Carbon Price May Nearly Double, Says Northlander After Hedge Fund's 148% Gain

(Bloomberg) -- Northlander Commodity Advisors LLPs main hedge fund gained a record 148% last year, driven by a call that the European Union's carbon price would surge.

The bet paid off handsomely for the fund, which gained 14.5% in December, according to a letter to investors seen by Bloomberg. EU carbon last month rose to an all-time high above 90 euros ($102) per metric ton and finished the year up 147%, due to increased climate ambitions in Brussels and a gas crunch that's made it more profitable to burn polluting coal.

The strategy's assets under management rose to $354 million.

  

Northlander Managing Partner Ulf Ek expects the carbon price to keep gaining this year, jumping above 100 euros this winter and then trading between 140-160 euros later in the year. The permits traded at about 86 euros on Friday.

Our expectation of price in 2022 for carbon emissions is decidedly bullish, a Ek wrote in the letter to investors. Carbon emissions still need to go higher for Europe to meet its targets.

Northlander declined to comment.

Europe's carbon market puts a price on emissions from about 10,000 power producers and industrial plants. An increasing carbon price is a key tool for the EU to drive investment in technologies that dont pollute.

Ek was among a handful of hedge fund managers who made bullish bets on carbon's rise at the beginning of last year. The trade also helped fuel gains for famed oil trader Pierre Andurand in 2021. However, as carbon keeps rising, politicians may face growing pressure to intervene in the market to help protect their populations from the sting of energy price inflation.

The Northlander fund also made money on the highly volatile markets for power and gas last year. It exited most power market exposure in August and September to manage risk. 

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