Proposed Climate Legislation Could Have Banks Seeing Green
May 20, 2009, Dow Jones Newswires

The proposed climate legislation moving forward in the House has a significant cap and trade provision. While many banks currently have proprietary trading desks for commodities such as gold and oil, what impact will the legislation have (if passed) on the carbon trading market?

"There is potential for a very large, international market with the potential to attract trading desks at many banks," said Stuart Caplan, partner at White & Case.

As the number of allowances goes down and the price of allowances goes up, there will be increasing opportunity for arbitrage and secondary market activity to manage emissions allowance price risk. "Banks may see this as an opportunity to provide efficient, but profitable arbitrage," he said.

Other proposed legislation, meant to spur the growth of renewable energy in the U.S. by 2025, could stimulate renewable energy project development and related project finance work at banks, said Caplan. If such legislation passes, "there will be a near-term and sustained boost in project financings to support the expansion of the U.S. renewable fleet," Caplan said.