Friday, March 10, 2006

First biofuel index launched

Swiss investment bank UBS and Diapason Commodities Management have jointly launched the first biofuel index for trading in commodities used in the production of biologically-derived fuels.

The index is published in US dollars, euros, Swiss francs and Japanese yen. The index is composed of futures contracts on ten physical commodities related to the production of ethanol and biodiesel. The index is weighted to reflect the importance of different feedstocks as well as the liquidity of the underlying futures contracts.

Bioethanol is an alcohol-based fuel made from the fermentation of crops such as sugar beet or wheat. It can be mixed in petrol to reduce emissions. Biodiesel is produced from vegetable oil and can be used in diesel engines. Production of these two major forms of alternative fuel is increasing rapidly as more countries attempt to cut carbon emissions and find alternative forms of energy.

As of the launch, the index is weighted 83.01% toward ethanol and 16.99% toward biodiesel. UBS said in a statement: "This innovative index adds a new dimension to the liquid commodities indices and can serve as a suitable basis for a variety of structured financial products. Its launch means that investors will, for the very first time, have access to an efficient and liquid investment instrument that gives them exposure to the market performance of alternative fuels."

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