climate change: opportunities in the carbon market peter koster chairman, european climate exchange...
TRANSCRIPT
Climate Change:Opportunities in the Carbon
Market
Peter Koster
Chairman, European Climate Exchange
Athens, CEO & CSR 2007, 31st October 2007
Eurocharity
2
How Emissions Trading Will Have An Impact
AGENDA Lessons to Be Learned : Phase I
Trading Patterns and Trends – Is the Market Liquid?
CERs – The Global Emissions Commodity?
Outlook for Phase II
Will Carbon Become a Global Commodity?
3
Lessons Learned Phase I EU ETS
• Market activity grew rapidly• CO2 got a price signal• CO2 has become an integrated part of the energy
portfolio• Market showing signs of maturity
EU Emissions Trading Scheme has been a success:
4
About ECX
Volumes reported include screen-traded futures and cleared bilateral contracts (EFP)
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EUA Total Market Volume Sept 2007:
Market Shares
55
2005:
260Mt
2006:
1,000Mt
Jan-Sep 2007:
1,500Mt
2008-2012
?
EU ETS Market Activity
Mt = million tonnes of CO2
Phase I
Source: Point Carbon
Phase II
Total (est.):
ECX: 94Mt 450Mt 750Mt
6
Price and volume ECX CFI Futures Contracts1.3 billion tonnes of CO2 has traded on ECX/ ICE Futures since launch April 2005
with an underlying market value €24.5 billion
Open Interest> 176 mt CO2
ECX CFI Contracts: Price and Volume
0
20,000,000
40,000,000
60,000,000
80,000,000
100,000,000
120,000,000
140,000,000
2006
Vo
lum
e (
ton
nes C
O2)
0.00
5.00
10.00
15.00
20.00
25.00
30.00
2007
Pri
ce (
EU
R)
Monthly VolumesDec07 SettDec08 Sett
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Open Interest & Volume ECX CFI Options Contracts37 million tonnes of CO2 have traded in options on ECX / ICE Futures Europe
since launch October 2006
0
2,000,000
4,000,000
6,000,000
8,000,000
10,000,000
12,000,000
Volu
me
(mt C
O2)
Date
ECX CFI Options Monthly VolumesPuts
Calls
0
2,000,000
4,000,000
6,000,000
8,000,000
10,000,000
12,000,000
14,000,000
16,000,000
18,000,000
20,000,000
Volu
me
(mt C
O2)
Date
Monthly Options Open Interest GrowthPuts
Calls
8
Emission Trading has changed the correlation among commodities!
• Before 2005 correlations between commodity markets within European power were weak
• Gas and coal prices determined marginal cost but were not linked with each other
• Because of emission trading we have now trading markets that link power with commodity markets
• As a result companies (particularly utilities) are now exposed to volatile commodity markets like never before
Oil market
Power market
Gas market
CO2
Coal market
Source: McKinsey
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Who Is the Carbon Market?
Number of companies
Utilities
Cement
Steel
Pulp and paper glass Oil
Speculative traders
Hedge funds
Banks
Other
BACK TO CONTENTS
Market product sophistication
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Screenshot ECX/ ICE Futures: Click and Trade!
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What are the key elements of a successful carbon exchange?
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Members List
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Accord Energy E&T Energie Handelsgesellschaft Monument Securities ADM Investor Services International Electrabel Morgan Stanley & Co International All Energy Trading Endesa Generacion Natexis Commodity Markets Ambrian Commodities Fimat International Banque Optiver US Amerex Futures First New York Securities Optiver VOF Atel Trading Fortis Bank Global Clearing Rand Financial Services Bache Commodities Gazprom Marketing & Trading RBC Capital Markets Corporation Banc of America Securities GH Financials Saxon Financials Energy Banco Santander Central Hispano Goldman Sachs International Schnell & Co. Barclays Capital HSBC Bank Scottish Power Energy Management Bear Stearns International ICAP Securities SEB Futures BHF - Bank IMC Sempra Energy Europe BNP Paribas Commodity Futures Infinium Capital Management Shell Energy Trading BOT Gornictwo I Energetyka Insence Trading Curacao Shell Int. Trading & Shipping Company BP Gas Marketing Jane Street Capital Smartest Energy British Energy Power & Energy Trading JP Morgan Securities Spectron Energy Services Calyon Financial Jump Trading Starmark Trading CEZ Kyte Broking TFS Derivatives Citadel Equity Fund Lehman Brothers International The Kyte Group Citigroup Global Markets Limestone trading ThyssenKrupp Climate Change Capital Madison Tyler Trading Tradelink Credit Suisse Securities MAN Financial Tullett Prebon Deriwatt Marex Financial UBS Deutsche Bank Marquette Partners UBS Clearing and Execution Services Dresdner Bank Marubeni Corporation Universal Data EDF Trading Merrill Lynch Commodities Verbund E.On UK Merrill Lynch International Wachovia Bank EDP Mizuho Securities USA XConnect Trading
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Clearing Members
ECX CFI Clearing Members of ICE Futures able to offer clearing and trading services to third parties (‘order-routers’).
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Utilities, industrials and financials use ECX products to hedge their EUA and CER price risk
15
CERs – The Global Emissions Commodity?
• Interlinking of ITL and CITL scheduled end this year • Development of standardised exchange-tradable CER
contracts• Increased participation of CDM players in EU ETS
(biggest share of global carbon market)• Exponential growth in market transactions?
16
Growing Secondary CER Market
Growing market in CERs being bought by European and American companies. Transactions characterised by:
• Buyers with high credit ratings (BB+ to AAA) - no default risk
• Easy to get in and out of long or short positions
• Liquid market – strong demand from European Industrials
• Standardised lot sizes
• Instant trading – no need for costly contract negotiations
Current Secondary CER prices are trading at about €17.42 or around
77% the price of the December 2008 EUA contract. (as of 24 October 2007)
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Outlook for Phase II
•Same gases as in Phase I
•Aviation sector included 2011
•25 out of 27 NAPs approved so far
•Phase II NAPs on average 7% less than 2005 verified emissions
•Caps on use of CERs / ERUs
•Will the Market become global?
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Global CO2 Emissions Projections
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EU ETS is “by far the most significant accomplishment in climate policy to date”
and should form the basis of a “global framework for managing climate policy”
--Denny Ellerman (MIT) et al, Review of Environmental Economics and Policy , Spring 2007
EU ETS
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• Peter Koster Chairman [email protected]
Telephone: +44 207 382 7800Website: www.ecx.eu
Thank You!
Thank You!