Carbon hedge fund to launch in early 2009

By Michael Szabo

LONDON (Reuters) - London-based CF Partners will launch early next year a new 50 million euro (48 billion pound) hedge fund aiming to profit from volatility in carbon markets.

The European Union's emissions trading scheme may be a surer investment following final EU endorsement on Wednesday of climate goals reaching out to 2020, and recent volatility in commodities markets has opened shorting opportunities.

"To date in the carbon space the majority of the players from a fund point of view have been long-only guys," said Simon Glossop, one of CF's founders. "That's been a workable model up to this year, but carbon has now become an asset class in its own right instead of a compliance tool."

The global carbon market, expected to be worth $100 billion this year, allows companies to trade rights to emit greenhouse gases blamed for causing climate change.

The main participants are companies which need emissions permits to meet legally binding carbon caps, especially in the European Union's emissions trading scheme ETS.L.

The EU ETS launched in 2005, forcing big polluters including coal plants and cement makers to buy carbon permits.

Recession has hit carbon prices closely linked to energy, with EU allowance (EUA.L) prices halving since a peak of 29.69 euros this summer.

The market also faces policy risk as the world struggles to meet a deadline to agree a new climate treaty next year.