CO
2
Emissions–ANewAssetClass
ForInstitutionalInvestors
“Icancertainlyseecarbonbecomingthebiggestofanyderivativesproductinthenextfourtofiveyears.And
thatwouldofcoursemeanovertakingT-Bills(Treasury)andanyothercontractthatisoutthererightnow.”
BartChilton,Commissioner,CFTC, Financial Times,March2008.
ByEurex
C
arbon emissions trading is an important and efficient (20.9%), the Netherlands (11.1%) and Japan (10.8%). As of
instrument to limit greenhouse gas (GHG) emissions. 11
th
May2009,atotalof1,613CDMprojectswereregisteredat
TheEuropeanUnionEmissionTradingScheme(EUETS) theUNFCCC,withanother2,587projectsinthepipeline.Over
waslaunchedinJanuary2005aspartoftheKyotoProtocolon 70% of the projects registered are located in Asia-Pacific –
climatechange.In2008,itgrewrapidlytoatradingvolumeof principallyinIndiaandChina–withChinaaccountingforthe
3.1 billion tonnes of CO
2
allowances (market value €67 bn), largest share (33.5%). Brazil currently accounts for around
withonetonneofCO
2
representingoneEUA.
1
10% of worldwide registered CDM activity. In terms of issued
TheETSisregardedastheworld-widereferencesystemfora credits from CDM projects, China is far ahead of all other
standardised emissions trading system in an overall global countrieswithashareof58.8%.
5
emissionsmarketof4.9billiontonnesofCO
2
.
2
Tradingvolume
andtradingfrequencywithintheEUETSisexpectedtofurther CurrentMarketDevelopments
increase significantly within the second trading period, 2008- A sign of the growing maturity and importance of the CO
2
2012,andinpreparationofthethirdtradingperiodpost2012. emissionsmarketasanewassetclassarethegrowingnumber
All EU Member States can auction up to 10% of their carbon of indexes covering this specific market. In April 2008, Merrill
allowance credits for Phase II of the EU ETS cap-and-trade Lynch and Société Générale launched emissions indexes on
scheme whereby polluters buy credits to offset emissions EUAs and CERs, the MLCX Global CO
2
Emissions Index and
beyond the caps established by EU regulators and institutions the SGI-Orbeo Carbon Credit Index. Barclays Capital (the
thatdonotrequirealltheirallottedcreditscantrade...thatis, Barclays Capital Global Carbon Index) and UBS (the UBS
sellthem. World CO
2
Emissions Index) have also launched emissions
NexttoEUAs,CertifiedEmissionReductions(CERs),tradable indexes. These indexes will provide the base for the
instruments generated from Clean Development Mechanism constructionofstructuredproductsonemissionsmarkets.
(CDM) projects, are currently emerging as the international As emissions trading has increased, a number of carbon
currencyintheglobalcarbonmarket.Afterreachingatrading funds have emerged, with many new entrants from both
volume of 1 billion tonnes in 2008
3
in the secondary CDM developed and developing countries. These have financed
credit market, estimates are that the market will reach 2.9 variousCO
2
emissionprojectsindevelopingcountriesandthe
billiontonnesofCO
2
by2012andbeworth €41billion.
4
generation of large amounts of CERs – although the
TheUKiscurrentlytheleadinginvestorinCDMprojectswith cumulative capital secured has steadily slowed in comparison
nearly 30% of projects, closely followed by Switzerland to the increase in number of vehicles (Figure 2). A few factors
include:
Figure1: ProjectedGrowthoftheCERMarket
•
DecreaseintheEUA/CERspread.
•
Decreasingnumberofprojectsresultingin
adecreasingnumberofcredits.
•
Increaseinriskpost-2012.
There also exists a plethora of investment
fundsrelatedtotheinvestmentincompanies
and industries involved in the mitigation of
and adaptation to climate change – the F&C
Global Climate Opportunities Fund, Schroder
Global Climate Change UK Unit Trust,
Schroder ISF Global Climate Change Equity
Luxembourg SICAV Fund, Cowen Asset
Management Climate Change Fund and
Henderson Global Investors’ Global Care
Growth Fund, for example. Notwithstanding
the downward revisions of the CDM/JI
Source: UNFCCC
markets, due to a lack of clarity on the post
106 worldPower2009
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