First meeting of industrial and financial committees of European Climate Exchange Representatives from 20 of Europe’s largest emitters of carbon dioxide met yesterday in London for the first time as the founding members of the European Climate Exchange’s (ECX) industry committee. The group, which accounts for roughly 65 percent of total emissions targeted under the EU emissions trading scheme (EU ETS), included all of Europe’s largest power utilities and the world’s top oil companies amongst others.
A group of fifteen of Europe and America’s largest financial institutions also participated in the meeting to discuss the formulation of the ECX contracts for EU carbon dioxide emission allowances – the first quoted and cleared products for European emissions contracts. ECX products will include both futures and cash contracts in ECX Carbon Financial Instruments (ECX CFI).
Peter Koster, chief executive of ECX said, “This is an historic moment for the EU ETS. We have had all the key European emitters and traders together in the same place to discuss and refine the ECX offering with the intention of going live with the ECX CFI futures contract before the end of the year. ECX contracts will provide what the market needs – primarily liquidity, price transparency, limited counterparty risk and effective regulation. We are looking to refine and add to that following our meeting.”
A company that trades an ECX CFI contract will be able to demonstrate clearly to its stakeholders and regulators that it has obtained a true market price – a distinction that Koster believes is absolutely vital for industry and a key distinction for ECX. “We plan to offer straight through processing to the national registries of each EU member state thus easing the reporting burden on industry as it reports its ETS trading activities,” he said. It is also intended that the contracts will be cleared by LCH.Clearnet Ltd to provide counterparty risk guarantees.
The ECX products will trade on the London-based International Petroleum Exchange (IPE), offering for the first time a pan-European platform for greenhouse gas emissions trading with standard contracts and clearing guarantees. Each ECX CFI will be based on emission allowances issued under the EU’s Emission Trading Scheme (ETS). The ETS is a market-based regulatory mechanism designed to help scale back carbon dioxide (CO2) emissions within the EU to pre-1990 levels by 2012. For the first phase of ETS, emission allowances come into effect from 1 January 2005 for 12,000 energy and industrial installations that account for 46% of the EU’s CO2 emissions.
The agenda for the combined financial and industrial committee meeting included the ECX CFI contract outline, the electronic interface towards the International Petroleum Exchange, delivery and settlement of ECX CFI contracts and links to national registries of carbon emission allowances.
Koster concluded, “I should stress that this is not an exclusive club, we will continue to welcome all emitters and traders to join our committees and help ECX deliver the right instruments to the market”