks this year.

Global carbon market traded volumes were worth less than $1 billion in 2004, $11 billion in 2005 and over $30 billion last year, according to the World Bank.

Rejection of the fledgling market by the world's biggest carbon emitter, the United States, as well as a price collapse last year have not dented hopes it will be a key plank in the world's response to climate change.

"It's got beyond the phase where people thought it's a flash in the pan," said Deutsche's (DBKGn.DE: Quote, Profile, Research, Stock Buzz) Mark Lewis, who became a full-time carbon analyst last month.

"The team has doubled in size over the course of the last six months, we now have over 10 people covering emissions globally," said Kevin Rodgers, Deutsche's head of complex risk in commodities and foreign exchange.

Banks see many opportunities from climate change.

Their project finance teams can advise clients on how to earn carbon credits from clean energy projects, their commodities and energy teams can then sell those credits to other clients facing emissions targets, while their research teams can advise the likes of pension funds on investing sustainably.