Street Clears the Air

Still, for now, carbon trading is really a European affair because of the Bush administration's stance on the Kyoto treaty.

That could change down the road with a new administration, one that takes a more favorable view toward combating global warming.

"The commitment by Morgan Stanley just shows how serious this market is," says Andrew Ertel, the president and CEO of Evolution Markets, which specializes in structured transactions, consulting and advisory services for the environmental credit markets.

Ertel says, "It touches almost every aspect of their business one way or another," such as speculative trading, private equity investments and project financing. "But there is a double perspective -- not only are you making money, but you're actually doing good for the planet."

Ertel's firm does brokerage work for Morgan Stanley.

Investors and hedge funds also might find carbon trading appealing if they are "looking to invest in products with no correlation to the broader securities market as a hedge" in their portfolios, says Ron Geffner, an attorney at Sadis and Goldberg, who represents hedge funds.

The U.S. also does not have federal legislation requiring companies to cap the amount of carbon emissions per company.

Rather, just a handful of states have pushed forward greenhouse gas-reduction initiatives, including several in the Northeast under the Regional Greenhouse Gas Initiative, as well as California.

While federal legislation eventually will be necessary, it is unlikely that there will be stepped-up pressure on President Bush to enter into the Kyoto treaty even if there is a change in control in the House or Senate, Ertel says.