Mar 15 2008
The Montreal Climate Exchange (MCeX), a joint venture of the Montreal Exchange (MX) and the Chicago Climate Exchange(R) (CCX), announced today that it plans to launch trading of futures contracts on Canada carbon dioxide equivalent (CO2e) units on May 30, 2008, subject to regulatory approval.
"MCeX is moving quickly to launch the first exchange-traded carbon futures contract in Canada," said Luc Bertrand, President and CEO of MX and chair of MCeX. "We are enthusiastic about creating this new derivatives market and about the launch of trading."
"The demand for environmental derivatives continues to grow worldwide and the time is right to build a critical mass of trading activity in Canada," said Dr. Richard Sandor, Chairman and Founder of the Chicago Climate Exchange. "MCeX 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 MCeX partners initially announced the plan in July 2007 based on an assessment of the federal government's air emissions policy released in April 2007 and following detailed consultations with potential market participants, including large industrial emitters. The MCeX set the launch date after the federal government announced further details of its greenhouse gas emissions regulations, including targets for intensity-based Canadian emissions reductions and offsets program terms.
"The Government of Canada has provided greater regulatory certainty regarding intensity-based emissions reduction targets and the definition of a single compliance standard for tradable credits," added Mr. Bertrand. "This will enable emitters to more accurately forecast their individual intensity-based reduction targets and exposures."
"Clear regulations are always welcome news for buyers, sellers and market operators. Our aim is to offer a market based solution that will optimize the policy guidelines set by the federal Government and support the reduction of carbon emissions in a cost effective manner."
Regulatory Filing on Market Rules
MX filed an application with its lead regulator, the Autorite des marches financiers (AMF), requesting approval of market rules designed to govern the trading of MCeX environmental products on its electronic trading platform, SOLA(R). A decision on the AMF application is expected in the near future.
The MX application filed for approval by the AMF describes two key benefits that will be offered by MCeX contracts:
- A price discovery mechanism that generates the price signals needed by large industrial emitters to measure the "cost of a tonne of carbon".
- A method of managing risk associated with price fluctuations using carbon futures contracts.
In the application, MX commits to operate a transparent, secure and liquid market that earns the confidence of traders, investors and market participants. The rules provide that Canada carbon dioxide equivalent (CO2e) units futures contracts will be traded on the MX electronic trading platform, SOLA(R). MX will settle and guarantee contracts through its clearing house, the Canadian Derivatives Clearing Corporation, which is AA rated by Standard and Poor's. This arrangement will reduce trading, settlement and counterparty risk for market participants.
The MX application cites World Bank estimates that the world market for carbon amounts to about $100 billion. Trading activity on public carbon markets has grown rapidly in recent years to reach US$30 billion in 2006.
Furthermore, recent estimated figures from market participants show that the global carbon market activity was worth over US$60 billion in 2007.