Trade in UN-approved carbon emission offset credits under the Kyoto Protocol is quickly becoming mainstream as exchanges looking for a piece of the action rush into the still nascent market.
The Clean Development Mechanism, a trading scheme under the United Nations' Kyoto Protocol, allows rich nations to invest in clean energy projects in developing countries and in return receive Certified Emissions Reduction (CERs) which they can sell for profit or use to meet emissions targets under Kyoto.
Trade in CERs more than doubled to $13 billion last year, according to a World Bank report published earlier this month. This year marks the beginning of Kyoto's first commitment period, which runs to 2012, as well as the first year that CERs will be used towards compliance targets.
Launching their own CER futures contract on June 2, France's BlueNext, a joint venture between NYSE Euronext and Caisse des Depots, will join a crowd of exchanges vying for market share. London's European Climate Exchange, Norway's Nord Pool, Germany's EEX, India's NCDEX and the US's Green Exchange and Chicago Climate Exchange have all launched their own CER futures in the past year. Contracts settle in December of each year.
Dutch exchange Climex also trades CER spot contracts, and a slew of brokers offer over-the-counter CER trading for clients. CER prices, which are closely linked to European Union Emissions Trading Scheme credits (EUAs), have gained nearly 25 percent since January.
CERs for delivery in December 2008 closed at a 5-month high of 17.68 euros a tonne on Wednesday, according to the Reuters CER Index, which takes into account both broker and exchange prices. Much of this rise can been linked to higher oil and gas prices, though a downward revision by the UN of CER supply over the next five years coupled with a devastating earthquake in China that may have damaged several CER projects may have also altered market fundamentals, said Emmanuel Fages, a carbon analyst at investment bank Societe Generale.
Fages said forecast demand also looks to increase with the inclusion of CER importing into a prospective US carbon emissions trading bill, going before the Senate next week. "The revised version of the Lieberman-Warner climate bill - which aims to set a cap and trade system to cut US carbon emissions 70 percent by 2050 ... could boost CER demand by 250-300 million a year in the US alone," Fages said in a report. CERs are also increasingly being used as voluntary offsets for companies looking to cut their carbon footprints.
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