‘Bache’s Green Index will allow investors to participate in the markets for these commodities, which are of growing importance in the global economy,’ said Stephen Ilnitzki, senior vice president, Bache Commodities Group. ‘Building on Bache’s strength in commodity markets, the Bache Commodity Green Index focuses on commodities needed in the production of sustainable energy and the reduction of carbon emissions. Compared with other green indices, only the Bache Commodity Green Index holds a cross section of commodities from multiple market sectors and employs the unique dynamic asset allocation trading strategy used on the Bache Commodities Index.’

The BCGI comprises two components – the Bache Biofuel Composite and Bache Clear Air Composite. The Bache Biofuel Composite includes agricultural commodities such as corn and sugar used for ethanol production, along with oilseeds used for biodiesel production. The Bache Biofuels Composite is allocated 65 per cent to products used in ethanol production and 35 per cent to oilseeds, according to a statement. The constituents and weights in the Bache Biofuels Composite will evolve to reflect changes in the mix of commodities used in renewable fuels.

The Bache Clean Air Composite comprises commodities directly related to reducing the effects of climate change. These include carbon emission credits and certain metals that are critical components in products such as catalytic converters that reduce emissions of pollutants and greenhouse gases. The Bache Clean Air Composite is currently weighted 70 per cent in carbon credits and 30 per cent in greenhouse metals. These weights are based on estimates of the relative liquidity of these components. Over time, the Bache Clean Air Composite is likely to add more commodities that play a role in reducing and controlling emissions.

The BCGI has an initial allocation of 60 per cent to the Bache Biofuels Composite and 40 per cent in the Bache Clean Air Composite. Biofuels are given a larger initial weight in the BCGI – because biofuel markets are currently larger and more developed. As more countries adopt carbon emissions caps, the BCGI may change its weighting to reflect the increased focus on carbon and pollution control markets.

‘In light of the significant investments being made in green technology and a stronger regulatory environment that will require companies to participate in cap and trade schemes around the world, we expect this market will grow rapidly,’ added Ilnitzki. ‘Following our initial focus on European markets, we expect to see growing interest in the Index in the US and Asia as well as other international markets. As the demand and use of green commodities change, the index components will continue to evolve to reflect these changes.’

Bache Commodities Group is the global commodities and financial derivatives business of Prudential Financial, a financial services group with approximately $542bn of assets under management, and operations in the United States, Asia, Europe, and Latin America.

Copyright © 2009 NewNet

The emissions trading market has developed as a result of political initiatives, such as the Kyoto Protocol, to combat climate change. It focuses on the trading of carbon dioxide (or carbon dioxide equivalents) and is run on a ‘cap and trade’ basis, which means that each year the government or relevant body of each participating country sets a cap on the amount of CO2 certain energy intensive businesses and industries in that country are allowed to emit that year. It then auctions a number of allowances (1 allowance = one tonne of CO2) to those businesses and industries or it issues them for free. If a business does not use up its share of allowances within the year, it can either keep them for the following year or sell them on the market. If a business exceeds its share of allowances, it has to buy more or pay a fine.

The FSA does not regulate the underlying emissions market. Its responsibilities instead relate to the emissions derivatives market. However, the FSA still has an interest in the underlying market as any risks that spill over into the derivatives market will potentially affect it.

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