Carbon trading at Montreal Exchange

Written by  //  May 31, 2008  //  Canada, Carbon, Climate Change, Environment & Energy, Markets  //  1 Comment

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May 31
Montreal Climate Exchange starts trading
Activity on Canada’s first carbon-trading market kicked off Friday with the launch of the Montreal Climate Exchange.
A joint venture between the Montreal Exchange and the Chicago Climate Exchange, the new exchange will allow the trading of futures contracts on greenhouse gases.
Each contract is equal to 100 Canada carbon dioxide equivalent units. Each unit, as defined by the Canadian government, is an entitlement to emit one metric ton of carbon dioxide equivalent.
Companies that earn greenhouse gas credits through environmental programs can use the new market to sell them to carbon-emitting firms.
Premiers of Quebec and Ontario to sign deal on cap-and-trade system
MONTREAL — The governments of Quebec and Ontario will strike a deal next week to move ahead with an interprovincial carbon trading system they hope will pressure Ottawa to bring its climate change plan in-line with global standards, The Canadian Press has learned.
Well-placed sources in both governments said Premiers Jean Charest and Dalton McGuinty will sign a memorandum of understanding on climate change when their cabinets meet in Quebec City on Monday.
The memorandum will include a basic framework for a cap-and-trade system with a 1990 baseline for emission levels.

May 30
Montreal carbon gases exchange up and running
MONTREAL (AFP) — Montreal’s stock exchange on Friday officially launched the Montreal Climate Exchange, the country’s first carbon trading forum aimed at helping to cut greenhouse gases.
The trading mechanism seeks to get companies which produce more emissions of greenhouse gases to buy what amounts to the rights of others that are less polluting as part of broader efforts to tackle global warming.
Canada had agreed under the international Kyoto Protocol to reduce carbon dioxide (CO2) emissions to 6.0 percent below 1990 levels by 2012, but emissions have instead increased by more than 35 percent.
Baird and Fortier Celebrate Launch of Montreal Climate Exchange
MONTREAL, QUEBEC, May 30, 2008 (Marketwire via COMTEX) —-Canada’s Environment Minister, John Baird, and the Minister Responsible for the Greater Montreal Area, Michael M. Fortier, joined with the Montreal Exchange’s Board of Directors today to celebrate the official opening of the Montreal Climate Exchange, Canada’s first carbon market.
TD Securities named market maker for carbon future contract
(Investment Executive) TD Securities announced it will be a market maker for the new Canadian Carbon Future contract introduced today on the Montreal Climate Exchange, a joint venture of the Montreal Exchange and the Chicago Climate Exchange.
By providing market liquidity, TD Securities will aid a wide cross-section of industry participants in meeting greenhouse gas emission reduction targets. TD is the only Canadian market maker involved in this historic initiative.
Activity light in debut of Montreal carbon market
TORONTO (Reuters) – Just three contracts changed hands during the debut of Canada’s new carbon emissions market on Friday, but the operator said it sees strong potential for growth in a country that is among the world’s biggest polluters.
Montreal Exchange, Canada’s main derivatives market — which was bought this month by Toronto Stock Exchange operator TSX Group — launched the market so that polluters, speculators and investors have a platform on which to buy and sell carbon credits.
With Canadian energy and power producers facing mandatory greenhouse gas reductions in less than two years, the exchange said the time is right to help establish carbon prices.
Are More Climate Exchanges Good for the Industry?

(Greentech Media) The Montreal Climate Exchange opened Friday, raising cheers from industry insiders who say more carbon credits are good for greentech. But could too many choices muddle the market?
May 26
US emissions trading waits for Bush to go
(Financial Times) The departure from office of US President George W. Bush will give a “very promising” outlook to international talks on global warming and the $64bn market in greenhouse gas emissions, said the United Nations’ top official on climate change.
“The US is very promising. All three [presidential] candidates are interested in climate change, all three want international engagement, all three favour a cap-and-trade approach [on emissions], which augurs well for the continuation of the carbon market,” said Yvo de Boer, executive secretary of the UN Framework Convention on Climate Change, the parent treaty to the Kyoto protocol, in an interview with the Financial Times.
April 5 2008
CASHING IN ON CARBON
The global warming culprit has become a hot commodity. The Montreal Exchange aims to get a piece of the action

Alex Roslin Special to the Gazette
Carbon trading is finally coming to Canada. The exploding carbon-emissions market, already worth $65 billion in Europe last year, will get a long-awaited toehold in Canada at the Montreal Exchange starting May 30. That’s when trading in carbon futures is set to start at the exchange, a joint venture of Montreal’s Canadian Derivatives Exchange and the Chicago Climate Exchange.
Carbon, the wee little molecule that’s to blame for global warming, has become the world’s hottest commodity.
Europe’s carbon market has grown sixfold since its first climate exchange opened in Amsterdam in 2005.
Carbon trading is expected to account for one-fourth of Europe’s projected reduction in emissions under the Kyoto accord on climate change, according to a European Union report last November.
A United Nations study says yearly carbon sales could be worth an astonishing $2 trillion a year by 2012, the last year of the Kyoto accord.
The market is still small in North America because Canada and the U.S. have yet to enact the European-style mandatory emissions reductions called for under Kyoto.
Until now, a smaller, strictly voluntary carbon market has existed here, fuelled by companies, municipalities and individuals wanting to go “carbon neutral.” They include the likes of rockers Pink Floyd and Pearl Jam, Hillary Clinton’s presidential campaign, the Vancouver Olympics, Nike, the World Bank, et al.
Voluntary offsets, worth an estimated $90 million in 2006 worldwide, are projected to grow in volume 12 to 20 times within five years.
Canada could end up repeating Europe’s gaffes
The Montreal Exchange’s plan to form a Canadian Climate Exchange was first announced in 2005, but the idea was put on hold after the Tory election victory in January 2006 brought in a government hostile to Kyoto.
Prime Minister Stephen Harper initially opposed Kyoto altogether, pulling the rug out from under the potential demand for carbon credits. Why would polluters buy the credits if they didn’t have to reduce emissions in the first place?
Harper later backtracked amid international criticism, pledging last year to cut emissions 20 per cent by 2020, a move environmentalists say will still leave Canada 11 per cent above the level it pledged to achieve under Kyoto.
Still, the Harper plan created enough of a framework for a carbon market to finally proceed, said Léon Bitton, vice-president of research and development at the Montreal Exchange.
“We needed more clarity and certainty about emissions targets and about the supply side of the market – the types of projects that would be recognized” to qualify for carbon credits, he said.
“What we are creating here in Canada will be attaching an economic value to emissions reduction. It encourages changes in behaviour and opens the door for companies and investors to embark on all sorts of new (emissions-reduction) projects. To date, there was no incentive to do so because there was no value attached to it.”
The exchange’s carbon futures contract is still awaiting approval from Quebec’s securities regulator, the Autorité des marchés financiers, but Bitton said approval is imminent.
Demand for the contract is expected to come from polluters, speculating traders and institutional investors who own shares in polluting companies and want to hedge their “carbon risk,” he said.
The carbon market still faces strong headwinds in Canada. Public skepticism about trading carbon has grown seemingly as fast as the carbon market itself.
A survey of 2,271 Canadians released in January found just one per cent strongly trust companies’ claims that they have gone “carbon neutral” by cancelling out emissions with carbon credits.”
Meanwhile, 14 per cent said they “do not trust the claim at all,” and another 38 per cent said they are “somewhat” mistrustful, according to the survey, commission by Vancouver environmental group Markets Initiative.
In Europe, carbon trading has been mired in gaffes and controversy about poor planning and weak oversight.
Authorities in Europe got off to a bad start when they set their first emissions caps too high. That meant polluting industries easily met their targets, which allowed them to earn billions of dollars when they cashed in unused carbon permits that governments had granted them free.
In Britain, for example, The Economist reported in 2006 that power utilities were making an estimated $1.5 billion U.S. from selling carbon permits each year.
“So far, the (emissions-trading system) has done more for power-generating companies than it has for curbing pollution,” the magazine reported.
European environmentalists have been even more withering. “Such a massive public concession to dirty industries borders on the obscene,” wrote Kevin Smith, of Amsterdam-based Carbon Trade Watch, in an opinion piece for the BBC’s website.
When the scale of the oversupply of credits became known in 2006, the price of a carbon credit – enough to offset a tonne of greenhouse gases – crashed from 32.25 to 18.25 euros in less than two weeks, eventually bottoming at 12.25 euros in early 2007.
After the early missteps, European authorities reacted by imposing stricter caps on emissions and tougher monitoring of what qualifies as a credit. Prices have since stabilized, trading in a range between 15 and 25 euros over the past 12 months for the most widely followed carbon futures contract.
The European system finally seems to be finding its way, said Ian Bruce, climate change specialist at the Vancouver-based David Suzuki Foundation.
“They’ve strengthened the public trust. There’s been a huge improvement.”
Meanwhile, back in North America, carbon trading – particularly the burgeoning new market for voluntary carbon offsets – has had no small amount of problems of its own,
Many environmentalists dismiss voluntary offsets as little more than a public-relations ploy with little impact on gas emissions.
Voluntary offsets are also subject to no government regulation, which has left the new market open to projects of dubious value.
The lack of uniform standards is reflected in the fact that carbon offsets in the voluntary market vary wildly depending on the company selling the product, ranging anywhere from $1 to $78 per tonne of greenhouse gas.
In January, the Wall Street Journal reported the U.S. Federal Trade Commission, which investigates deceptive trade practices, had started an investigation of the offsets market.
FTC officials were said to be concerned consumers can’t verify whether the offsets actually reduce gas emissions.
With the Harper government now vowing to create a kind of European-like version of carbon-emissions targets, critics say the Canadian plan seems destined to reproduce many of Europe’s early mistakes.
The Canadian policy’s weak caps on emissions are even less stringent than those Europe tried in its botched first attempt, Bruce said.
Instead of hard quotas, the federal government’s policy would require companies to reduce emissions largely as a ratio of their production activity. That means emissions could actually rise if production were to rise too, Bruce said.
Critics say the weaker targets could hurt the carbon market by not putting a floor of sufficient demand under the price of carbon credits, possibly keeping their price too low to justify strong investment in green offsetting projects.
Another concern: environmentalists say the government has a lax approach to overseeing the source of carbon credits.
“They’re using fake targets. It’s probably more accurately described as a licence to pollute,” Bruce said.
John Bennett, executive director of Ottawa-based ClimateForChange.ca, agreed. As in Europe’s initial scheme, he said, it could actually allow some Canadian polluters to profit from surplus carbon credits because the proposed targets are too lenient.
“The Canadian government couldn’t have picked a more loophole-filled system. They’re doing things that have failed elsewhere. We’ve run out of time to play these kinds of games,” he said.
At the Montreal Exchange, Bitton said he is hopeful Canada has learned from Europe’s initial hiccups. “It might start with less demand (in Canada), but we know over time regulations can change,” he said.
The Montreal Exchange’s plan to form a Canadian Climate Exchange was first announced in 2005, but the idea was put on hold after the Tory election victory in January 2006 brought in a government hostile to Kyoto.
Prime Minister Stephen Harper initially opposed Kyoto altogether, pulling the rug out from under the potential demand for carbon credits. Why would polluters buy the credits if they didn’t have to reduce emissions in the first place?
Harper later backtracked amid international criticism, pledging last year to cut emissions 20 per cent by 2020, a move environmentalists say will still leave Canada 11 per cent above the level it pledged to achieve under Kyoto.
Still, the Harper plan created enough of a framework for a carbon market to finally proceed, said Léon Bitton, vice-president of research and development at the Montreal Exchange.
“We needed more clarity and certainty about emissions targets and about the supply side of the market – the types of projects that would be recognized” to qualify for carbon credits, he said.
“What we are creating here in Canada will be attaching an economic value to emissions reduction. It encourages changes in behaviour and opens the door for companies and investors to embark on all sorts of new (emissions-reduction) projects. To date, there was no incentive to do so because there was no value attached to it.”
The exchange’s carbon futures contract is still awaiting approval from Quebec’s securities regulator, the Autorité des marchés financiers, but Bitton said approval is imminent.
Demand for the contract is expected to come from polluters, speculating traders and institutional investors who own shares in polluting companies and want to hedge their “carbon risk,” he said.
The carbon market still faces strong headwinds in Canada. Public skepticism about trading carbon has grown seemingly as fast as the carbon market itself.
A survey of 2,271 Canadians released in January found just one per cent strongly trust companies’ claims that they have gone “carbon neutral” by cancelling out emissions with carbon credits.”
Meanwhile, 14 per cent said they “do not trust the claim at all,” and another 38 per cent said they are “somewhat” mistrustful, according to the survey, commission by Vancouver environmental group Markets Initiative.
In Europe, carbon trading has been mired in gaffes and controversy about poor planning and weak oversight.
Authorities in Europe got off to a bad start when they set their first emissions caps too high. That meant polluting industries easily met their targets, which allowed them to earn billions of dollars when they cashed in unused carbon permits that governments had granted them free.
In Britain, for example, The Economist reported in 2006 that power utilities were making an estimated $1.5 billion U.S. from selling carbon permits each year.
“So far, the (emissions-trading system) has done more for power-generating companies than it has for curbing pollution,” the magazine reported.
European environmentalists have been even more withering. “Such a massive public concession to dirty industries borders on the obscene,” wrote Kevin Smith, of Amsterdam-based Carbon Trade Watch, in an opinion piece for the BBC’s website.
When the scale of the oversupply of credits became known in 2006, the price of a carbon credit – enough to offset a tonne of greenhouse gases – crashed from 32.25 to 18.25 euros in less than two weeks, eventually bottoming at 12.25 euros in early 2007.
After the early missteps, European authorities reacted by imposing stricter caps on emissions and tougher monitoring of what qualifies as a credit. Prices have since stabilized, trading in a range between 15 and 25 euros over the past 12 months for the most widely followed carbon futures contract.
The European system finally seems to be finding its way, said Ian Bruce, climate change specialist at the Vancouver-based David Suzuki Foundation.
“They’ve strengthened the public trust. There’s been a huge improvement.”
Meanwhile, back in North America, carbon trading – particularly the burgeoning new market for voluntary carbon offsets – has had no small amount of problems of its own,
Many environmentalists dismiss voluntary offsets as little more than a public-relations ploy with little impact on gas emissions.
Voluntary offsets are also subject to no government regulation, which has left the new market open to projects of dubious value.
The lack of uniform standards is reflected in the fact that carbon offsets in the voluntary market vary wildly depending on the company selling the product, ranging anywhere from $1 to $78 per tonne of greenhouse gas.
In January, the Wall Street Journal reported the U.S. Federal Trade Commission, which investigates deceptive trade practices, had started an investigation of the offsets market.
FTC officials were said to be concerned consumers can’t verify whether the offsets actually reduce gas emissions.
With the Harper government now vowing to create a kind of European-like version of carbon-emissions targets, critics say the Canadian plan seems destined to reproduce many of Europe’s early mistakes.
The Canadian policy’s weak caps on emissions are even less stringent than those Europe tried in its botched first attempt, Bruce said.
Instead of hard quotas, the federal government’s policy would require companies to reduce emissions largely as a ratio of their production activity. That means emissions could actually rise if production were to rise too, Bruce said.
Critics say the weaker targets could hurt the carbon market by not putting a floor of sufficient demand under the price of carbon credits, possibly keeping their price too low to justify strong investment in green offsetting projects.
Another concern: environmentalists say the government has a lax approach to overseeing the source of carbon credits.
“They’re using fake targets. It’s probably more accurately described as a licence to pollute,” Bruce said.
John Bennett, executive director of Ottawa-based ClimateForChange.ca, agreed. As in Europe’s initial scheme, he said, it could actually allow some Canadian polluters to profit from surplus carbon credits because the proposed targets are too lenient.
“The Canadian government couldn’t have picked a more loophole-filled system. They’re doing things that have failed elsewhere. We’ve run out of time to play these kinds of games,” he said.
At the Montreal Exchange, Bitton said he is hopeful Canada has learned from Europe’s initial hiccups. “It might start with less demand (in Canada), but we know over time regulations can change,” he said.
March 14
Montreal Climate Exchange says trading in carbon futures to begin May 30
(The Canadian Press/Canadian Business online) MONTREAL – The Montreal Climate Exchange, a joint venture of the Montreal Exchange (TSX:MXX) and the Chicago Climate Exchange, says trading in carbon futures emissions contracts will begin May 30, subject to regulatory approval.
The Montreal Climate Exchange “is moving quickly to launch the first exchange-traded carbon futures contract in Canada,” Luc Bertrand, president and CEO of the Montreal Exchange and chair of the carbon trading partnership, said Friday.
“We are enthusiastic about creating this new derivatives market and about the launch of trading.”
Richard Sandor, chairman and founder of the Chicago Climate Exchange, said the “demand for environmental derivatives continues to grow worldwide and the time is right to build a critical mass of trading activity in Canada.”
Montreal Climate Exchange “products will meet demand from industrial participants to manage their emissions risks at the lowest cost while also creating continuous incentives for technological innovation that reduce carbon emissions.”
The partners initially announced their plan last July after reviewing the federal government’s air emissions policies and detailed talks with potential market participants, including large industrial emitters.
The Conservative government wants to cut greenhouse gas emissions by 20 per cent by 2020 and has proposed a plan that includes carbon trading, offsets, a technology fund, and a credit for early reductions.
The plan, which the government says strikes a balance between environmental cleanup and economic growth, has been criticized by environmentalists as well as the opposition parties in the Commons, who argue that it does not go far enough.
In a statement from Ottawa, Environment Minister John Baird said he was pleased to see the Montreal Climate Exchange “moving full steam ahead to set up Canada’s first carbon market.”
“The government of Canada believes in the commitment, ingenuity and willingness of Canadians to tackle the challenge of climate change while continuing to grow our economy,” Baird said Friday.
When the market opens, carbon dioxide equivalent units futures contracts will be traded, allowing polluters to offset their emissions by buying carbon credits from other companies.
In its application for the Montreal Climate Exchange, the two partners noted the World Bank estimates the global market for carbon could be as high as $100 billion a year.

 

One Comment on "Carbon trading at Montreal Exchange"

  1. Diana Thébaud Nicholson May 26, 2008 at 9:21 am · Reply

    The Global Resource for Carbon Market Intelligence
    New Carbon Finance is the leading provider of high quality fundamental analysis of the European, North American and global carbon markets. Our team of analysts has been providing professional advice on carbon markets since 1998, including assistance in the design of various schemes and company-level strategic advice. During this time we have built up highly detailed fundamental market models that analyse the demand and supply balances and forecast prices on the European and global level, including North America.

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