HSBC Ejects Carbon Traders From Index

The banking giant HSBC removed two companies involved in carbon trading from its Climate Change Index on Monday because they had lost too much value.

Analysts from HSBC said the cause was mainly that governments had failed to come up with a timetable for a global climate deal at the United Nations summit in Copenhagen in December.

“Carbon trading was the major loser from Copenhagen,” HSBC analysts said in their March 21010 Quarterly Index Review. “Cap and trade needs hard targets and binding rules – and Copenhagen delivered neither,” HSBC said.

The two companies ejected were Climate Exchange and Trading Emissions. Both companies are based in the Isle of Man and listed on the London Stock Exchange.

Climate Exchange owns the European Climate Exchange, the Chicago Climate Exchange and the Chicago Climate Futures Exchange. The chairman of Trading Emissions, Neil Eckert, is also the chief executive of Climate Exchange.

Among companies joining the index were Renesola, a solar manufacturer with a heavy focus on China listed on the London Stock Exchange, and Universal Display, a United States-based lighting manufacturer listed on Nasdaq.

The revised rating by HSBC is another example of how expectations for carbon trading, also known as “cap-and-trade,” have diminished over the past year – a topic covered by my colleague John Broder in an article in The New York Times last week.

HSBC said South Korea had “kept the carbon trading faith” with plans to introduce a pilot program and it noted that the European Union has operated a carbon trading system since 2005.

But a failure by the European Union to order deeper cuts in emissions, and the absence of decisions putting the system in place in other major advanced economies like the United States, Japan and Australia, had undermined chances of a global carbon market emerging any time soon, it said.

HSBC said those disappointments were reflected in the value of the companies reliant on carbon trading; the companies HSBC removed from the index had failed to reach the minimum market capitalization of $400 million.

HSBC forecast that the rest of 2010 would be characterized by a focus on Asia and by pragmatic deals on adaptation, forestry and climate finance, rather than on a comprehensive global deal. There would be “a shift in focus from building carbon markets to delivering low carbon growth,” HSBC said.