Continuing research into the world of energy hedge funds is revealing evidence of a next wave of interest in Europe as well as an extension of the commodity trading platform into green markets.

Specifically, this involves carbon trading, renewable energy credit trading, ethanol trading and emissions trading. The approach, like in all emerging markets with little price discovery, is to find arbitrage opportunities and a mismatch in pricing.

This can be as simple as going long carbon in the hope that its value rises over time and as sophisticated as playing the 'regulatory arbitrage' of 'shorting' renewable energy credits in one state and 'buying long' in another. (Some 19 states have Renewal Portfolio Standards in the US).

In the Green Hedge Fund market, taking on the regulatory risk takes some degree of both government policy and market knowledge to be successful. Other green venues include biofuel trading such as ethanol and other plays in biomass for power generation.

Alternative energy includes not only wind and solar but also biomass, ethanol, distributed generation plays such as fuel cells and micro turbines. One other emerging technology play is the rising interest in photo voltaic nanotechnology that may make radical improvements in electricity generation from the traditional 8 to 10% efficiency to 15% and much higher.