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A survey of carbon exchanges

Date 29/10/2008

Eric Bettelheim and Gregory Janetos[1]
Sustainable Forestry Management Ltd

The growth in carbon exchange trading activity has mirrored that of the carbon market as a whole. Five years ago, only the Chicago Climate Exchange was actually trading and it was, and remains, a wholly voluntary market. Today there are some 19 carbon exchange initiatives, 11 of which are already trading. They are located in every major geographic region and vary from simple matching of buyer and seller (Australian Climate Exchange) to auction markets (Asia Carbon Exchange) and from those limited to European Union Allowances (EUAs) and Kyoto Protocol Certified Emission Reductions (CERs) like the ECX, to those which will soon offer the full panoply of products from voluntary to mandatory and offer the full range of exchange services: trading, clearing and settlement.

The volume of transactions varies widely-driven, as would be expected, by underlying market activity. By far the largest volume is in EUAs and CERs, particularly CERs destined for the European Union Emissions Trading Scheme (EU ETS). The EU ETS, the world’s largest compliance market, represents some two-thirds of carbon market activity. Its dominance is reflected both in terms of volume and volatility. EU demand is quickly reflected in prices for EU-compliant exchange listed products. The structural flaws in the EU ETS are also quickly reflected in exchange traded prices. The revelation that the European Commission had issued too many emissions permits in Phase One of the EU ETS saw the collapse of EUA prices on the exchanges listing them. The recent announcement by the European Commission of its intention to curtail use of CERs in Phase Three (beginning 2012) had an almost immediate depressive effect on both prices and exchange activity. These are indications of healthy market functioning, even if also a manifestation of poor market regulation.

The regulatory behaviour of the Clean Development Mechanism (CDM) as ‘issuer’ of CERs similarly affects market expectations and behaviour. Recent analyses of the actual credit delivery of the projects it has approved, of the long delays in obtaining project approval, of the high costs of doing so and apparently arbitrary decision making, have similarly shown negative effects not only on exchange prices for CERs but also on the share prices of market participants, particularly CER aggregators, and on the shares of listed exchanges trading CERs. The exchange traded prices for CERs have also reacted to perceived differences in the quality of the projects underlying some CERs. The markets quickly distinguished between credits generated by destruction of the potent greenhouse gas trifluoromethane (HFC23) and those generated by energy-related projects, marking the HFC-based CERs down in price. This too is a healthy manifestation of the market function of differentiating prices based on perceived differences in quality of the underlying products.

Hedging activity, particularly between CERs and EUAs, has also emerged to some degree. The carbon market is still overwhelmingly an over-the-counter marketplace and will probably continue to be so for some time. This is a function both of its early stage of development and of the unstable nature of its regulatory regimes.

The Achilles heel of the markets is the uncertainty created by repeated political and regulatory interference. Both of today’s largest systems, Kyoto and the EU ETS, institutionalise this interference by carving up compliance into 5-year periods. This is clearly at odds with the need for long-term investment, measured in decades, to deal with global climate change. Markets cannot function efficiently either in accumulating and allocating capital, or in pricing and distributing risk, in such an environment. Until the regulatory framework becomes much more stable, through the adoption of stable long term emission abatement goals, and the regulatory environment becomes much more professionalized, price volatility on exchanges will remain too high and volumes are likely to remain too low for effective hedging of large scale investments. The role of large scale financial institutions, as both structurers of products and distributors of risk, is likely to remain dominant until these structural issues are addressed.

The rapidly growing voluntary market, now almost entirely OTC outside the United States and significantly so there too, is showing signs of acting as a market leader in product design and as an indicator of future demand. For example, the dominance of forest project credits in the voluntary market is in striking contrast to their virtual absence in the regulated sector. Recent efforts of current regulators, such as the UK’s Department for Environment, Food and Rural Affairs (DEFRA), have failed to address this reality. The continued delegation of carbon market regulation to environment ministries, which have thus far dominated the political and regulatory debate, needs to be overcome if what are, after all, financial markets and products are to prosper. Such ministries and bodies – DG Environment in the EU and the Executive Board of the CDM – have no experience and no expertise either in capital investment or in financial market regulation. The effect of this on exchange and market development as whole has been, and continues to be, retrograde.

The carbon exchanges, like the carbon market as a whole, are clearly still at an early stage of development and reflect the remaining political uncertainties in the climate change debate. Nevertheless, they are already beginning to function as centres of price discovery and dissemination and will, inevitably, grow in size and complexity as those uncertainties are reduced. The key question as to their relative success, liquidity, will no doubt remain unanswered for some time. As can be seen from the survey below, there is already healthy competition between exchanges to become key centers of liquidity. There is, however, a competitive advantage for those exchanges in countries where the over-riding legislation sets clear long-term emissions reduction goals and those with stable and professional regulatory regimes, such as those in the UK, Australia, New Zealand and the United States.

List of carbon exchanges


  • European Climate Exchange
  • OMX Nordic Exchange
  • EEX – European Energy Exchange (Eurex)
  • EXAA – Energy Exchange Austria
  • Bluenext – (formerly Powernext) (NYSE Euronext and Caisse des Depots)
  • Climex (Amsterdam)
  • Climate Spot Exchange (London)

North America

  • CCX – Chicago Climate Exchange
  • The Green Exchange (NYMEX)
  • CCE – Canadian Climate Exchange (Winnipeg Commodities Exchange)
  • MCeX – Montreal Climate Exchange
  • Toronto Stock Exchange

South America

  • Brazil Mercantile Futures Exchange
  • Asia

    • MCX – Multi Commodity Exchange of India
    • HKEx – Honk Kong Stock Exchange
    • ACX – Asia Carbon Exchange (Singapore)
    • Beijing and UNDP Exchange
    • Tokyo Stock Exchange Group and the Tokyo Commodity Exchange


    • Australian Climate Exchange


    Climate Spot Exchange (CSE)

    The CSE provides a spot market for emissions allowances. It is scheduled to commence trading of European Allowances (EUAs) in the first quarter of 2008. It will also provide a platform for trading spot Certified Emission Reductions depending on the UNFCCC delivery system and the International Transaction Log (scheduled for second quarter 2009).

    Ownership: Subsidiary of Climate Exchange plc

    Products: Spot contract for European Allowances (EUAs)

    Spot contract for Certified Emissions Reductions (CERs)

    Clearing: Euroclear Bank

    European Energy Exchange (EEX)

    The EEX provides a spot and futures market for European Allowances as well as a futures market for Certified Emission Reductions. In 2008, the exchange will also offer options on EUA futures.

    Ownership: Majority owned by Eurex Zurich AG (23.22%), Nord Pool ASA (17.39%) and Sachsen LB (17.39%).


    EUA futures

    Options of EUA futures (2008)

    CER futures (1st quarter 2008)

    Clearing: European Commodity Clearing AG or Eurex Clearing AG

    Volume: A total volume of 22.7m EUAs traded on the EEX Spot and Derivatives Market in 2007, a 94% increase over the 2006 level of 11.7m.

    European Climate Exchange

    Ownership: ECX is a member of the Climate Exchange Plc group of companies. Other member companies include the Chicago Climate Exchange (CCX) and the Chicago Climate Futures Exchange (CCFE). Climate Exchange Plc (CLE) is listed on the AIM market of the London Stock Exchange.

    Products: ECX Carbon Financial Instrument (CFI) futures contract ECX CFI options contract

    Trading platform: ICE Futures Europe

    Clearing: LCH.Clearnet

    Volume (ECX CFI futures): Year Volume
      2005 94.3m
    2006 452.m
    2007 980.8m
    2008 120.9m

    Energy Exchange Austria (EXAA)

    Provides a platform for spot market trading of European Allowances through a weekly auction process.

    Ownership: Consists of 12 shareholders, the largest two of which are APCS Power Clearing and Settlement AG (34.55%) and Wiener Börse AG WBAG (25.12%)

    Products: EUA Spot

    Trading platform: EXAA internet platform

    Clearing: EXAA

    Volume: A total of 185,773 EUAs traded in 2005 (trading commenced 28 June 2005), 308,825 EUAs traded in 2006, and 275,163 EAUs traded in 2007. Trading to 31 January 2008 totalled 15,000 EAUs.

    Nord Pool

    Nord Pool provides trading, clearing and delivery of European Union allowances (EUA) and for Certified Emission Reductions (CER) for the whole Kyoto period. Nord Pool was the first exchange in the world to list EUA products.

    Ownership: OMX Nordic Exchange bought Nord Pool’s carbon derivatives businesses in December 2007.

    Products: EUA forwards

    EUA spot

    CER forwards

    Trading platform: PowerCLICK electronic trading system

    Clearing: Nord Pool Clearing. Clearing services are also provided for OTC transactions.

    Volume: The total volume of traded and cleared EUAs and CERs in 2007 was 95.1m tonnes compared to 59.6m tonnes in 2006, up 59.7%. The value of traded and cleared contracts in the emissions market was EUR1.6bn compared to EUR1.1bn in 2006. This makes Nord Pool the second largest market place for emission allowances and emission credits in Europe.


    Bluenext will initially operate a spot market in carbon dioxide emissions allowances, to be followed by a market in emission credits as soon as connections to international logs are operational. In the 2nd quarter of 2008, it will set up a futures market with physical delivery of allowances and credits. The new market is based on Powernext Carbon, which NYSE Euronext agreed to acquire from electricity trading company Powernext in December 2007.

    Ownership: 60% owned by NYSE Euronext and 40% by Caisse des Depots

    Products: EUA spot

    EUA futures (2nd quarter 2008)

    CER futures (2nd quarter 2008)

    CER spot (depends on operational international transaction logs)

    Trading platform: Global Vision (TRAYPORT)

    Volume: 31,448,000 tonnes of CO2 were traded on Powernext Carbon in 2006. Trading volume in 2005 (trading commenced 24 June 2005) was 4.3m tonnes. Average daily trading volume almost quadrupled between 2005 and 2006.

    Climex Exchange

    The Climex Exchange provides a cleared pan-European spot market for trading European Union Allowances under the EU Emissions Trading Scheme. It also provides bilateral spot and forward trading in Kyoto certificates, both CERs and JI. The exchange was launched by New Values in 2005. The Climex Alliance was formed to increase volume, liquidity, and transparency. It comprises regional partners throughout Europe: New Values (based in The Netherlands), SENDECO2 (based in Spain), (based in Hungary) and STX Services (based in The Netherlands).

    Ownership: New Values: Rabobank and TenneT Holding B.V.

    SENDECO2 – ROS ROCA S.A., Hera Group Ambiental, Grupo-GBI – Vertis Environmental Finance

    Products: EUA spot

    Auction services for CERs, JI and VERs (bilateral, not cleared)

    Clearing: APX Power Limited – UK

    APX B.V. – Continental Europe

    Trading platform: Climex


    Chicago Climate Exchange

    Chicago Climate Exchange (CCX), launched in 2003, is a voluntary, legally binding integrated trading system designed to reduce emissions of greenhouse gases (GHGs). The exchange provides for internal reductions by its members as well as for emission reductions generated from both domestic and international offset projects.

    Ownership: Climate Exchange Plc, a publicly traded company listed on the AIM of the London Stock Exchange (ticker CLE).

    Products: Carbon Financial Instrument (CFI). Each CFI represents 100 metric tonnes of CO2. CFIs are composed of Exchange Allowances (issued to emitting members in accordance with their emission baseline) and Exchange Offsets.

    CCX also provides auction services for issued CERs and for Exchange Offsets.

    Trading platform: CCX Trading Platform

    Clearing: CCX Clearing & Settlement system

    Volume (tCO2): 2005 – 1.4m

    2006 – 10.2m

    2007 – 22.9m

    The Green Exchange

    A partnership between the New York Mercantile Exchange (NYMEX) and Evolution Markets, an environmental brokerage, and will include trading houses Morgan Stanley, Credit Suisse, Tudor Investment Corp., JPMorganChase, Merrill Lynch, ICAP, and Constellation Energy.

    Contracts will begin trading during the first quarter of 2008. Transactions can be margined across The Green Exchange environmental product offerings and the NYMEX energy complex.

    The CFTC-regulated Green Exchange is expected to launch during the first quarter of 2009.

    Ownership: The Green Exchange is a stand-alone corporation

    Products: Carbon:

    Futures, Options, and Swaps:

    European Union Allowances (EUA)

    Certified Emission Reductions (CER)

    Emission Allowances under the Regional Greenhouse Gas Initiative (RGGI)

    Verified Emission Reductions (VER)

    Voluntary Carbon Units (VCU)

    US emissions: Futures, Options, and Swaps:

    SO2 emissions allowances under the US Acid Rain Program and Clean Air Interstate Rule (CAIR)

    NOx emissions allowances under the annual and seasonal Federal NOx Budget Programs and CAIR

    Renewable energy: Futures, Options, and Swaps

    Voluntary Renewable Energy Certificates (RECs) accredited under the Green-e standard

    RECs used for compliance under various state renewable portfolio standards (RPS)

    Trading platform: CME Globex

    Clearing: NYMEX ClearPort


    Three exchanges have announced plans to offer carbon related products. However, due to political and regulatory uncertainty in Canada, none of these exchanges has begun trading. In addition, the Toronto Stock Exchange and the Montreal Exchange have announced an intention to combine. The other, the Canadian Climate Exchange, owned by Intercontinental Exchange (ICE), was created in 2003 to explore and develop market-based solutions to climate change. It was the first such entity created by a regulated Canadian exchange.

    In December 2005, the Montreal Exchange and the Chicago Climate Exchange announced the formation of a joint venture creating the Montreal Climate Exchange to trade carbon futures contracts. In October 2007, The Montreal Exchange filed for regulatory approval of market rules to govern the trading of environmental products on the Montreal Climate Exchange.


    Brazil Mercantile and Futures Exchange (BM&F)

    The Brazil Mercantile and Futures Exchange operates an electronic platform to auction CERs registered under the UN’s Clean Development Mechanism. The auctions are regulated by Brazil’s financial regulator, the Comissão de Valores Mobiliários. The auctions are designed to bring together project developers and buyers of CERs. The exchange does not provide clearing or settlement services nor does it act as counterparty to transactions. Currently the exchange provides services for CERs issued by the CDM Executive Board. The exchange may offer futures or options on CERs in the future.


    Multi Commodity Exchange of India (MCX)

    The Multi Commodity Exchange of India Ltd. (MCX) entered into a strategic alliance with Chicago Climate Exchange in September 2005. The MCX offers services to project promoters in India for CERs and to financial and other players through access to the European Carbon Exchange.

    Products: ECXCFI Mini futures (linked to the European Climate Exchange)

    CER futures (to be offered in 2008)

    Clearing and settlement: MCX in-house

    Trading platform: MCX in-house

    Volume: began trading in January 2008

    Hong Kong Stock Exchange

    The Hong Kong Stock Exchange announced in January 2008 plans to develop carbon emission reduction products for trading in 2009.

    Beijing Exchange

    The Beijing Exchange, not officially announced, is to be set up as part of a carbon finance initiative agreed by the United Nations Development Programme with the Chinese Ministry of Science and Technology and the National Development and Reform Commission. Proponents of the exchange wish to have the exchange operational by the end of 2008. In addition to offering CERs, the exchange hopes to develop a carbon credit that is tied to the UN’s eight Millennium Development Goals.

    Tokyo Stock Exchange/Tokyo Commodity Exchange

    In January 2008 the Tokyo Stock Exchange and the Tokyo Commodity Exchange agreed to jointly study the formation of a domestic emissions trading market in Japan.

    Asia Carbon Exchange

    The Asia Carbon Exchange is an electronic platform which auctions CERs and VERs. Upon agreement of price, the buyer and sellers of the security complete documentation offline. The exchange takes a fee for arranging the transaction but does not stand in between participants nor does it provide clearing and settlement services.


    Australian Climate Exchange

    The Australian Climate Exchange (ACX) is an electronic platform which provides a marketplace for Verified Emission Reductions (VERs). Access to the exchange is through ACX approved brokers. At the point of transaction, the buyer and sellers of the security complete documentation offline. The exchange charges a fee for arranging the transaction but does not stand in between participants nor does it provide clearing and settlement services.


    1 Eric Bettelheim is Executive Chairman and Gregory Janetos is Head of Carbon Programs of Sustainable Forestry Management Limited