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BM&FBOVESPA Voluntary Carbon Credit Market Auction – Sale Will Offer 180,000 Carbon Credits Managed By The Social Carbon Company

The Brazilian Securities, Commodities and Futures Exchange – BM&FBOVESPA will hold on 08 April 2010, a voluntary carbon credit market auction. A total amount of 180,000 voluntary carbon units from projects managed by the Social Carbon Company will be auctioned.

The emission reductions were generated from 9 renewable biomass projects administered by the Social Carbon Company in ceramic factories. These plants are located in the Brazilian states of São Paulo (Panorama, Paulicéia), Pará (São Miguel do Guamá), Pernambuco (Lajedo, Paudalho), Sergipe (Itabaiana), Minas Gerais (Ituiutaba), and Rio de Janeiro (Itaboraí). The projects involve fuel switching to renewable biomass fuels like sugarcane bagasse, açai seeds, and rice husks, among others. The carbon credits have been validated by certified entities authorized by the United Nations Framework Convention on Climate Change (UNFCCC).

The auction will be held in three sessions, with a lot traded per session. The initial bidding prices will be indicated by lots that vary in accordance to the vintages and are priced at BRL 10.00 to BRL 12.00 per unit. The first transaction will occur at 1:00 p.m. (Brazil Time) and will be carried out by BM&FBOVESPA’s  Carbon Credit Trading System. The financial settlement will be coordinated by Liquidez DTVM brokerage house.

BM&FBOVESPA’s Carbon Credit Market

The Brazilian Exchange has previously organized two carbon credit auctions in 2007 and 2008. Both auctions offered Certified Emissions Reductions (CERs), held by the São Paulo Municipal Government, and generated by the Bandeirantes and São João landfill projects.

The objective of BM&FBOVESPA’s carbon market is to foment carbon credit trading in Brazil within an organized trading environment. It also provides Brazilian companies an opportunity to sell their GHG emission reduction projects in the country. The Exchange’s trading platform offers global participants a secure, transparent, and efficient trading atmosphere with competitive prices.

Source: MondoVisione, 26.02.2010


Filed under: BM&FBOVESPA, Brazil, Energy & Environment, Exchanges, Latin America, News, , , , , , , ,

Brazil: BM&FBOVESPA Exchange News and Events December 2009

BM&FBOVESPA and SunGard developing clearing and margin support for US Futures Commission Merchants

BM&FBOVESPA and SunGard are working to expand the automated clearing support for BVMF’s financial and agricultural futures and options exchange-traded derivatives — within SunGard’s GMI clearing and accounting solution. SunGard’s collaboration with BM&FBOVESPA will provide US-based FCMs with the ability to process and clear BM&FBOVESPA trades using GMI.

GMI’s new BM&FBOVESPA derivatives module is expected to be available in the second quarter of 2010 to help clients automate the process of loading trades, performing bookkeeping functions, and calculating margins and fees. GMI’s trade load functionality will help US FCMs to seamlessly import cleared trades from Brazil directly into their GMI systems. GMI will also provide clients with BM&FBOVESPA initial and variation margin calculations to help firms monitor daily charges and fees, and reconcile information.

 Stock index focused on carbon emissions

BM&FBOVESPA and the Brazilian Development Bank (BNDES) announced during the 15th United Nations Climate Change Conference (COP15), in Copenhagen, the development of the Carbon Efficient Index, that will be structured in 2010 based on the Brazil Index 50 (IBrX-50), which is composed by the 50 most traded stocks at BM&FBOVESPA. The objective of this index is to stimulate listed companies to reduce their emissions of greenhouse gases (GHG) and adopt environmental practices. The index will be weighed by the inventory of GHG emissions that result from all the activities associated to a company.

Stock index to measure financial sector

The Brazilian Securities, Commodities and Futures Exchange will begin, on 4 January 2010, to calculate and disclose the BM&FBOVESPA Financial Index, in real-time. This is the Exchange’s 15th stock index and it will trade under the ticker symbol IFNC. The IFNC index will measure the returns on stocks from the most representative companies of the Brazilian financial sector. These include banks, financial institutions, asset management firms, credit card issuers, insurance companies, among others.

 DMA trading volume increases in 2009

Direct Market Access (DMA) trading of the derivatives market segment at BM&FBOVESPA reached a total of 71,236,761 contracts traded, with 7,434,360 trades carried out through the GTS trading platform, from January to December (until 12/21). Currently, 42 brokerage houses are authorized by the Exchange to offer DMA access and 25 Independent Software Vendor (ISV) solutions have been certified. The volumes registered by access modality during 2009 are as follows:

Traditional DMA
46,583,083 contracts traded, in 4,649,949 trades.
DMA via order routing with CME Globex
14,063,583 contracts traded, in 2,415,164 trades.
Via DMA Provider
9,627,543 contracts traded, in 209,057 trades.
DMA via co – location
962,552 contracts traded, in 160,190 trades.

 The Bovespa Segment doubles its daily trading volume to 1.5 million transactions

The average daily volume of the Bovespa Segment has jumped from 750,000 to 1.5 million transactions. This increase is the direct result of the expansion of BM&FBOVESPA’s technological facility, which has increased its data processing capacity, enhanced its algorithms and established a new set of rules and calculations for the settlement process. This new model has reduced the volume of settlement transfers by 70%. In November the average daily trading volume was 381,225.

Mini contracts have a new risk management structure

BM&FBOVESPA has implemented a new risk management model for the Coffee, Live Cattle, US Dollar and Ibovespa futures mini contracts, which are traded on the WebTrading (WTr) platform. With the simplification of this new risk management model, several procedures have been changed, among which we highlight the utilization of settlement, risk management and collateral models that are identical to those utilized for the standard contracts, with no need to pledge collateral in advance when trading.

 Exchange’s contracts are among the most liquid in the world

According to the Futures Industry Association (FIA), BM&FBOVESPA offers two of the world’s most traded futures contract in the world. The U.S. Dollar Futures is currently ranked the number one exchange traded currency futures contract and the One-day Interbank Deposit Futures is the fifth highest traded interest rate futures contract. On the equity side, the Brazilian Exchange holds approximately 89% of Latin America’s derivatives market volume and is the 5th market in capital raising activity in 2009, according to the World Federation of Exchanges.

Trading costs has new web page for derivatives markets

BM&FBOVESPA has launched a new web page for its derivatives trading costs. The page provides the trading costs related to transactions carried out in the Exchange’s derivatives markets. Users can now search BVMF’s trading costs by market, commodity, modality, and expiration date. In order to access the new trading costs page, click here.

Flexible options on iShares Ibovespa Index Fund contracts

BM&FBOVESPA has authorized, as of 12/07/2009, Flexible Call and Put Options on iShares Ibovespa Index Fund (BOVA11) for trading. This new OTC derivatives contract allows financial institutions to structure an array of investment strategies for their clients like, protected capital, for example. For further information, click here

 BM&FBOVESPA market performance – November 2009

BM&F Segment
Derivatives markets in the BM&F segment (including financial and commodities derivatives) totaled 27,422,967 contracts and BRL 1.76 trillion in volume in November. That compares to 34,670,732 contracts and a volume of BRL 2.38 trillion in October. The daily average of contracts traded in the derivatives markets in November was 1,443,314, compared to 1,500,242 in the previous month.

Bovespa Segment
In November 2009, equity markets (Bovespa segment) reached a total volume if BRL 122.99 billion, in 7,243,282 trades, with daily averages of BRL 6.47 billion and 381,225 trades, respectively. In October, total volume reached BRL 154.25 billion, with 9,161,252 trades. October daily averages reached BRL 7.34 billion and 436,250 trades.

Source: BM&FBOVESPA, 25.12.2009

Filed under: BM&FBOVESPA, Brazil, Energy & Environment, Exchanges, Latin America, News, Trading Technology, , , , , , , , , , , , , , , , ,

BM&FBOVESPA And BNDES Announce Development Of Stock Index Focused On Carbon Emissions – Based On The IBrX-50 Index, The Carbon Efficient Index Will Weigh Companies’ GHG Emissions

The Brazilian Security, Commodities and Futures Exchange (BM&FBOVESPA) and the Brazilian Development Bank (BNDES) announced today, during the 15th United Nations Climate Change Conference (COP15), in Copenhagen, the development of the Carbon Efficient Index. The objective of this index is to stimulate listed companies to reduce their emissions of greenhouse gases (GHG) and adopt environmental practices. The index will be weighed by the inventory of GHG emissions that result from all the activities associated to a company.

The Carbon Efficient Index will be structured in 2010, based on the Brazil Index 50 (IBrX-50), which is composed by the 50 most traded stocks at BM&FBOVESPA, weighed by free float. The weight of each stock on the new index will be based on the company’s participation on the IBrX-50 index and also its GHG emissions efficiency. This is measured by the relation between these GHG emissions and the company’s revenue, the smaller this relation is, the greater the efficiency.

Therefore, companies with more GHG emissions efficiency, in relation to the other companies of the same sector in the portfolio, may have a bigger weight in the new index, in comparison to their participation in the IBrX-50 index. On the other hand, less efficient companies, in terms of GHG emissions, will have a reduced participation in the new index.

The index’s goal is to motivate the most heavily traded Brazilian companies to measure and manage their GHG emissions; to bring more transparency about these emissions; and create an investment opportunity for environmentally aware investors. Both BNDES and BM&FBOVESPA firmly believe that this collaboration will help foster a sustainable corporate environment and prepare companies for a future economy of low carbon emissions.

Source: MondoVisione, 16.12.2009


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Brasil Mata Viva And Markit Announce Brazilian Environmental Alliance – 13 Million Pending Issuance Units Listed On Markit’s Environmental Register

Markit, a leading, global financial information services company, and Brasil Mata Viva, a Brazilian standards framework for certifying carbon credits from avoided deforestation and Reduced Emission from Deforestation and Degradation (“REDD”), today announced an alliance with a new environmental market in the Brazilian State of Goiás.

The market is being developed with the coordination of the consulting firm IMEI Consultoria e Treinamento Ltda (IMEI) and Bolsa de Títulos e Ativos Ambientais do Brasil (BTAAB – Environmental Bonds and Assets Exchange of Brazil), a Goiânia-based financial exchange for the trading of environmental-related credits. IMEI and BTAAB have selected Markit’s Environmental Registry as the registry system for carbon credits resulting from the State’s projects of avoided deforestation and REDD.

The listed credits will be created and validated in Brazil under the standards framework established by IMEI and BTAAB known as Brasil Mata Viva. Markit will provide the secure online registry facility for the efficient and transparent issuance of credits, as well as ownership transfer and retirement certification. The robust offering provided by Markit’s global environmental registry will help facilitate the sale and ongoing success of the Brasil Mata Viva Credits.

Maria Tereza Umbelino, Executive Director of IMEI, Consultoria e Treinamento Ltda, said: “This new alliance with Markit will provide credibility to the environmental assets created by the Brasil Mata Viva Program. Markit’s secure and transparent credit registry will faciliate the provision of and access to reliable information about the credits available to the market.”

Ary Santos, Superintendent of the Brazilian Institute of the Environment and Renewable Natural Resources (IBAMA) and a representative of the Ministry of Environment in the Brazilian State of Goiás, said: “Brasil Mata Viva has been working in cooperation with and along the guidelines required by the State’s forestry conservation and restoration program under our coordination (Prolegal). We support their work with Markit’s internationally recognized carbon registry and the transparency they bring to this program.”

Today, 13 million Pending Issuance Units (PIUs), which will be validated according to the Brasil Mata Viva standards framework, will be issued on Markit’s Environmental PIU Registry. PIUs represent a contractual right to an emission reduction credit that is in process of being verified. Large scale projects, particularly those related to REDD, can take long periods of time to generate their issued credits. The market uses PIUs to facilitate the sale and management of expected credits. These 13 million PIUs represent the saving or replacement of approximately 40,000 hectares of forest and managed lands in the state of Goiás.

Helen Robinson, Managing Director of Markit’s Environmental Registry, added: “The development of the Brasil Mata Viva Program and the creation of an exchange on which to buy and sell these carbon credits, confirms the commitment of Brazil in its focus on reducing emissions. Forestry preservation and restoration is a key focus in climate discussions and Markit is pleased to support this innovative program designed to protect Brazilian forests.”

Source:MondoVisione, 16.12.2009


Filed under: BM&FBOVESPA, Brazil, Energy & Environment, Exchanges, Latin America, News, Risk Management, , , , , , , , , , , , , ,

Japan:TSE and TOCOM to set up Carbon Trading Joint Venture

Tokyo Stock Exchange Group, Inc. (TSE Group) and Tokyo Commodity Exchange, Inc. (Tocom) reached an agreement to establish a joint venture in the future.

The objective of the new company will be to set up an emissions trading exchange, in order to contribute to the reduction of greenhouse gases and facilitate emissions trading. Both parties had already signed a Memorandum of Understanding (MOU) on comprehensive mutual cooperation in January 2008.

In a bid to stop global warming, worldwide efforts are being made to reduce greenhouse gases. In Japan, achieving numerical targets agreed in the Kyoto Protocol and drafting post-Kyoto mid-term targets have become an important policy issue. In addition, the “experimental introduction of an integrated domestic market for emissions trading” began last autumn.

In light of this situation, while an expansion of emissions trading is foreseen in the future, the recent financial crisis has led to the re-acknowledgement of the importance of the features of an exchange such as high levels of liquidity and transparency as well as stable and reliable settlement.

Under such circumstances, the TSE Group and TOCOM concur that it is necessary to take concrete steps toward the establishment of an emissions trading exchange. The two parties have vast experience and expertise on forming effective markets and large participant bases in the course of operating their respective securities and commodities exchanges over the years. They agree that it is their social responsibility to jointly apply such knowledge and experience to the establishment of an emissions trading exchange.

In addition, both parties will work together to consider the design and rules for the emissions trading exchange. Last year, the Tokyo Stock Exchange (TSE), a market operator wholly-owned by the TSE Group, set up the “TSE Carbon Market Study Group” to examine practical issues required to establish a carbon market exchange with experts on emissions trading. The study group is scheduled to be re-launched soon as a study group jointly operated by both TSE and TOCOM. It will be a venue for discussions and examinations in more detail.

The joint venture company is also expected to gather opinions from concerned parties for carrying out studies in a wide ranging field related to emissions trading.

Source: Tokyo Stock Exchange, 29.10.2009


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Is Carbon Trading Un-Ethical? A Guide

07.09.2009 by Oscar Reyes – Carbon trading is allowing industrialised countries and companies to avoid their emissions reduction targets. It takes two main forms: “cap and trade” and “carbon offsetting.”

What is cap and trade?
Under cap and trade schemes, governments or intergovernmenal bodies set an overall legal limit of carbon emissions in a certain time period (“a cap”) and then grant industries a certain number of licenses to pollute (“carbon permits”). Companies that do not meet their cap can buy permits from others that have a surplus  – typically, because they have been given an overly generous allowance in the first place. They can also purchase “offsets.”

What are carbon offsets?
Carbon trading runs in parallel with a system of carbon offsets. Instead of cutting emissions themselves, companies, and sometimes international financial institutions, governments and individuals, finance “emissions-saving projects” outside the capped area to generate carbon credits which can also be traded within the carbon market. The UN’s Clean Development Mechanism (CDM) is the largest such scheme with almost 1,800 registered projects in developing countries by September 2009, and over 2,600 further projects awaiting approval. Based on current prices, the credits generated by approved schemes will cost around $35 billion by 2012.

Although offsets are often presented as emissions reductions, what these projects do at their hypothetical best is to stabilise emission levels while moving them from one location to another, normally from Northern to Southern countries. In practice, this “best case” scenario is rarely seen, with the result being that offsetting increases emissions whilst also exacerbating social and environmental conflicts.

So what’s wrong with cap and trade?
There are fundamental theoretical flaws in the whole cap and trade scheme even before you look at the actual record of its implementation. This is because the scheme was never set up to directly tackle the key task of a rapid transition away from fossil fuel extraction, over-production and over-consumption, but sought instead to quantifying existing pollution as a means to create a new tradable commodity. Within this framework, traders invariably opt for the cheapest credits available at the time, but what is cheap in the short-term is not the same as what is environmentally effective or socially just.

Some of the key problems with the cap and trade approach are:

The “trade” component does not reduce any emissions. It simply allows companies to choose between cutting their own emissions or buying cheaper “carbon credits,” which are supposed to represent reductions elsewhere

The “cap” has too many holes and sometimes caps nothing. The cap is only as tight as the least stringent part of the whole system. This is because credits are sold by those with a surplus, and the cheapest way to produce a surplus is to be given too many credits in the first place (“hot air” credits as a result of caps being set too high). The aim of trading is to find the cheapest solution for polluting industry, and it is consistently cheaper to buy “hot air” credits than to actually reduce emissions.

Cap setting is a political process that is highly susceptible to corporate lobbying which means that there is invariable over-allocation of pollution permits. In fact, lobbying is encouraged through extensive industry “stakeholder” involvement

Offsets loosen the cap. While cap and trade in theory limits the availability of pollution permits, “offset” projects are a licence to print new ones. When the two systems are brought together, they tend to undermine each other – since one applies a cap and the other lifts it. An offset is essentially a permit to pollute beyond the cap. Most current and proposed “cap and trade” schemes allow offset credits to be traded within them – including the EU Emissions Trading Scheme (EU ETS) and the US cap and trade scheme (proposed in the 2009 American Clean Energy and Security Act, ACES)

Will markets concerned with growth be able to deliver reductions of carbon?
The other problem is that markets are by essence growth-oriented, so look for new sources of accumulation. In carbon markets, this is achieved by increasing their geographical scope and the number of industrial sectors and gases they cover. Yet this contradicts the essence of tackling climate change which is about reducing use of fossil fuels and consumption.

It is therefore not a surprise that introducing carbon as a commodity has resulted in new opportunities for profit and speculation. The carbon market is already developing the way of the financial market with the use of complex financial instruments (futures trading and derivatives) to hedge risk and increase speculative profit. This runs the risk of creating a “carbon bubble.” This is not a surprise, as it was created by many of the same people at the Chicago Climate Exchange who created the derivatives markets that led to the recent financial crash.

What examples have there been of Cap and Trade schemes?
There have been a number of Cap and Trade markets – the EU ETS, the United States Acid Rain Program, the Los Angeles Region Clean Air Markets (RECLAIM), the Chicago Emissions Reduction Market System (ERMS) and the Regional Greenhouse Gas Initiative. The EU ETS, established in January 2005, is the largest cap and trade scheme in operation worldwide and is the best for illustrating how carbon trading has failed in practice.

Why does European Union Emissions Trading Scheme (EU ETS) consistently grant over-allocation of pollution permits?
Most cap and trade markets use projections of historical emissions provided by industry itself to calculate the initial caps. Industry has a clear incentive to overstate its past emissions to gain more credits. As a result, cap and trade markets start out with too many permits. This was true of the EU ETS which consistently awarded major polluters with more free pollution permits (called EUAs, European Union Allowances) than their actual level of carbon emissions. This means it gave them no incentive to reduce emissions, and as a result the price of the permits collapsed – ending 2007 at €0.01. In phase I (2005-2007) as a whole, according to the EU’s own data, major polluters had permits worth 3.4 per cent more than their actual level of emissions.

But didn’t the second phase of the EU ETS (2008-2012) resolve this over-allocation?
The EU claims that it has learned from its mistakes and that the second phase of its scheme is working. Whilst it is true that for the first time in 2008, polluters were awarded fewer permits than their actual level of emissions, there is still over-allocation of permits:

  • The vast majority of factories and economic sectors are still over-allocated – it is only the power sector that needs to purchase credits
  • The impact of the EU-wide recession means that the ETS as a whole will again be over-allocated in 2009
  • Corporations get the same number of credits even if they temporarily close or scale down operations for short-term economic reasons

But isn’t Phase II nevertheless leading to emissions reductions?
The EU claims emissions reductions of 3 per cent, or 50 million tons, in ETS sectors in 2008.  The trouble is that at least 80 million tons of “carbon offsets” in the developing world were bought as part of the ETS in 2009 – more than the level of the cap. So, again, the ETS does not require emissions reductions by companies in the EU.

Moreover there is also evidence that some of the supposed “cuts” are fake. One such example is Lithuania which claimed it would be forced to use coal-powered electricity as a result of the closure of Ignalina, a nuclear power plant. As a result it gained a large surplus of credits, which have been sold on and treated as “emissions reductions” elsewhere.

So who profited from carbon trading?
Companies receive most carbon credits for free. This is equivalent to a subsidy – and with allocations made on the basis of historical emissions, the largest subsidy goes to the dirtiest industry (especially coal-fired power plants).

Windfall profits also arise from an accounting trick around “opportunity costs.”  Power companies choose to do the cheapest thing to meet their ETS target – which is usually buying Clean Development Mechanism (CDM) credits – but passing on costs as if they were doing the most expensive – actually reducing emissions. Even power companies receiving free credits from the ETS have nevertheless passed on the cost of these credits to consumers.   Research by market-analysts Point Carbon and WWF  calculated that the likely “windfall” profits made by power companies in phase II could be between €23 and €71 billion, and that these profits were concentrated in the countries with the highest level of emissions.

ArcelorMittal, the world´s largest steel company, is another typical example. It routinely receives a quarter to a third credits than it would have needed to even begin reducing emissions. The company is likely to have made over €2 billion in profits from the ETS between 2005 and 2008, with over €500 million of this achieved in 2008 alone – yet has needed to make no proactive changes to its emissions to do so

What about phase III of the EU ETS?
EU ETS phase III runs from 2013 to 2020, and the debate in Brussels is focussed on the risk of “carbon leakage.” This relates to industry claims that strict regulations in one part of the world will encourage  outsourcing to locations where regulations are weaker. It is already being used as a blackmail tactic by industry to reduce its targets or obligations within the EU ETS (and other proposed schemes in Australia and the US). Over half of the 258 industrial sectors in Europe being assessed for exposure to carbon leakage under the EU ETS will qualify for free emission allowances from 2013, according to an initial assessment by the European Commission.

So what is the problem with carbon offsetting?
Carbon offsets allow companies and countries to avoid cutting their own emissions by buying their way out of the problem with theoretical reductions elsewhere. There are both inter-government schemes – most famously the UN Clean Development Mechanism (CDM) – as well as voluntary programmes undertaken largely for purchase by individual consumers. Unfortunately both systems are deeply flawed:

Selling stories. Offsetting rests on “additionality” claims about what “would otherwise have happened,” offering polluting companies and financial consultancies the opportunity to turn stories of an unknowable future into bankable carbon credits. The EU admits that at least 40 per cent of these are bogus, while a survey by International Rivers found over 60 per cent of projects to be “non-additional.”

Offsets increase emissions. The net result for the climate is that offsetting tends to increase rather than reduce greenhouse gas emissions, displacing the necessity to act in one location by a theoretical claim to act differently in another. Moreover, it keeps delaying any real domestic action and allows the expansion of more fossil fuel extractions.

Making things the same. The value of CDM projects is premised on constructing a whole series of dubious “equivalences” between very different economic and industrial practices, with the uncertainties of comparison overlooked to ensure that a single commodity can be constructed and exchanged. This does not alter the fact that burning more coal and oil is in no way eliminated (and certainly not in the same time frame) by building more hydro-electric dams, planting more trees or capturing the methane in coal mines.

Carbon offsets have serious negative social and local environmental impacts
The use of “development” rhetoric masks the fundamental injustice of offsetting, which hands a new revenue stream to some of the most highly polluting industries in the South, while simultaneously offering companies and governments in the North a means to delay changing their own industrial practices and energy usage.

In practice, carbon offset projects have most of the times resulted in land grabs, local environmental and social conflicts, the displacement of Indigenous Peoples´ from their territories, as well as the repression of local communities and movements.

Might reforestation programmes such as REDD work?
The inclusion of tree planting and other “sinks” projects in the CDM and cap and trade schemes is also under consideration.

These pose additional measurement problems, as many projects are not additional, are difficult to measure, do not include the upkeep of the trees and assume instant absorption of already released carbon – when in fact it will take thousands of years for the carbon to be absorbed. “Reforestation” also tends to count monoculture plantations as forests, but they are not as they lack biodiversity, and so contribute to soil degradation; and also require intensive synthetic fertilisers, which contribute significantly to climate change, pollute water and damage local peoples´ health.

Schemes for Reducing Emissions from Deforestation and Degradation (REDD) repeat the error of emissions trading by commodifying forests. They presume that deforestation happens because standing forests make less money than forests that are cut down. In fact, the commodification of forests is what drives deforestation. This commodification includes the role of corporate and development bank investment in new infrastructure, mining and oil extraction projects; industrial logging; and land clearance to make way for monoculture plantations for the pulp and paper and palm oil industries. REDD is likely to fuel property speculation and so exacerbate land conflicts, dispossessing Indigenous Peoples and forest communities.

What impact will new trading schemes have on offsetting and forest carbon markets?
The most active buyers of offset credits in 2008 were European companies, which bought 80 million credits from the CDM or Joint Implementation projects (a similar UN scheme, operated in countries which have emissions reduction commitments under the Kyoto Protocol) as either a cheaper alternative to reducing their own emissions (under ETS), or for the purpose of speculation and re-sale. But this market is likely to expand massively if the American Clean Energy and Security Act (ACES) is passed, which proposes to allow US companies to purchase from 1 to 1.5 billion international offsets every year. This would spur on a massive increase in damaging offset projects, putting enormous pressure to reduce the already-inadequate checks on their environmental integrity.

What are sectoral credits?
Sectoral credits would introduce new offsets as part of what are called Nationally Appropriate Mitigation Actions (NAMAs) in the climate policy jargon. This is one of a number of proposals currently being debated for inclusion in a new UN climate treaty.

The basic idea is that developing countries should commit to reducing their greenhouse gas emissions “in an indicative range below business as usual,” as the draft of the G8´s L´Aquila declaration in July 2009 puts it. This deviation from an assumed future trajectory would be counted as a “reduction” (although it need be nothing of the sort) and traded to help industries in developed countries avoid reducing their own emissions. The private money flowing through these carbon markets could also be “double counted” as part of the financial commitment that the industrialised countries agreed to make at the UN Climate Conference in Bali.

But isn’t carbon trading better than nothing?
No. As carbon trading helps to avoid change and even increases emissions while exacerbating local conflicts, it is not a question of alternatives to carbon trading but rather of taking measures that actually tackle climate change.

So what are the alternatives?
Carbon markets should be dismantled, starting with offsets. A clear intention to discontinue carbon markets can fatally undermine them even in advance of legislative action. Alternatives then need to be developed that are properly consulted and developed together with local communities to prevent a repeat of the dispossession and social injustice caused by offsetting schemes.

A range of different approaches will be needed but may include:

Recognition of existing climate solutions. The vast range of solutions that already exist – which tend to be distinguished by their sensitivity to the local contexts in which they operate, are overlooked in favour of the accumulation of large-scale “technological fixes” or market-based schemes

Leave fossil fuels in the ground. Proposals to halt new coal power plants and the exploration of new and often “uncoventional” sources of oil extraction are at the frontline of the struggle for climate justice – and should form part of a rapid transition to a post- fossil fuel economy

Rediscovering environmental protection. There are a broad range of environmental policy instruments that have proven to be more effective than market-based approaches – ranging from efficiency standards for electrical appliances and buildings to feed-in tariffs for renewables. The rediscovery of such measures could form part of a solution

New revenues: tax and/or end currency and fuel speculation. Rather than a regressive carbon tax, revenue can be generated by a tax on currency speculation. A heavy tax or an end to speculation on fossil fuel prices would also help as a transitional measure. This should be accompanied by pro-active policy measures to tackle fuel poverty, such as a ban on pre-pay metering

Renewable energy should be supported but not uncritically – with the involvement of local populations and not as basis for sustaining expansions in fossil use or support of unsustainable model of industrial expansion

Public energy research. Private research on energy alternatives and use favours “least cost” false solutions (eg. agrofuels, hydroelectric dams, nuclear power) rather than environmentally effective alternatives, so is less effective than public research. However, this would need to be allied with the democratic transformation of the institutions of “environmental governance,” the agenda for which currently tends to be set by transnational corporations

Re-estimating energy demand. Current models presume limitless growth and overstate future energy demand, which has encouraged oversupply and kept prices low – which is, in turn a key structural driver of over-consumption.

The Transition Towns movement is going some way towards re-estimating demand with its “Energy Descent Action Plans”, but lacks a structural analysis of heavy industry use (or capitalist accumulation) and is often divorced from organising for more equitable distribution of energy

Changing economic calculations. Cost-benefit accounting either fails to take account of environmental or social costs, or is grossly reductionist in its assumptions.

Challenging the “growth” fetish. It is often claimed that continued GDP growth can go hand in hand with reductions in emissions. However, there is no evidence that “advanced” economies are significantly reducing their carbon footprints, or that such a transformation could happen quickly enough to reduce emissions. On the postive side, GDP is a very poor indicator of human-well being, so is not a condition for social improvement or a good life. If the obesession with economic growth is set aside, it becomes easier to see how tackling climate change and maintaining a sustainable and enjoyable life are far from contradictory goals.

Source: Carbon Trade Watch, 07.09.2009


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Chinese group buys voluntary Carbon Credits

An automobile insurer from Shanghai has become the first Chinese company to become carbon neutral by purchasing credits in China’s fledgling voluntary carbon trading market.

Tianping Auto Insurance paid Rmb277,699 ($40,627) on Wednesday for 8,026 tons of carbon credits accumulated by commuters during last year’s Beijing Olympics. They were auctioned through the Beijing Environment Exchange.

The deal signals the growing potential for carbon trading in China, which is the world’s largest emitter of greenhouse gases but so far does not have a domestic carbon market.

As in Europe and the US, trading in voluntary emission reductions is only one of many segments of the carbon market.

China has become the largest supplier to foreign investors of carbon credits from projects that have been certified to reduce carbon emissions under the clean development mechanism since 2007.

As a developing country, China is not required to limit greenhouse gas emissions under the Kyoto protocol, so there is no domestic demand for mandatory carbon credits.

However, Beijing, as it prepares for the Copenhagen meeting in December, which is due to decide on a successor to Kyoto, is considering introducing some commitment to limiting emissions.

In June, the state council, China’s cabinet, said it would introduce targets for lower carbon emission intensity to its economic and social planning. The statement was widely seen as a hint that the next five year plan, covering 2011-15, will include a carbon intensity target.

That would trigger growth in voluntary carbon trading, climate change experts said.

“Responding to climate change is a task in which the whole society needs to be encouraged to participate, and using market mechanisms is one way of doing that,” said an official at the climate change department of the National Development and Reform Commission, China’s climate change policymaker.

Source: Financial Times, 06.08.2009 By Kathrin Hille in Beijing


Filed under: Asia, China, Energy & Environment, News, , , , ,

Carbon Fraud hit by carousel fraud

Carousel fraud has found its way to the carbon market. The particularly European type of fraud entails setting up complicated import and export schemes between EU member countries, charging buyers for value-added tax in the country of destination, and then absconding with the tax rather than handing it over to the governments.

In 2006 the UK and German governments embarked on a series of raids in 2006, and the UK introduced ‘reverse charging’ for VAT on certain items prone to carousel fraud. At the time carousel fraud was mainly seen as confined to small electronic goods such as mobile phones and computer chips.

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A year later it was it was observed that fraudsters were simply moving away from those goods towards others that hadn’t yet been targeted by authorities. But it wasn’t until high volumes of trade were observed on France’s BlueNext carbon exchange this year that carousel fraud became an issue in the carbon markets.

France last month decided to exempt carbon permits from VAT without seeking the required approval from the EU, and the UK government yesterday applied a zero VAT rate to carbon credits, again without seeking EU approval. The Netherlands meanwhile has introduced rules so that the carbon permit buyer, rather than the seller, is responsible for paying tax. And Spain is reportedly considering what to do about the issue.

Could there be a problem, however, with so many different approaches being taken?

Source: FT, 31.07.2009, by Kate Mackenzie


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Is Carbon Trading the Next Big Thing?

The U.S. carbon credit trading business could take off if the Senate passes the Waxman-Markey climate change bill. Current environmental market players such as Citi, the CME, the Chicago Climate Exchange and BlueNext are preparing to capitalize on the expected surge.

The fledgling U.S. carbon credit market, currently a $100 million-plus business, is poised to skyrocket if The American Clean Energy and Security Act of 2009, which recently was passed by the House, makes it through the Senate. The bill would limit, or “cap,” the amount of carbon emissions that companies can produce each year.

Under the bill, sponsored by Representatives Henry Waxman (D-CA) and Edward Markey (D-MA), firms that produce more greenhouse gases than they’re allowed would be able to buy credits from companies that have produced fewer emissions than they’re allotted, creating a large market for carbon credits. President Obama has estimated that more than a half-trillion dollars’ worth of carbon credits will be auctioned in the first seven years after the bill is enacted.

The United States was the first country to introduce a cap-and-trade scheme. The 1990 Clean Air Act Amendments established an emissions trading system to reduce emissions of sulfur dioxide (SO2) from fossil fuel-burning power plants. According to Randy Warsager, director of green products at CME Group, the SO2 market was challenged last year by an unfavorable court decision, but it has been rebuilding slowly.

A voluntary market currently exists for carbon credit trading, primarily through regional initiatives such as the Regional Greenhouse Gas Initiative (RGGI), which covers Maine, New Hampshire, Vermont, Connecticut, New York, New Jersey, Delaware, Massachusetts, Maryland and Rhode Island. In the RGGI’s latest auction in June, 30.8 million allowances were sold for $3.23 each, which raised more than $104 million for the 10 Northeastern states to invest in energy-efficiency and renewable energy programs. (Each allowance represents a ton of carbon that electric plants can release.)

Profiting From the Environment

Citi is among the investment banks that have been moving forward in the environmental products space. Garth Edward, the firm’s director of environmental markets, began trading environmental products with the introduction of the EPA’s NOx Budget Trading Program, a cap-and-trade program that the EPA created in 2003 to reduce emissions of nitrogen oxides (NOx) from power plants and other large combustion sources. For the past few years Citi has focused primarily on CO2 trading, which has been driven by the European Union’s emissions trading system. “This is where the bulk of liquidity is, most of the capital flow that drives emission reduction projects around the world,” Edward notes.

Growth in market activity and the capital deployed in environmental products has been strong, primarily because of cap-and-trade legislation, according to Edward. “Where you have a step forward in legislation such as the EU emissions trading system, the voluntary agreements in Japan and the Waxman-Markey legislation, that’s the kind of process that starts creating compliance requirements on end users and incentivizes service and technology providers to provide solutions,” he says.

Despite the projected growth in environmental markets, Credit Suisse recently cut back its New York-based carbon trading team; Carbon Finance, a newsletter dedicated to the global markets in greenhouse gas emissions, reported that half the team will depart early next year as part of a de-emphasizing of the business. According to the Carbon Finance report, going forward Credit Suisse will focus on environmental trading on behalf of its clients, which are mostly European. (Credit Suisse did not respond to Carbon Finance’s nor to Wall Street & Technology’s requests for an interview.)

Meanwhile the primary U.S. exchanges involved in carbon trading are the Chicago Climate Exchange (CCX) and the Chicago Mercantile Exchange (CME). The CCX trades allowance and offset contracts that each represent 100 metric tons of CO2 equivalent. The Chicago Climate Futures Exchange, a subsidiary of the CCX, trades RGGI futures and options contracts. The CCFE reported record trading volume for June 2009 — it traded 133,175 contracts versus its previous record of 132,319 in April.

The CME — along with partners Evolution Markets, Morgan Stanley, Credit Suisse, Goldman Sachs, J.P. Morgan, Merrill Lynch, Tudor Investment, Constellation Energy, Vitol, RNK Capital, ICAP and TFS Energy — has applied for CFTC approval for a Green Exchange, on which it will trade all the environmental products it already trades on its commodities exchange. (For more on the CME’s carbon credit trading efforts, see “CME Revs Up for Surge in Carbon Credit Trading“.)

Europe’s BlueNext, an environmental exchange that’s 60 percent owned by NYSE Euronext, plans to open an office in New York “very shortly,” according to Keiron Allen, the exchange’s marketing and communications director. It plans to start trading contracts within the RGGI market by the end of the year, Allen reports, adding that the exchange intends to compete with the U.S. environmental exchanges. “It will be a race to see who gains critical mass first,” he says.

The European Experience

In Europe, cap-and-trade rules similar to those outlined in the Waxman-Markey bill have been in effect since 2005; carbon credits are traded on the European Climate Exchange (ECX), BlueNext, Nord Pool (the Nordic Power Exchange) and the European Energy Exchange (EEX).

BlueNext trades European Union Allowances, the carbon emission allowances used in the European Union Emissions Trading Scheme, and Certified Emission Reductions, which are carbon credits issued under the rules of the Kyoto Protocol, which is part of the United Nations Framework Convention on Climate Change, an international environmental treaty with the goal of reducing greenhouse gas concentrations in the atmosphere. BlueNext trades an average of 5 million tons’ worth of carbon emissions a day. Its 100 members (buyers and sellers on the exchange) are carbon-emitting companies, financial firms with their own trading desks and carbon credit aggregators that act as brokers.

BlueNext’s model is different than most other carbon exchanges, Allen says, because it uses a delivery-versus-payment system rather than a clearing system. “In a delivery-versus-payment system, there’s zero counterparty risk,” he contends. “If you sell contracts, you’ve got to put them into your account on the exchange first. And if you want to buy something, you have to put money in your exchange account first. Each party knows the other’s got the right amount of money or contracts.” Allen adds that in BlueNext, trades are physically settled within 10 or 15 minutes, versus the more typical T+1, T+2 or T+3 for commodities settlement.

The European carbon market has been growing quickly; the U.S. market still is in its infancy. Trading activity in the European Emissions Trading Scheme grew by 54 percent in the first quarter of 2009 compared to Q4 2008, reaching $28 billion, according to Carbon Finance. This represented 84 percent of the world’s carbon market in terms of value and 78 percent of its volume. Carbon trading in the U.S., on the other hand, made up only 3.7 percent of the trading volume and 1 percent of the value of the global carbon market. According to CME’s Warsager, though, “We’re hoping to build some market share [in the U.S.] as we move forward with the Green Exchange.”

The CME isn’t the only institution hoping to capitalize on carbon credit trading in the U.S. But what are the barriers to entry to this new market? At Evolution Markets, a White Plains, N.Y.-based voice brokerage for environment and energy products, the trading floor is as noisy and chaotic as any commodities trading room. According to firm spokesman Evan A. Ard, the technology required for carbon credit trading is no different from the technology required to trade other commodities.

Jubin Pejman, VP, Americas, for Trayport, whose energy commodities trading and order matching software is used by 13,000 traders and many investment banks and utilities in Europe and the U.S., agrees that carbon futures trade like any other type of futures contract. “You have hedge funds speculating, you have industrials buying them, you have brokers,” he says. “At any futures exchange around the world, it’s the same type of breakup. From a technology standpoint, there’s a matching engine, there’s risk management, there’s margin management, there are counterparties, there’s clearing. BlueNext, for example, looks very much like other futures exchanges.”

BlueNext’s Allen, however, points out one big difference between carbon emissions contracts and other commodities: “If you’ve got a spot market for oil or grain, you physically deliver that oil or grain to the buyer,” he explains. “You don’t roll up in a giant truck and deliver 15,000 tons of carbon dioxide.”

Regional carbon futures contracts in the U.S. tend to be processed manually or through voice trading. “Europe is about 10 years ahead of the curve as far as technology for energy emissions trading,” Trayport’s Pejman says. He explains that large European financial firms have their own carbon trading platforms; smaller entities turn to third-party solutions such as Trayport’s platform.

But, Citi’s Edward says, in terms of technology and compliance, carbon trading should not be difficult for many U.S. firms because emissions trading in the U.S. has been around for more than a decade. The same IT processes, management systems, accounting systems, and even risk management and hedging systems will work under the new carbon credit trading scheme, he points out. “We’re not introducing something that’s conceptually dramatically new and untried in the U.S.,” Edward notes.

BlueNext’s Allen says the exchange will publish a how-to book by the fourth quarter to help small and medium-size firms get involved in carbon trading. (Hearing this, Trayport’s Pejman jokes that the book will be made out of Styrofoam.)

The Future of U.S. Carbon Trading

Even as firms build out their carbon credit trading capabilities, the market is expected to reach significant levels fairly quickly. President Obama has predicted that about $646 billion worth of carbon credits will be auctioned in the first seven years of the mandatory cap-and-trade system in the U.S.; others have suggested the number could be two or three times that. To the novice onlooker, this would suggest a healthy rate of carbon credit market growth.

But Citi’s Edward demurs. “The actual volume of allowances issued is not necessarily what drives liquidity and price,” he says. “It is the ambition of the target that drives activity.”

According to Edward, the U.S. experience may mirror the EU’s emissions trading system, which, he says, is similar in size in terms of covered installations and required emission reductions. “The EU turns over close to a half-billion dollars’ worth of allowance transactions a day, so that may be a reasonable expectation for the U.S.,” Edward comments.

The Waxman-Markey bill currently would take effect in 2012; the Senate may postpone this start time to 2013. Still, “We’d expect trading to take place far in advance of that first compliance year,” Edward says. “That’s the normal case with environmental trading systems — companies that dispatch power generation or refineries need to hedge in advance their emissions exposure; they need to lock in the margins around running their plant, and that requires them to buy the allowances in advance.” If the first compliance year is 2013, Edward says, he would expect early trading to begin in 2010.

Trayport’s Pejman notes that once the legislation is passed, there will be a race to the market. “Whoever is already in production will have a tremendous advantage over those that are scrambling to get ready,” he asserts.

But what if the Senate doesn’t pass this bill? “That would change everybody’s plans,” BlueNext’s Allen concedes. “I like the Woody Allen joke: ‘How do you make God laugh? Write down your plans.’ “

Source: Wallstreet & Technology, 19.07.2009 By Penny Crosman


Filed under: Energy & Environment, News, Risk Management, Services, Trading Technology, , , , , , , , , , , , , , ,

Carbon trading increases in first half of 2009…however

Trading volume is up, but it’s largely thanks to activity in Europe.

he headline news looks good: The global carbon market in the first half of 2009 grew by 124% in terms of volume and by a healthy 22% in terms of value, according to Point Carbon, a provider of market intelligence and advisory services for the energy and environmental markets.

The financial value of the global carbon market rose to €46 billion ($65 billion) in the first six months of the year.

However, one of the reasons for the increased trading is because the global financial crisis is prompting people to sell their surplus allowances.

“Prices are lower due to the economic slowdown but volumes are much higher as many depressed industry sectors in Europe have decided to trade their surplus carbon allowances illustrating how the economic slowdown is, in effect, increasing market activity in the carbon sector,” said Henrik Hasselknippe, global head of carbon analysis at Point Carbon Trading Analytics and Research.

The Kyoto Protocol on climate change, which entered into force in February 2005, resulted in the launch of the European Union’s Emissions Trading Scheme (EU ETS), which is the world’s first international emissions trading scheme. It works on a cap-and-trade basis, where the total allocation is set at the start of a trading period.

It is this scheme — the EU ETS — that remains the dominant market, generating some 75% of the total global carbon market volume in the first half of 2009, worth €39 billion, which is up 29% on the same period last year.

The next largest segment of the global carbon market, the Clean Development Market, which involves many projects out of Asia, generated €5.4 billion in volume, but that was down 28% compared with the same period last year. Volumes traded within the Primary Certified Emissions Reductions (CERs) market fell by 36% compared with the first half of 2008. CERs are project credits generated from emission reduction countries in developing countries.

“These reductions in volume and value reflect the fact that the economic downturn has seen future demand for (and supply of) these types of credits declining in favour of allowances which have already been issued. In addition, the project market appears uncertain given the lack of clear policy signals emerging from the current round of climate negotiations set to conclude in Copenhagen later this year,” noted Hasselknippe.

World leaders will meet in Copenhagen in December to discuss if and how they will continue the Kyoto Protocol. Read full article

Source: FinanceAsia, 08.07.2009 By Lara Wozniak


Filed under: Asia, Energy & Environment, News, , , , , , ,

HKEx Publishes Consultation Paper On Certified Emission Reduction Futures

Hong Kong Exchanges and Clearing Limited (HKEx) today (Friday) published a consultation paper on certified emission reduction (CER) futures.

The consultation paper seeks views and comments from all individuals and organisations interested in emissions markets, including financial intermediaries, investors, Clean Development Mechanism project participants and public policy makers, on the business feasibility of developing an emissions trading platform in Hong Kong and CER futures as a product concept.

The consultation paper includes:

  • An overview of the development of carbon trading around the world;
  • A potential design for CER futures which may be suitable for exchange trading in Hong Kong;
  • Some comments and views shared by emission market players in Hong Kong, Singapore, Australia and the UK who met with HKEx executives for informal discussions of CER futures contract specifications; and
  • Six questions for potential respondents’ consideration.

Some of the questions cover specifics, while others are relatively broad.  For instance, Question 5 invites explanations of any issues related to the introduction of CER futures not mentioned in the consultation paper that HKEx ought to consider, and Question 6 seeks comments on the overall development of emissions or pollutants trading markets in Hong Kong.

“We encourage everyone interested in this topic to read our consultation paper and submit their views, and we welcome any information on the development of the carbon emissions markets that people think may be useful to us,” said Calvin Tai, Head of HKEx’s Derivatives Market.

“We hope our Exchange and Clearing Participants will share their insight on the likely demand for CER futures trading in our market at this time,” Mr Tai added.

The consultation paper and questionnaire are posted on the HKEx website.

The deadline for the submission of comments is 31 August 2009.

Source: MondoVisione, 26.06.2009


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Carbon Trading Market Creating Opportunities

Continued growth in the global carbon trading market and the anticipated adoption of a U.S. climate control bill is creating plenty of new opportunities for investment banks, nascent exchanges, technology vendors and asset servicing agents in the trading and post-trade arenas.

The carbon emissions market, which grew 75 percent to reach $116 billion in 2008 from the prior year, could expand to $2 trillion by 2020 should more markets adopt a version of Europe’s “cap and trade” model for reducing greenhouse gas emissions, according to research firm Celent.

Based on the 1997 Kyoto Protocol, an international treaty, the European Emissions Trading Scheme allows for members of the European Union to create tradable European Emissions Allowances (EUAs) and Certified Emission Reduction Credits (CERs)–otherwise known as offsets. Other countries such as Australia, New Zealand, Canada and Japan are also pursuing their own versions of carbon cap and trade models as is the United States.

“The potential for carbon trading is great, as is the opportunity cost of ignoring the market,” said Stephen Bruel, research director for TowerGroup. Even more lucrative than trading will be advisory services to help energy firms comply with divergent regulations to reduce carbon emissions, he believes. Harmonization between regulatory regimes to create a unified global market, while ideal, is a long way off.

“It is costly for global firms to comply with the patchwork emission schemes and investment banks can help carbon emitter clients navigate this minefield with offset strategies,” said Bruel, citing BNP Paribas, Goldman Sachs and Credit Suisse as examples of firms with specialized carbon risk desks. Hedge funds, he predicted, will also want to capitalize on the arbitrage opportunities between regulatory regimes and will use algorithms to take advantage of the correlations between the price of coal or weather patterns and the price of carbon.

Although much of the trading activity and innovation in the carbon emissions market remains in Europe, where the European Climate Exchange and Bluenext are the largest exchanges, the potential passage of U.S. legislation later this year or in 2010 could easily make the U.S. the largest regulated carbon market.

Under the proposed American Clean Energy and Security Act, the ceiling on greenhouse gas emissions would be divided into billions of permits, each conferring the right to emit one metric ton of carbon dioxide. Fewer permits would be issued to utilities, manufacturers and refiners each year until emissions are 83 percent by 2050 over 2005 levels.

It is unclear what effect the legislation, if passed, would have on several voluntary regional and state projects which have already cropped up, creating emission offset contracts traded over-the-counter, largely through interdealer brokers and web-based mechanisms.

“Trading volumes will continue to expand in the over-the-counter market but U.S. legislation will likely favor exchange-traded contracts and several more exchanges could emerge,” said Jubin Pejman, vice president in the Americas for Trayport, an electronic trading software firm purchased by interdealer broker GFI last year. Exchange-traded contracts are typically standardized and cleared through a centralized facility, which reduces counterparty risk–a key mantra of the new Obama administration for the over-the-counter market.

Three fledgling U.S. emissions exchanges–the Chicago Climate Exchange, its sister company Chicago Climate Futures Exchange and rival Green Exchange, stand to benefit the most from any federal mandate. The CCX, launched in 2003 as a voluntary market with binding targets, offers participants a way to buy and sell “carbon financial instruments” (CFIs) that represent a certain level of emissions reductions; the CCX overtook the over-the-counter market for the first time last year.

The rival Green Exchange created in December 2007, by a consortium of trading firms and the New York Mercantile Exchange (Nymex), is awaiting approval from the Commodity Futures Trading Commission as a designated contract market. Its contracts are already listed for trading and clearing on Nymex.

Pejman said that Trayport’s GlobalVision Broker Trading System, a screen-based network, is scaleable enough for broker dealers to expand their message traffic on bid and offers in the over-the-counter market for carbon emission allowances and credits in the U.S.The firm’s GlobalVision Trading Gateway, which enables traders to trade on multiple liquidity pools through a single user interface, will also link to the Green Exchange, should the market win CFTC approval.

Software vendors with cross-asset capabilities are also finding fertile territory in adding functionality for carbon emission contracts. SunGard has enhanced its GL Clearvision middle office and GL Ubix back-office products–inherited through the 2008 acquisition of GL Trade–for trades executed on Bluenext, a Paris-headquartered exchange majority-owned by NYSE Euronext.

Mark Stugart, product manager of commodities for Calypso Technology, a trading and risk management softwar firm, said that his firm will upgrade its platform to incorporate trade capture, pricing and P&L calculations for EUAs and CERs on the ECX and BlueNext by year end.

Last month, Bank of New York Mellon launched a centralized custody and trade settlement platform called GEM to give customers a single view of their entire carbon portfolio–for regulated and voluntary markets–and perform all transactions including trading, cancellation and retirement of contracts in one place.

Original Article

Source:Securities Industry News, 22.06.2009 by Chris Kentouris

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World’s Biggest Carbon Offset Exchange Comes One Step Closer To Reality As NYSE’s BlueNext And China-Beijing Environmental Exchange Sign China Partnership

Surprising Green Energy Investment Trends Found Worldwide

Worldbank: State and Trends of the Carbon Market 2009


Filed under: Asia, Australia, Energy & Environment, Exchanges, Korea, News, Trading Technology, , , , , , , , , , , , , , ,

World’s Biggest Carbon Offset Exchange Comes One Step Closer To Reality As NYSE’s BlueNext And China-Beijing Environmental Exchange Sign China Partnership

NYSE Euronext (NYX) today announced that BlueNext, its majority-owned environmental trading exchange, is partnering with the China-Beijing Environmental Exchange (CBEEX), the first state-level Chinese environmental rights trading platform, to set up an international carbon-trading related information platform.

Bluenext, the world’s largest “spot” trader of carbon credits supported by the world’s leading and most liquid exchange group, operates the world’s largest spot market for Certified Emissions Reductions (CERs). CBEEX is the gateway to China , the world’s largest market for Clean Development Mechanism (CDM) projects.

At an official signing ceremony today in Beijing , BlueNext and CBEEX signed an agreement that includes:

  • A cross-marketing partnership;
  • A comprehensive data sharing agreement that will promote investment- and buyer information of Clean Development Mechanism (CDM) projects in China ;
  • BlueNext sharing its deep understanding of environmental trading knowledge and expertise with CBEEX to grow both markets internationally.

“This is another step in our wish to expand our market into the great potential that is China, and the rest of Asia; but also another step in our long held ambition to be the reference point for a single international price for carbon,” said Serge Harry, Chairman and CEO of BlueNext.

“NYSE’s Bluenext, as an American European company, is ideally placed to open up access to the largest buyers of CDM projects and CERs in the European and American markets,” said Darwin Zheng of CBEEX.

For background about CDM and CERs, please see the below.

Background about CDMs and CERs:

What is the CDM?

The Clean Development Mechanism (CDM) creates credits, Certified Emission Reductions (CERs), from emission abatement projects in developing countries.  CERs can be used for compliance in the European Emissions Trading Scheme (EU ETS) and other national schemes, such as in Canada and Japan .

Key Facts about CDM / CERs in China

  • China had 84% market share in 2008 for the Primary CDM market
  • Between 2002-2008, China accounted for 66% of all contracted CDM supply in the market
  • From January 2008 to March 2009, the CDM pipeline in China grew steadily to about 1730 projects
  • 800 Chinese projects entered the pipeline since January

Key Facts about CERs on Bluenext

  • Price of CER Spot on Bluenext 16.6.09 – 10.75 Euros / Tonne ($14.89)
  • Total volume of CER spots since August 2008 – 24 114 000 tonnes

Source: MondoVisione, 18.06.2009


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CCX Chicago Climate Exchange signs agreement to collaborate on establishing Emissions Trading in Korea

Chicago Climate Exchange, Inc. (CCX®) signed a memorandum of understanding today in Washington, DC with Korea Power Exchange (KPX), Korea Exchange (KRX) and Korea Energy Management Corporation (KEMCO) to collaborate in preparing for the establishment of emissions trading in Korea.

Parties to the agreement will explore avenues of cooperation in the establishment of Korean emissions trading and matters relating to the infrastructure for emission trading, both of which could play an important role in promoting “low carbon green growth” in Korea.

“Emissions trading is a proven tool for using market-based mechanisms to address environmental challenges and we look forward to working with KEMCO, KRX and KPX, as well as the Ministry of Knowledge Economy and other Ministries in Korea, as Korea moves forward with its important ‘low carbon’ growth goals,” said Dr. Richard L. Sandor, Chairman of CCX and Executive Chairman of Climate Exchange plc.

By creatively integrating public concerns about environmental protection and his experience in financial innovation and business development, Dr. Sandor founded CCX in December 2003 and launched the European Climate Exchange (ECX) in April 2005. CCX also operates the Chicago Climate Futures Exchange (CCFE), which handles NOX, SOX and other criteria pollutant contracts based on the U.S. Clean Air Act.

“CCX is the preeminent and most influential organization in carbon trading. This MOU not only represents a historic collaboration of the parties, but represents a crucial initiative between the United States and Korea,” said KPX CEO Il-Hwan Oh.

“CCX has many international connections we want to be part of. CCX has provided a market solution, with many products as everybody knows, and is facilitating the preparation for carbon trading, fostering green growth,” said KRX CEO Jung-Hwan Lee.

“We are confident the MOU will be part of developing infrastructure in Korea for emissions trading,” said KEMCO CEO Tae-Yong Lee.

Source: MondoVisone, 15.06.2009


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Surprising Green Energy Investment Trends Found Worldwide

Science Daily 07.06.2009 – Some $155 billion was invested in 2008 in clean energy companies and projects worldwide, not including large hydro, a new report says. Of this $13.5 billion of new private investment went into companies developing and scaling-up new technologies alongside $117 billion of investment in renewable energy projects from geothermal and wind to solar and biofuels.

The 2008 investment is more than a four-fold increase since 2004 according to Global Trends in Sustainable Energy Investment 2009, prepared for the UN Environment Programme’s (UNEP) Sustainable Energy Finance Initiative by global information provider New Energy Finance.

Extremely difficult financial market conditions prevailed during 2008 as a result of the global economic crisis. Nevertheless investment in clean energy topped 2007’s record investments by 5% in large part as a result of China, Brazil and other emerging economies.

Of the $155 billion, $105 billion was spent directly developing 40 GW of power generating capacity from wind, solar, small-hydro, biomass and geothermal sources. A further $35 billion was spent on developing 25 GW of large hydropower, according to the report.

This $140 billion investment in 65 GW of low carbon electricity generation compares with the estimated $250 billion spent globally in 2008 constructing 157GW of new power generating capacity from all sources. It means that renewables currently account for the majority of investment and over 40% of actual power generation capacity additions last year.

Achim Steiner, UN Under-Secretary General and UNEP Executive Director, said: “Without doubt the economic crisis has taken its toll on investments in clean energy when set against the record-breaking growth of recent years. Investment in the United States fell by two per cent and in Europe growth was very much muted. However, there were also some bright points in 2008 especially in developing economies—China became the world’s second largest wind market in terms of new capacity and the world’s biggest photovoltaic manufacturer and a rise in geothermal energy may be getting underway in countries from Australia to Japan and Kenya”.

“Meanwhile other developing economies such as Brazil, Chile, Peru and the Philippines have brought in, or are poised to introduce policies and laws fostering clean energy as part of a Green Economy. Mexico for example, the Global host of World Environment Day on 5 June, is expected to double its target for energy from renewables to 16 per cent as part of a new national energy policy,” he added.

Overall Highlights from the Report

Wind attracted the highest new investment ($51.8 billion, 1% growth on 2007), although solar made the largest gains ($33.5 billion, 49% growth) while biofuels dropped somewhat ($16.9 billion, 9% decrease).

Total transaction value in the sustainable energy sector during 2008 – including corporate acquisitions, asset re-financings and private equity buy-outs – was $223 billion, an increase of 7% over 2007. But capital raised via the public stock markets fell 51% to $11.4 billion as clean energy share prices lost 61% of their value during 2008.

Investment in the second half of 2008 was down 17% on the first half, and down 23% on the final six months of 2007, a trend that has continued into 2009.

One response to the global economic crisis has been announcements of stimulus packages with specific, multi-billion dollar provisions for energy efficiency up to boosts to renewable energies.

“These ‘green new deals’ lined up by some economies, including China, Japan, the Republic of Korea, European countries and the United States contain some serious clean energy provisions. These will help support the market,” said Mr. Steiner.

“However, the biggest renewables stimulus package of them all can come at the UN climate convention meeting in Copenhagen in just over 180 days time. This is where governments need to Seal the Deal on a new climate agreement-one that can bring certainty to the carbon markets, one that can unleash transformative investments in lean and clean green tech,” he added.

Green Energy Costs Coming Down — Solar Costs Set to Fall 43%

The investment surge of recent years and softened commodity markets have started to ease supply chain bottlenecks, especially in the wind and solar sectors, which will cause prices to fall towards marginal costs and several players to consolidate. The price of solar PV modules, for example, is predicted to fall by over 43% in 2009.

Carbon Markets Continue Upward

Despite the turmoil in the world’s financial markets, transaction value in the global carbon market grew 87% during 2008, reaching a total of $120 billion. Following the lead of the EU and Kyoto compliance markets, several countries are now putting in place a system of interlinked carbon markets and working towards a global scheme under the UN Framework Convention on Climate Change (UNFCCC).

Growth Shifts to the Developing World

On a regional basis, investment in Europe in 2008 was $49.7 billion, a rise of 2%, and in North America was $30.1 billion, a fall of 8%.

These regions experienced a slow-down in the financing of new renewable energy projects due to the lack of project finance and the fact that tax credit-driven markets are mostly ineffective in a downturn. With developed country market growth stalled (down 1.7%), developing countries surged forward 27% over 2007 to $36.6 billion, accounting for nearly one third of global investments.

China led new investment in Asia, with an 18% increase over 2007 to $15.6 billion, mostly in new wind projects, and some biomass plants. Investment in India grew 12% to $4.1 billion in 2008. Brazil accounted for almost all renewable energy investment in Latin America in 2008, with ethanol receiving $10.8 billion, up 76% from 2007. Africa achieved a modest increase by comparison, with investments up 10% to approximately $1.1 billion.

The Greening of Economic Stimulus Packages

Not surprisingly given market conditions, private sector investment was stalling in late 2008 but government investment looks ready to take up some of the slack in 2009. Sustainable energy investments are a core part of key government fiscal stimulus packages announced in recent months, accounting for an estimated $183 billion of commitments to date.

Countries vary significantly in terms of investment and the clarity of their measures. The US and China remain the leaders, each devoting roughly $67 billion, but South Korea’s package is the “greenest” with 20% devoted to clean energy. This green stimuli illustrates the political will of an increasing number of governments for securing future growth through greener economic development.

According to Michael Liebreich, Chairman & CEO of New Energy Finance, “There is a strong case for further measures, such as requiring state-supported banks to raise lending to the sector, providing capital gains tax exemptions on investments in clean technology, creating a framework for Green Bonds and so on, all targeted at getting investment flowing”.

“What’s most important is that stimulus funds start flowing immediately, not in a year or so. Many of the policies to achieve growth over the medium term are already in place, including feed-in tariff regimes, mandatory renewable energy targets and tax incentives. There is too much emphasis amongst some policy-makers on support mechanisms, and not enough on the urgent needs of investors right now.”

Between 2009 and 2011 UNEP estimates that a minimum of $750 billion – or 37% of current economic stimulus packages and 1% of global GDP – is needed to finance a sustainable economic recovery by investing in the greening of five key sectors of the global economy: buildings, energy, transport, agriculture and water.

2009 and beyond: Climate change, energy security and green jobs

New investments in the first quarter of 2009 fell by 53% to $13.3 billion compared to the same period in 2008, reflecting the depth of the global financial crisis, according to the report, which notes “‘green-shoots’ of recovery during the second quarter of 2009, but the sector has a long way to go this year to reach the investment levels of late 2007 and early 2008.”

Climate change, economic recovery and energy security will spur far greater investments in coming years.

In particular, the growing understanding that global carbon emissions (CO2) must peakaround 2015 to avoid dangerous climate change (based on the 4th assessment of the Intergovernmental Panel on Climate Change– UNEP/World Meteorological Organisation) will make clean energy investments national priorities.

Annual investments in renewable energy, energy efficiency and carbon capture and storage need to reach half a trillion dollars by 2020, representing an average investment of 0.44% of GDP.

These levels of investment are not impossible to achieve, especially in view of the recent four year growth from $35 billion to $155 billion. However, reaching them will require a further scale-up of societal commitments to a more sustainable, low-carbon energy paradigm.

With the current stimulus packages now in play and a hoped-for Copenhagen climate deal in December, the opportunity to meet this challenge is greater than ever, even seen from the depths of an economic downturn.

Says Michael Ahearn, President of US-based First Solar: “This report highlights the continuing importance of government leadership to ensure that renewable energies, including solar, achieve their potential in weaning us off fossil fuels and addressing climate change.”

See also: Investment in Clean Energy Exceeded Fossil Fuel Investment in 2008

Global Trends in Sustainable Energy Investment 2009 — Sector Hi-lites


Wind attracted the highest new investment ($51.8 billion, 1% growth on 2007), confirming its status as the most mature and best-established sustainable generation technology. Wind’s leading position continues to be driven by asset finance, as new generation capacity is added worldwide, particularly in China and the US.


Solar continues to be the fastest-growing sector for new investment ($33.5 billion, 49% growth on 2007), with compound annual growth of 70% between 2006 and 2008. Solar’s growth reflects the easing of the silicon bottleneck and falling costs, which are expected to decline 43% in 2009. Solar project financing underwent the most dramatic growth in 2008, rising 71% to $22.1 billion.


Investment in biofuels fell 9% in 2008 down to $16.9 billion. Although the technology is well established, particularly in Brazil, it has suffered for the past two years from over-investment in early 2007, followed by a fall from grace caused by a combination of high wheat prices, lower oil prices and an increasingly heated food-versus-fuel controversy. Biofuels technology investment is now focused on finding second-generation / non-food biofuels (such as algae, crop technologies and jatropha): the second half of 2008 saw next-generation technology investment exceed first-generation for the first time.


Geothermal was the highest growth sector for investment in 2008, with investment up 149% and 1.3 GW of new capacity installed. The competitive cost of electricity from geothermal sources and long output lifetimes have made this an attractive investment despite the high initial capital cost.

Energy Efficiency

New private investment in energy efficiency was $1.8 billion – a fall of 33% on 2007 – although this figure doesn’t capture the investments made by corporates, governments and public financing institutions.

The energy efficiency sector recorded the second highest levels of venture capital and private equity investment (after solar), which will help companies develop the next generation of sustainable energy technologies for areas such as the smart grid. Energy efficiency also attracted more than 33% of the estimated $180 billion in green stimulus measures.

Global Trends in Sustainable Energy Investment 2009 — Regional Hi-lites


Europe continues to dominate sustainable energy new investment with $49.7 billion in 2008, an increase of 2% on 2007 (37% CAGR from 2006-2008).This investment is underpinned by government policies supporting new sustainable energy projects, particularly in countries such as Spain, which saw $17.4 billion of asset finance investment in 2008.

North America

New investment in sustainable energy in North America was $30.1 billion in 2008, a fall of 8% compared to 2007 (15% CAGR from 2006-2008). The US saw a slow-down in asset financing following the glut of investment in corn based ethanol in 2007. Also, the number of tax equity providers fell for wind and solar projects due to the financial crisis.


South Africa — Feed-in Tariffs Kick Start Green Investment

On 31 March 2009, South Africa announced ‘feed-in’ tariffs that guarantee a stable rate-of-return for renewable energy projects. South Africa is hoping to spur the sort of investment spurred in Germany and Denmark through feed-in tariff schemes.

Sub-Saharan Africa — Geothermal Kenya & Sweet Sorghum Ethanol

Elsewhere in Sub-Saharan Africa, lack of finance is the principal barrier to sustainable energy roll-out. However, some notable progress was made in 2008.

In Kenya, a number of investments are underway; including the continents first privately financed geothermal plant and a 300MW wind farm planned for construction near Lake Turkana.

In Ethiopia, French wind turbine manufacturer Vergnet signed a EUR 210 million supply contract in October 2008 with the Ethiopian Electric Power Corporation for the supply and installation of 120 one MW turbines.

In Angola, Brazilian industrial conglomerate Odebrecht set up an Angolan sugar cane processing plant and plans to steer its production from ethanol to sugar when it comes online late next year. UK-based Cams Group announced plans for a 240 million liter per year sweet sorghum ethanol facility in Tanzania.

North Africa — Sun and Wind

Renewable energy in North Africa remains focused on Morroco, Tunisia and Egypt, particularly in solar and wind. Egypt recently announced its expectation that wind farms in the Saidi area will produce 20% of the country’s energy needs by 2020. Morocco’s government has also outlined plans to meet 10% of its power needs with renewable energy sources.


China – Asia’s Green Energy Giant

By 2008, China was the world’s second largest wind market by newly installed capacity and the fourth largest by overall installed capacity. Between 5GW and 6.5GW of new capacity was installed and commissioned in 2008, bringing total capacity to 11GW to 12.5GW.

China became the world’s largest PV manufacturer in 2008, with 95% of its production for the export market.

Some 800MW of biomass power was added in 2008, bringing the total installed capacity for agriculture waste-fired power plants up to 2.88GW. Development of biofuels has all but ground to a halt, mostly due to high feedstock costs.

India – Pressing Need for Grid Improvements and Clean Power Generation

In 2008 the largest portion of new investment in India went to the wind sector, growing 17% — from $2.2 billion to $2.6. Thanks to a supportive policy environment, solar investment grew from $18 million in 2007 to $347 million in 2008, most of which went to setting up module and cell manufacturing facilities.

Small hydro investment in India grew nearly fourfold to $543 million in 2008, while biofuels investment stalled and fell from $251 million in 2007 to only $49 million in 2008.

Japan – A New Push for Sustainable Energy

In December 2008, Japan unveiled a new $9 billion subsidy package for solar roofs, granting JPY 70,000 ($785)/kW for rooftop PV installation. For the first time in three years, domestic shipments of solar cells rose between April to September (up 6%), indicating a fundamental change in domestic solar demand.

Geothermal also seems to be reawakening in Japan, after a twenty-year lull. In January 2009, plans for a 60MW geothermal plant were announced.

Australia – Geothermal and Wind Gaining Support

The Australian government has set up a A$500m ($436 million) Renewable Energy Fund to accelerate the roll-out of sustainable energy in the country. A$50 million has already been committed to helping geothermal developers meet the high up-front costs of exploration and drilling.

Geothermal is expected to provide about 7% of the country’s baseload power by 2030.

Wind will also benefit from Australia’s new push for sustainable energy, and is expected to provide most of the 20% renewable energy by 2020 target.

Other Asian Countries — Philippines, Thailand, Malaysia

In late 2008, the Philippine government signed a new Renewable Energy Law, offering specific incentives (mainly tax breaks) for renewable generation — a first for Southeast Asia and perhaps a model for other countries. Thailand and Malaysia have been talking about introducing renewable energy legislation for some time; and other countries are planning biofuel blending mandates, similar to those introduced by the Philippines in 2007 and subsequently by Thailand.

Latin America

Brazil – World’s Largest Renewable Energy Market

About 46% of Brazil’s energy comes from renewable sources, and 85% of its power generation capacity thanks to its enormous hydropower resources and long-established bioethanol industry.

Some 90% of Brazil’s new cars run on both ethanol and petrol (all of which is blended with around 25% ethanol). By the end of 2008, ethanol accounted for more than 52% of fuel consumption by light vehicles.

Brazil is now moving into wind. The government has announced a wind-specific auction to take place in mid-2009, for the sale of approximately 1GW of wind energy per year.

Brazil also has a global leader in renewable energy financing. In 2008 the Brazilian Development Bank (BNDES) was the largest provider globally of project finance to renewable energy projects.

Chile, Peru, Mexico and the rest of Latin America

Brazil accounted for more than 90% of new investment in Latin American, but several other countries are looking to implement regulatory frameworks supportive of renewable energy.

Chile’s recently approved Renewable Energy Legislation is responsible for regulating the country’s renewable energy sector, where small hydro, wind and geothermal projects have become increasingly attractive for investors. It requires electricity generators of more than 200MW to source 10% of their energy mix from renewables.

In 2008 Peru introduced legislation that requires 5% of electricity produced in the country to be derived from renewable sources over the next five years, including financial incentives such as preferential feed-in-tariffs and 20-year PPAs for project developers.

Mexico has a non-mandatory target to source 8% of its energy consumption from renewable sources by 2012. However a new national energy plan expected at the end of June 2009 is expected to double that target.

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Source: ScienceDaily 07.06.2009


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