Investment banks are chasing opportunities in a $126 billion carbon market as the U.S. Senate considers a federal climate bill that would launch a cap and trade scheme.
Governments worldwide are also expected to lean heavily on the private sector and carbon markets in particular, as a way to raise finance to fight climate change, at a major U.N.-led meeting in Copenhagen in December.
Investment banks have three main strategies in carbon: buy and sell emissions rights on behalf of corporate clients to profit from bid-offer spreads; proprietary trade with their own money; investment in carbon offset development under the Kyoto Protocol's clean development mechanism (CDM).
In the last category, JPMorgan Chase & Co said on Monday it was buying carbon offset company EcoSecurities for an agreed 123 million pounds ($204 million).
The role of traders in carbon markets is under scrutiny in the United States. One lawmaker guiding the draft climate bill through the Senate, Sen. John Kerry, said the bill should have tough controls on speculation.
Following is a list of some of the more active banks, and what they do --
Bank of America Merrill Lynch
* CDM project originator; structuring CDM deals
* lender to renewable energy projects, including CDM
* market maker for clients and through prop desk
* says has traded 2 billion tons of carbon allowances
* has no proprietary investment in carbon commodities
* research and structuring teams
* equity investment in Sindicatum Carbon Capital
* proprietary trading Deutsche Bank
* originates CDM and other carbon offset projects
* market makers in European carbon markets
* research team
* investor in NYMEX's Green Exchange
* investor in project developer Blue Source
* equity investor in Climate Care
* originates CDM projects under wider climate business
* market maker in European carbon trading
* equity investor in project developer MGM
* proprietary and client trading
* some proprietary trade and carbon offset investing
* co-owns with chemical firm Rhodia CDM project developer orbeo
* orbeo bought CDM project developers OneCarbon in June
* Socgen markets Rhodia's CDM carbon offsets
* manages SGI Global Carbon Index