Canada’s derivatives exchange in Montreal has begun trading the country’s first carbon dioxide equivalent (CO2e) contracts. The newly established Montreal Climate Exchange (MCeX) developed the product together with the Chicago Climate Exchange in the US. The CO2e units can be traded by industrial companies to reduce greenhouse gas emissions. The listing of the MCeX futures contract is a ‚Äòfirst’ and it makes Montr√©al the first regulated environmental market in Canada.
“We aim to build a critical mass of trading activity in Canadian carbon futures,” said Luc Bertrand, President and CEO of the Montreal exchange. Parties that are listed as market makers include Orbeo, TD Securities Inc., TradeLink LLC., CantorCO2e, Carbon Capital Management, Ogilvy, Renault LLPm Securities Inc. and Deloitte & Touche LLP.
Investors are offered a first of its kind product which integrates international emissions trading and is regulated by a new federal regulatory framework. It is hoped that the new market establishes a sensible price mechanism which valuates a tonne of carbon in a fair way for companies investing in green infrastructure. Additionally, traders can expect standard contracts, a good level of transparency and liquidity and clearing services.
The market brings together a variety of participants, including large regulated emitters, investors in voluntary emissions reduction projects, financial institutions, institutional investors, hedge funds and insurance companies.
The Montreal Climate Exchange complements various other international climate exchanges, notably the Chicago Climate Exchange, with whom it partners, the Chicago Climate Futures Exchange, the Green Exchange in New York and the European Climate Exchange. Of these platforms, most activity takes place on the European Climate Exchange, because of the mandatory carbon offsetting regime in the European Union.
Most of the international carbon exchanges are just getting out of the entrepreneurial stage as large investors are beginning to throw about their weight. According to recent research into the competition between international carbon trading exchanges by Verdantix.com, the competitive landscape is dramatically going to change this year.
But the analysis firm contradicts those that believe massive consolidation is about to take place, despite some landmark acquisitions recently. “Compared to previous years, a flurry of investments by heavyweight exchange operators such as NYMEX and NYSE Euronext has transformed an entrepreneurial market into a battle ground between well-funded market leaders“, Verdantix says. This is due to the participation of big investment houses like OMX NASDAQ in Europe and NYMEX in the US.
These big boys dwarfed the previous main market makers like Powernext (now Bluenext) and Nord Pool, which introduced carbon emissions financial instruments based on European contracts. Rather than immediate consolidation, the market likely will experience two years of intense activity and increased competition will be seen especially in EUA¬¥s and CER contracts, Verdantix says. The smaller parties such as Bluenext are expected to become specialists, says Verdantix.