Green Exchange soon takes root
A star-studded cast of energy and environmental brokers and investors is launching a new exchange for trading credits that offset the greenhouse gas emissions that cause global warming.
The Green Exchange is expected to sharply expand the fast-growing market for trading greenhouse gas and renewable energy credits, says Peter Fusaro, chairman of consulting firm Global Change Associates.
The exchange will start in next year's first quarter. Its partners are NYMEX Holdings, parent company of the New York Mercantile Exchange, the world's largest energy exchange; Evolution Markets, the biggest broker of environmental credits; and investment banks including Morgan Stanley, JPMorgan, Credit Suisse and Merrill Lynch.
"You have the largest energy exchange partnering with the largest environmental brokers," Fusaro says.
Today, countries that ratified the Kyoto treaty have agreed to cut their emissions of greenhouse gases, such as carbon dioxide. European countries have adopted a cap-and-trade system that limits carbon emissions by utilities and industries, with companies that exceed their cap buying allowances from those that fall under their limits. Many of the trades take place on the European Climate Exchange.
But the U.S. has not joined the Kyoto treaty, so the market for trading carbon credits is voluntary. For example, a corporation can offset the greenhouse gases it produces by purchasing carbon credits, or offsets. Such credits can help subsidize the planting of a forest, for example, which removes carbon from the atmosphere.
Many banks and other investors are eager to invest in carbon offsets because Congress is expected to impose a cap-and-trade system in the United States after the 2008 election. That's expected to boost the price of U.S. credits from $2 to $5 per ton of carbon to $30 to $50 a ton.
Today, trades are typically completed on the Chicago Climate Exchange or by brokers, such as Evolution Markets. The Chicago exchange, however, handles a relatively small volume for traders, who must be members, and no third party guarantees their quality, Fusaro says. Evolution, meanwhile, cannot assure the credit-worthiness of buyers and sellers, says company President and CEO Andrew Ertel.
The Green Exchange will provide a clearinghouse that alleviates both concerns. It also will handle a much wider array of products, including European allowances, voluntary U.S. pollution offsets and renewable energy credits, which help subsidize wind farms or solar plants.
The exchange will list products on the vast CME Group Globex computer platform, which is used by banks and institutions to trade agricultural and energy products, allowing them to easily participate in the new exchange.
Uniting big energy brokers "will create more emission reductions at lower prices," Ertel says.
The U.S. market for voluntary credits is $100 million a year, but the worldwide market for carbon allowances is about $60 billion.
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