AirShares Announces White Paper on “Transforming Climate Change through the Capital Markets: Carbon as Commodity”

In an effort to help educate institutional and individual investors about central aspects of the carbon market, XShares Advisors today announced the availability of a white paper by Andrew J. McKeon, principal at carbonRational, entitled “Transforming Climate Change through the Capital Markets: Carbon as Commodity.”

The paper is the first in a series of publications offered through AirShares and its sponsor, XShares Advisors, on how climate change, the capital markets and carbon trading are brought together in financial instruments that are available to individual, institutional investors and public and corporate pension plans.

In his white paper, Mr. McKeon states that “climate change is not simply an environmental concern, but a business issue—indeed the most significant business issue facing industrialized society.” He also discusses how “the capital markets system will play a transforming role in addressing climate change, enabling the transition from a fossil-fuel based economy to a post-carbon economy.”

Having applied systems theory to solve business problems in technology (at Bell Labs) and in finance (at Goldman Sachs and Deutsche Bank), Mr. McKeon now applies systems theory to climate change, showing businesses how this great risk can also be an opportunity for increased global competitiveness, profitability and sustainability.

According to Mr. McKeon’s white paper, science has made clear “the dangers of anthropogenic carbon dioxide (CO2). The aims of both finance and industry must now be aligned with that of a third system: the earth’s ecosystem. Trading carbon as a capital markets commodity is the first manifestation of that alignment by using a market-based system to incorporate the cost and right to produce carbon into the global economy.”

His paper highlights how aligning these systems can create investor opportunities in the carbon markets. “Making carbon allowances and credits into easily tradable instruments with a transparent price provides investors with access to equity vehicles, such as the AirShares EU Carbon Allowances Fund (NYSE Arca: ASO).”

Climate change, Mr. McKeon notes, is not extreme weather. Rather it is the human activities that are creating a fundamental geophysical change in the earth’s atmosphere. Burning fossil fuels has added huge amounts of CO2 to the earth’s atmosphere. In 2007, he writes, the U.S. alone added 7.3 billion metric tons of CO2 equivalents into the atmosphere (about one-fifth of the world’s total), up 1.4% from 2006 and up 17% from 1990.

Viewed as a system, the global economic system powered by fossil fuel is out of alignment with the workings of the earth’s ecosystem. Climate change is a symptom of that misalignment. We don’t need a precise diagnosis to begin treatment. “Simply put, if the earth were a doctor’s patient, climate change would be an indication of a serious rising fever—persistent and perhaps life threatening—and in need of immediate counteraction.”

The most widely traded commodity in 10 years?

While the carbon market is barely four years old and lacks the participation of the world’s biggest CO2 emitter—the U.S.—it has already become a significant global market. In 2008, the global carbon market was valued at almost €100bn, more than double 2007’s figures, according to the carbon consultancy Point Carbon. The market grew 83% in 2008 when some 4.9 billion metric tons of CO2 equivalents changed hands. Assuming the U.S. joins the market, Point Carbon has projected a $3 trillion market in carbon by 2020. Given its growth trajectory, carbon very likely could become the most widely traded commodity in the world in the next ten years.

The paper discusses three major factors that will affect allowable carbon discharge into the atmosphere—economic activity, policy, and the availability of alternatives to fossil fuel—and reviews four factors that together would align for a stable and strong demand for carbon allowances.

Cap-and-Trade Developments

The white paper reviews key developments of various cap-and-trade programs. The earliest was the Environmental Protection Agency’s Acid Rain Program (ARP) to control emissions of sulfur dioxide (SO2) and nitrogen oxides (NOX). The Chicago Climate Exchange launched the first voluntary US cap and trade program in 2003, and three regional U.S. mandatory carbon markets have been set up along the lines of the ARP model. Among the successes: the EPA’s projection that the public health benefits from the Acid Rain Program’s emissions reductions will be over $120 billion annually by 2010, exceeding program costs by a margin of more than 40:1.

Investor Contact:

To request a copy of “Transforming Climate Change through the Capital Markets: Carbon as Commodity,” please visit www.xsharesadvisors.com/airshares/prospectus, or call 1-800-925-2807.

About carbonRational

carbonRational was founded in 2006 to help top management in business and industry prepare for and flourish during the transition from the current way of doing business to the emerging post-carbon era. Their clients realize the need for understanding the risks and opportunities that the coming changes present, and the need to act strategically to take full advantage of the alternatives available to them.

About XShares Advisors LLC

XShares Advisors LLC, a registered investment advisor, sponsors and develops innovative exchange traded products (ETPs). XShares Advisors partners with major institutions and index providers to create and license distinctive intellectual property for its ETPs. For more information, visit the company’s website at: www.xsharesadvisors.com.

Risk Considerations

To determine if this fund is an appropriate investment for you, please carefully consider the fund's investment objectives, risk factors and charges and expenses before investing. This and other information can be found in the fund's prospectus, which may be obtained by calling 1-800-925-2807 or visiting our website at www.xsharesadvisors.com/airshares/prospectus.Please read it carefully before investing.

Commodities and futures generally are volatile and may not be suitable for all investors.

Commodity trading is highly speculative and the underlying instruments determined by the methodology on which the fund’s trading will be based, are likely to be volatile and could suffer from periods of a prolonged decline in value.

The AirShares EU Carbon Allowances Fund is speculative and involves a high degree of risk. The market for European Union Allowances (EUAs) may be volatile and illiquid, which may adversely affect the value of the fund’s shares. An investor may lose all or substantially all of an investment in the fund. The fund is subject to fees and expenses and will be successful only if losses are avoided.

In addition to the normal risks of investing, foreign investing involves special risks, such as risk of loss from currency fluctuation or political or economic uncertainty. The trading activities of the fund will subject holders of AirShares to currency risk. European Climate Exchange CFI Futures Contracts and most of the assets of the fund will be denominated in Euros while the shares trade in U.S. dollars. Changes in the value of the euro relative to the U.S. dollar alone may cause the trading price of the shares to decline. Funds focusing on a single commodity generally experience greater price volatility than a diversified commodity pool.

If the member states of the European Union fail to adhere to their obligations under the Kyoto Protocol or the EU ETS, the value of the shares may be adversely affected. Depending upon the performance of the fund, including the interest rate environment and the amount of interest the fund earns on its fixed income securities, the expenses of the fund alone could result in losses to your investment.

Although the shares are intended to provide investment results that relate directly to the value of its long positions in futures contracts for EUAs, the value of the fund’s shares may diverge from the value of such long positions for various reasons. There is a risk that the calculation of the NAV of the fund will not accurately reflect the realizable market value of such futures contracts.

The fund has only a brief and limited operating and trading history on which to evaluate an investment in the shares.

The fund is not a mutual fund or any other type of investment company within the meaning of the Investment Company Act of 1940, as amended, and is not subject to regulation thereunder.

Shares of the fund are not FDIC insured, may lose value and have no bank guarantee. AirShares EU Carbon Allowances Fund is distributed by ALPS Distributors, Inc.

XShares Advisors LLC and ALPS Distributors, Inc. are unaffiliated entities.

AirShares is a trademark of XShares Advisors LLC.

AIR 166 Exp 9/30/09