Hedge funds see potential in European carbon markets

There is growing interest by hedge funds in carbon trading. Traders are diversifying their funds and business risk by combining carbon investments with allocations to related asset classes. By David Walker

European carbon markets have been in the news recently, though not always for the best reasons. In January, much activity in the €90 billion ($122 billion) carbon market was frozen temporarily because of computer hacking.

Traders, who say the markets are rich with opportunity, volatility and a growing turnover, were frustrated when the European Commission halted trading by suspending all 30 of the national registries for emissions permits.

The permits, which are traded, put a price on industrial