Emissions Trading: The Role of the Financial Market

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Emissions Trading The Role of the Financial
Market Anthony Collins General Manager
Emerging Markets
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Australias ETS

• Key design principles
• Cap trade
• Short term emission reduction targets
• Maximum coverage of greenhouse gases and sectors
• International linkages
• Emission intensive trade-exposed industries
• Lessons from the EU ETS
• Over-allocation
• Reporting
• Free allocation vs auctioning
• Stand-alone registries

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Role of Financial Markets

• The role of the financial markets in Australias
  ETS is to facilitate
• liquidity
• price discovery
• risk transfer
• clearing and settlement of trades.

Forward/ Swap (OTC)
Spot
Futures
Clearing Settlement
The forward price curve the marginal cost of
abatement
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Liquidity Gravitates to the Forward Markets
Futures
Spot market
OTC

• 4 - 41m CO2 t
• PowerNext (31.4m)
• EEX (8.4m)
• EXAA (0.3m)

• 45 - 456m CO2 t
• ECX (452.8m)
• EEX (1.8m)

51 - 604m CO2 t
EU ETS Trading Scheme 1,101m C02 tons (2006)
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Emissions Trading Volumes
Source World Bank State and Trends of the
Carbon Market May 2007 Source Point Carbon
estimates for 2007
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The EU Emissions Trading Scheme
Reporting issues
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Indicative Value of Issuance
Assumption Carbon price A 30 tonne
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Australian Electricity Futures Options
Electricity Futures Options Volume
Electricity Futures Options Open Interest
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Managing Carbon Risk?

• Measure carbon foot-print (Scope 1, 2 and 3)
• Understand reporting obligations/ ETS liabilities
  ( opportunities)
• Sensitivity analysis what if the price goes to
  45 per tonne?
• Understand options available to manage risk
• Exchange/ OTC
• Intermediaries
• Abatement
• Offsets
• Three diverse examples
• NSW coal fired electricity generator
• CDM project owner
• ASX Ltd