GLOBE SERIES

MCeX launches first Canadian carbon trading market

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Source: GLOBE SERIES

There wasn’t much business transacted - just three contracts changed hands. But the debut of Canada’s new carbon emissions market last week heralds great potential for growth. The Montréal Climate Exchange (MCeX), a joint venture of the Montréal Exchange (MX) and the Chicago Climate Exchange(R) (CCX), officially launched trading in Canada of futures contracts on carbon dioxide equivalent (CO2e) units.

'The listing of the MCeX futures contract is a ’first’ and it makes Montréal Climate Exchange the first regulated environmental market in Canada,' said Luc Bertrand, President and CEO of the Montréal Exchange, Deputy CEO of the new TMX Group and chairman of MCeX. 'This is a historic milestone in the development of both the MX and the Canadian financial markets.'

Mr. Bertrand was speaking at an official MCeX launch ceremony in the presence of Quebec Premier Jean Charest, federal Environment Minister John Baird and federal Public Works and Government Services Minister Michael M. Fortier. Also attending were representatives of MCeX market makers -Orbeo, TD Securities Inc. and TradeLink LLC - and a group of MCeX business partners.

'We know this is the first step in a gradual process of constructing environmental markets in Canada and attracting investors to participate,' Mr. Bertrand said. 'Our goal is to position MCeX as a leading developer of market solutions that help industry reduce greenhouse gas emissions as efficiently as possible.'

The wish was echoed by Richard Sandor, Chairman and Founder of the Chicago Climate Exchange(R), which operates the world’s first greenhouse gas emissions reduction and trading system, now with members and project participants worldwide.

Mr. Bertrand emphasized that the MCeX listing was the product of years of effort by a dedicated MX team working with CCX experts. 'I also want to thank MCeX market makers - Orbeo, TD Securities Inc. and TradeLink LLC - and our business partners for supporting this new market. Their efforts and expertise will be critical to our success as the market operator.'

Companies that can meet emissions targets will get credits, which they will be able to trade at market value on this new exchange.

Federal cap and trade legislation is expected to be introduced in Canada by 2010, as part of the Canadian government’s climate plan to cut emissions by 20% below 2006 levels by 2020. The plan includes carbon trading, offsets, a technology fund and a credit for early reductions.

In something of a rebuff to the federal government’s plan to fight climate change, the premiers of Ontario and Quebec - the country’s two biggest provinces signed a memorandum of understanding this week to establish a cap-and-trade program by 2010 that would limit the amount of emissions that companies can produce. Companies that exceed their limits would pay a fee to those who keep within them.

The Premiers said Ottawa’s program to cut emissions 20 percent from 2006 levels by 2020 was inadequate and misguided. Ontario Premier Dalton McGuinty said ideally, the deal between the two provinces would serve as the foundation for a national cap-and-trade system. Whatever transpires, the Montreal Exchange stands to benefit.

'We aim to build a critical mass of trading activity in Canadian carbon futures,' Mr. Bertrand added. 'The MCeX market will help Canadian industry discover the true ’price of a tonne of carbon’ under the new federal regulatory framework. Trading in the MCeX futures will generate vital price signals for industries that are investing in new ’green’ infrastructure and capital equipment.'

Each futures 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.

The MCeX carbon futures contract has been designed specifically to help industrial participants to manage their emissions risks at the lowest cost while also creating continuous incentives for technological innovations that reduce greenhouse gas emissions. The market is expected to bring together a variety of participants including large regulated emitters, investors in voluntary emissions reduction projects, financial institutions, institutional investors, hedge funds and insurance companies.

Mr. Sandor pointed out that MCeX, like CCX, the Chicago Climate Futures Exchange and European Climate Exchange®, offers investors in emerging environmental markets important advantages. 'We add value the way regulated exchanges always do - by offering traders transparency, liquidity, open access to information, standard contracts, clearing services and, above all, efficient price discovery,' he said.

Trading of the MCeX contract is conducted using the MX electronic trading platform. MX settles and guarantees contracts through its clearing house, the Canadian Derivatives Clearing Corporation, which is AA rated by Standard and Poor’s.

Policing the carbon credits will be the responsibility of the government of Canada, through a registry to keep track of the credits, and a body that will have the authority to audit the credits, Bertrand said.

While trading activity on the Montreal climate exchange is expected to be small initially, Bertrand pointed out that carbon trading in Europe has grown into the billions of dollars.

GLOBE Carbon Registry

In March 2008, the GLOBE Foundation announced plans to launch the GLOBE Carbon Registry by July, 2008. The Carbon Registry will help prospective carbon traders locate quality carbon credits that may be traded through the MCeX.

The GLOBE Carbon Registry will ensure carbon market integrity by issuing a unique serial number to each offset registered as well as information on offset providers and verifiers. The registry will connect offset providers and buyers and will allow both to track offsets from creation to retirement.

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