Hedge funds have booked nine-figure profits trading carbon-credits tied to global warming.

The price of carbon-emissions credits surged 60% this summer as temperatures in Europe hit all-time highs.

The hedge fund profits could stir controversy in a market that has already drawn scrutiny.

Hedge funds have made hundreds of millions of dollars betting on climate change and higher temperatures, particularly in Europe, as heat waves across the continent this summer have turned deadly, killing 400 people in a single week in the Netherlands alone.

One of the biggest winners is Northlander Commodities Advisors, a U.K. fund with strong ties to the U.S. Northlander was co-founded by Harry Arora, a former Enron trader who ran for a Connecticut House of Representatives seat last year (and lost by a wide margin). Aurora's Northlander has made as much as $125 million for it and its investors on the firm's climate bets. The fund, which rose 53% in 2018, manages around $500 million, about double what it did a year ago.

Another fund, Autonomy Capital, which is based in New York and has $5.5 billion in assets, has also reportedly been ramping up its bet on carbon-emissions credits—the same climate-influenced market that Northlander has profited from.

Get Breaking News Delivered to Your Inbox

Northlander and Autonomy Capital did not return calls for comment.

Rising prices — and temperatures — draw speculators

Carbon-emission credits, which are distributed by governments to utilities, manufacturers and others in an effort to cut greenhouses gases, have soared in price in recent months. Utilities and others can use the credits, which they are required to have to burn fossil fuels in their power plants, or sell them to other manufacturers.

Rising prices have drawn in hedge funds and other speculators looking to make money by holding the credits before passing them along to an end user. Wall Street firms Goldman Sachs and Morgan Stanley have been beefing up their trading operations in this area as well.

In the European Union, where the market for the carbon credits (called European Emissions Allowances) is the most established, prices rose 60% starting in March this year. The credits peaked at around $33 per ton of carbon gasses in late July. And that was after rising more than 100% in a similar period last year. All told, the credits are up 350% in the past three years. California and a number of East Coast states in the U.S. also have carbon markets, but they are much smaller than the EU's system.

Warmer weather is part of what is driving up the price of emission. Paris shattered records when temperatures soared to nearly 109 degrees in late July. Cities across Europe, even as far north as Amsterdam, rose into the mid-90s. That has caused more Europeans to reach for air conditioners, driving increased electricity usage. Others point to a move by the EU in 2017 to cut back the number of emissions credits handed out. Prices, which had been flat for years, began rising shortly thereafter.

Should investors profit from climate change?

The credits have stirred controversy before. Some believed that traditional polluters would see windfall profits. Lax computer security made carbon-trading systems a favorite target for hackers. The fact that hedge funds are now profiting from a rise in prices likely won't help the emission credit's reputation either, even though their participation is partly by design.

The carbon-emissions trading market is supposed to cut pollution by driving up the price of emissions as more fossil fuel is burned. And it is working. A 2016 MIT study found that the EU emission-credit trading system has resulted in a significant reduction in greenhouse gases even as the European economy was in recovery mode. Hedge funds and other speculators help drive up prices faster and hopefully reduce pollution even more. Proponents of carbon trading say hedge funds eventually have to sell to make money — and the holders of those credits, likely other hedge funds, will have to swallow the losses as well.

The fact that hedge funds, like undertakers and doctors, may profit from unsavory events doesn't necessarily make those profits wrong. Still, that hedge funds are making money hoarding the carbon-emissions credits and driving up the cost of electricity at a time when Europeans need it to keep cool is likely to burn more than few.