Climate Exchange trading soars, expands overseas

Climate Exchange owns, operates and develops exchanges to facilitate trading in environmental financial instruments such as emissions reduction credits. Its two main businesses are the European Climate Exchange (ECX), which mostly trades compliance permits under the European Union’s Emissions Trading Scheme, and the Chicago Climate Exchange (CCX), which predominantly trades unregulated voluntary emissions reduction credits.

First-half trading volumes on the ECX gained 250% from year-ago volumes, while volumes on CCX advanced almost 400% in the same period, the company said. “Everything is developing according to what we were expecting,” said Morgan Stanley analyst Luciano Diana, who views Climate Exchange as the largest pure-play exchange in the fast growing carbon market.

“Its true value lies in the US, where I have almost no doubt there will be a proper carbon trade market beyond 2012.” He has a neutral recommendation on the stock and a price target of 1900 pence. Climate Exchange shares rose 2% to 1795 pence at 0950 GMT. Still, in a March note, Diana expressed doubts over CCX’s long-term potential. “Despite the growth, we doubt that CCX will ever become the de facto US emissions exchange, because of its voluntary nature and the risk of cannibalization from a federal scheme,” he said at the time.

In February, Bank of America pulled out of an agreed joint venture with CCX and said it was no longer obliged to buy 500,000 tons of carbon on the exchange over three years. Voluntary credits trading on the CCX closed around $4 per ton of carbon dioxide on Tuesday. The ECX, on the other hand, is dominating trading in EU permits (EUAs) last month, capturing some 90% of European exchange-traded volumes. Benchmark EUAs for delivery in December 2008 CFI2YZ8, trading on the ECX, were trading at €26.00 ($41.37) a ton on Wednesday, down 1.2%.

 
OVERSEAS

Overseas, trading in Canadian carbon credits began at the Montreal Climate Exchange, a joint venture CCX struck with the Montreal Exchange. In India, trading in EU permits and UN-approved emissions offsets commenced at the Multi Commodity Exchange. Climate Exchange said it is also in “ongoing discussions” for opportunities in China. Carbon credit trading forces firms to cut their greenhouse gas emissions linked to global warming by an amount that then becomes legally binding. If they cut emissions below their targets, the companies can sell the excess credits to other firms that are polluting above their limits. (Reuters)