patrick birley

8/17/2019 Patrick Birley

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The Carbon Market

Trading Emissions Contracts

February 2009


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Contents

Introduction

Cap and Trade

Kyoto mechanics

European market experience

Conclusions

ECX


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Why?

• If your house was on fire, would you try to put it out?

• The world is heating up, it is caused y humans

!anthropogenic", and we ha#e the chance to address it$

• The gloal cost of a Cap and Trade ased solution is

estimated at %& of '() * if we act now$

• If we don+t act, what legacy are we lea#ing to future

generations?


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Understanding Cap and Trade


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The Cap

• easure

• -icense

• -imit supply

• Creating a shortage in something

that was always deemed to e

limitless

• .e/uires great political leadership

* those co#ered will naturally resist

• 0as different resistance pointsdepending on local factors

• 1ill ne#er e truly fair * some

people will suffer more than others


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Cap – underlying philosophy

• Those who continue to pollute at the old le#els will

ha#e to pay, and the charges will increase as the

supply is s/uee2ed$ 3#er time this will make them

-E44 competiti#e• Those who change early will e rewarded for their

action$ 3#er time they will ecome 3.E

competiti#e$

• The o#erall impro#ement is the /uantum of the

reduced supply


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Trade

• 5rings uyers and sellers together therey creating a price

formation mechanism

• )ro#ides transparency and li/uidity

• 6llows acti#e financial risk management

• 7acilitates the monetisation of excess credits


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Cap and trade

4I)-E8

• Creates a cost and9or an opportunity


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Kyoto Protocol – key points

• (i#ides world into two parts * 6nnex

: countries !de#eloped world" and

non;6nnex : countries• Co#ers period %


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Kyoto Protocol flexible mechanisms

BACK TO CONTENTS

• Emissions Trading

* 6nnex I parties may trade emissions allowances at a national or

regional le#el

• Clean Development Mechanism (CDM)

* 6nnex I parties may implement emission reduction proAects in non-

Annex I countries in order to meet their own emissions targets

• Joint Implementation (JI) * 6nnex I parties may implement emission reduction proAects in

certain other Annex I countries in order to meet their own emissions

targets


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Kyoto Implementation

• Europe * gloal leadership

position

• )re;Kyoto trading scheme !)hase I" %


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• nited 4tates * failed to ratifyagreement

• The largest per;capita emitter of caron,responsile for approximately one third of 6nnex :pollution

• arious regional initiati#es * California, .''I• oluntary !legally inding< scheme managed y

Chicago Climate Exchange• 5oth )residential candidates #ocal supporters of

cap and trade

• )ossile post;Kyoto implementation %


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• .31 * #aried responses• Canada * scheme commencing %


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Country

Base year GHGemissions

(mt CO2e)

2005 GHGemissions

(mt CO2e)

Can!e in GHGemissions

"ase-2005 (#)

Kyoto $roto%o&tar!et as %an!e

'rom "ase (#)i''eren%e (#)

Austra&ia *+, 525, 25,. + */,.

Be&arus *2/, /5,. -0,. -+ -2,.

Canaa 51.,0 /.,1 25, -. *,

Croatia *,. 0,5 -, -5 *,.

Euroean 3nion 5*, /**,0 -+,2 -+ -,2

Hun!ary **5,/ +0,22 -0,/ -. -2,/

I%e&an , ,/ *0,5 *0 ,5

4aan *2/2,0 *51,1 .,1 -. *2,1

ie%tenstein ,2 ,2/ */, -+ 25,

6ona%o ,** ,*0 -,* -+ ,1

Ne7 8ea&an .*,1 //,2 2,/ 0 2,/

Nor7ay 1,+ 5,2 +,+ * /,+

$o&an 5+.,1 11,0 -2,0 -. -2.,0

9ussia 21+1,+ 2*2,5 -2+,/ 0 -2+,/

Tur:ey */0,* 21.,. /, -+ +2,

3:raine 12,+ *+,1 -5,/ 0 -5,/

3nite States .221,0 /2*,5 *., -/ 2,Total 18,709.6 18,182.3 -2.8 -5.2 2.4

Perormance against Kyoto targets


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Post Kyoto

• 6iming for agreement in Copenhagen %


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Corporate structure

Climate Exchange

)-C

!C-E"

European Climate

Exchange !ECX"

Chicago Climate

Exchange !CCX"

Chicago Climate

7utures Exchange

!CC7E"


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!bout EC"

• Euroean C&imate Ex%an!e is the most li/uid marketplace

for trading C3% E 6llowances !E6s" under the E

Emissions Trading 4cheme$ ECX is part of the ClimateExchange plc group of companies, listed on 6I of the -4E

• ECX and ICE 7utures Europe ha#e a partnership where ECXmanages marketing and product de#elopment for its caronemissions contracts and ICE lists those products for trading on itselectronic platform known as 1eICE$

• ECX C7I !Caron 7inancial Instrument" contracts areH

* -isted traded on ICE ;utures Euroe electronic platform, a.ecogni2ed In#estment Exchange

* .egulated y the ;inan%ia& Ser


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EC" Products

;utures an Otions

"ase on uner&yin!=

E3AsEuroean 3nion A&&o7an%es

CE9sCerti'ie Emission 9eu%tions

E3 ETS -Euroean 3nion

Emissions Train! S%eme

C6 -C&ean ee%t %reits


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!bout EC"


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Price and #olume EC" EU! $utures Contracts? %& million tonnes o C'( traded in ())* +ith a market #alue o ,(-. billion

? &*( million tonnes o C'( traded in ())/ +ith a market #alue o ,% billion

? . billion tonnes o C'( traded in ())0 +ith a market #alue o ,.0-* billion


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'pen Interest EC" EU! $utures Contracts

ECX E6 7utures Contracts 3pen Interest currently rests at :B: million tonnes


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1olume EC" EU! 'ptions Contracts2&. million tonnes o C'( ha#e traded in EU! options and 0% million tonnes o CE3 options on EC" 4 ICE

$utures Europe


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Who is the Market?

0edgers

4peculators

6ritrageurs

In#estors


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ICE $utures Members enabled to trade EC" Contracts

6ccord Energy 'alp Energia 3sterreichische Elektri2itatswirtschafts;6' 6( In#estor 4er#ices International 'a2prom arketing Trading .$G$ 3+5rien 6ssociates

6ll Energy Trading 'ene#a Ireland 7inancial Trading .and 7inancial 4er#ices

6ll 3ptions CuraJao 'etco .5C Capital arkets Corporation

6tel Trading '7I 4ecurities .54 4empra Energy Europe

5ache Commodities '0 7inancials .oyal 5ank of Canada Europe

5anc of 6merica 4ecurities 'oldman 4achs International 4agacaron

5arclays Capital 'rupo 4antander 4axon 7inancials

5' International 045C 5ank 4chneider Trading

507 5ank IC6) 4ecurities 4chnell Co$

5@) )arias Commodity 7utures Infinium Capital anagement 4cottish )ower Energy anagement 5) 'as arketing IC 4E5 7utures

5ritish Energy Trading Gane 4treet Capital 4hell Energy Trading

Caron Capital arkets Gaypee International 4hell Int$ Trading 4hipping Company

CEF G) organ 4ecurities 4martest Energy

Citadel (eri#ati#es Trading Gump Trading 4pectron Energy 4er#ices

Citadel E/uity 7und K71 4tarmark Trading

Citigroup 'loal arkets KlimaIn#est 4tatkraft Energi

Climate Change Capital -imestone Trading 4ucden K

Credit 4uisse 4ecurities adison Tyler Trading 4us/uehanna

(eutsche 5ank arex 7inancial T74 (eri#ati#es (resdner 5ank ar/uette )artners The .oyal 5ank of 4cotland

ET Energie arueni Corporation ThyssenKrupp

E$3n K errill -ynch Commodities Tira Trading Europe

E(7 Trading errill -ynch International Tradelink

E() * Energias de )ortugal 7 'loal Tullett )reon 4ecurities

E'- Trading i2uho 4ecurities 46 54 Clearing Execution 4er#ices

E-ECT.6 (eutschland organ 4tanley Co International 54

Electrael @atixis Commodity arkets ni#ersal (ata !K"

Endesa 'eneracion @ewedge ; Calyon 1acho#ia 5ank

7irst @ew ork 4ecurities @ewedge * 7I6T XConnect Trading 7ortis 5ank 'loal Clearing 3pti#er 37


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Price 5ri#ers

• acro

* )olitical will

* @ational de#elopments

* Economic !growth9recession"

* Inno#ation

• icro

* (emand and 4upply

* 3il price

* Coal price

* 'as price * 1eather9temperature

* Interest rates

* 3ther markets


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EU!6CE3 Price 7pread


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EU! Price Correlations


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ICE EC" 7creen 7hot

BACK TO CONTENTS


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Where 8e9t?

4 ET4>,BL


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Multiple roads to the same destination

Bea


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Carbon – The 8e9t !sset Class

“Global greenhouse gas emissions markets are clearlythe next great frontier in the commodities trading world”

Commissioner 5art Chilton * 4 Commodity 7utures

Trading Commission, arch %


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Watch this space:

“The total global carbon market value could reach€2 trillion ($!" trillion# by 22!”

; )3I@T C6.53@, ay %


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Proud sponsors o the Catlin !rtic 7ur#ey

+++-catlinarticsur#ey-com

www$ecx$eu

)atrick$irleyNecx$eu

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