Emissions trading

1
Emissions trading
30 April 2003
2
Outline

• The EU scheme
• Timetable
• Participants
• How it works
• Prices, volumes
• Example of a trade
• Other schemes
• Major players
• Contacts

3
Whats the point of emissions trading?

• Governments have committed to cut ghgs under the
  Kyoto Protocol.
• Emissions trading is a financial tool to help
  bring down the cost of those commitments.
• It is meant to be environment-neutral, business
  friendly.
• It will affect all Platts industries and
  subscribers.

4
EU scheme - timetable

• Still under negotiation in the EU, could be
  significant changes before adoption.
• Should be adopted summer 03.
• To start on 1 Jan 2005
• First phase 2005-2008
• From 2008 linked to Kyoto Protocol ets.

5
EU scheme - participants

• Mandatory for 5,000 installations
• All power generation over 20MW
• (including on-site, eg pet chem plant)
• Oil refineries
• Coke ovens
• Metals minerals
• Glass concrete
• Paper Pulp

6
N.B.

• EU to take in 10 new countries in 2004. EU
  emissions trading scheme will expand to draw them
  in, possibly not from the start (1 Jan 2005).

7
EU scheme how it works

• This year Govs to submit allocation plans (March
  04)
• Next year EC to check theres a level playing
  field (summer 04).
• Participants allocated emissions allowance by
  start date.
• Each year participants must demonstrate
  compliance.
• If they emitted less, they can sell surplus
  allowances.If they emitted too much, they must
  buy allowances.
• Fine for non-compliance (ceiling on
  market)40/t CO2 in first phase, 100
  thereafter (2008)

8
Contracts, prices, volumes

• OTC forwards and spots, tonnage, price/mt CO2 (?
  C), vintage eg 2007
• McKinsey 2003 5/mt CO2
• 2005-6 10
• 2008 25

9
Prices, volumes II

• Point Carbon poll of most active traders,
  analysts and company officials in March-April 03.

10
Example of a trade

• First ever trade on EU scheme
• Shell-Nuon, 27 Feb
• Forward trade, delivery 2005
• Volume?
• Price - 5/mt CO2
• Renegotiation clause if the EU scheme is dropped
  or changes considerably.

11
Other schemes

• EU scheme not the only one
• UK (voluntary, 2002-2007. Power sector excluded)
• Denmark (mandatory, power sector only, to end
  soon)
• Norway (poss., in line with EU scheme)
• Sweden (poss., to start this year)
• Japan (pilot phase)
• Chicago Climate Exchange (voluntary, to start 1
  June)
• Non-ghg emissions, eg Shipping emissions, links
  to green certificates, CHP certs.

12
Other schemes - Projects

• Demand NL, Jap, World Bank prototype carbon
  fund, etc.
• Supply Russia, Romania, Lat Am., SE Asia
• Links to trading UK, EU, KP (clean development
  mechanism).

13
Major players

• Brokers Natsource, Evolution Markets, CO2e, GT
  Energy, Spectron
• Companies BP, Shell, Ineos Fluor, Dupont, Corus,
  UK Coal, all power generators

14
Contacts

• When calling market contacts, ask for environment
  trading desk, names, numbers and pass to me to
  add to Platts database.
• Thank you.