SFE & State Forests Of NSW To Develop World's First Carbon Trading Market

The Sydney Futures Exchange (SFE) and its subsidiary, the New Zealand Futures and Options Exchange, have signed a Memorandum of Understanding with State Forests of New South Wales to develop the world's first exchange-traded market for carbon sequestration credits. Carbon sequestration credits are generated by trees absorbing carbon dioxide (CO2). Once purchased, the credits give the buyer the opportunity to offset carbon emissions. Trading of these carbon credits is expected to commence at SFE in mid-2000. Trading would be consistent with Article 3.3 of the Kyoto Protocol to the United Nations Framework Convention on Climate Change. Article 3.3 recognises sequestration of carbon by newly planted forests as an offset to greenhouse gas emissions. The carbon trading market will be developed initially by SFE in association with State Forests of NSW through a carbon trading implementation working group. The NSW Treasury and Cabinet Office will also contribute expertise to the group. Mr Leslie Hosking, SFE Chief Executive, said: "SFE can create a carbon trading market that is truly global. We have a distribution network that taps into the world's major trading zones and the ability to source supplies of carbon credits from a range of countries including Australia, New Zealand and the United States. "There is growing interest from many companies around the world in finding ways to manage their potential emissions risk. By establishing an exchange-traded market for carbon credits before the Kyoto Protocol comes into force, SFE can provide organisations with an early opportunity to lock in a financial position and secure a competitive advantage." Dr Bob Smith, CEO of State Forests of NSW, said: "State Forests is firmly committed to developing new business opportunities in environmental products and services related to forests. We see our future role increasingly as a service provider facilitating investment in forests to produce a range of environmental products, including carbon credits and green energy, as well as traditional forest products. "Trading in carbon credits is a new market for the 21st century. I believe we will increasingly see the environmental benefits of forests becoming their primary commercial asset. Similar environmental markets could be established for the role of forests in salinity control and land repair." The proposed carbon trading market would be open to all interested participants, from small landowners through to large forestry companies. Domestic and international forestry specialists, such as New Zealand's Forest Research Institute and Roger Dickie NZ Limited, will contribute to the evaluation, design and validation of the market. The carbon sequestered by Kyoto-consistent forests would form the underlying commodity traded. Each unit traded would be electronically serialised and denominated in one metric tonne of CO2 equivalent. Buyers could purchase these credits as a hedge in a future emissions trading market or bundle them with product sales to create emissions-free products. The integrity of the market would be underpinned by transparent carbon accounting, an open carbon standard, ongoing verification and independent certification processes. It is expected that price discovery will be a key benefit of a carbon trading market. This will assist companies and governments in their investment and policy-making decisions leading up to the commencement of the Kyoto target period of 2008 to 2012. The establishment of a carbon trading market will stimulate the planting of trees which in turn has a number of positive environmental outcomes in the areas of reduced soil salinity, improved water quality and enhancement of biodiversity. Realising the potential of carbon sequestration through a trading system would provide a source of emissions credits that would ultimately reduce the costs to countries of meeting their Kyoto commitments. This will lessen the economic impact of the Kyoto Protocol while achieving sound environmental outcomes. For further information please contact: Mr Leslie Hosking, Chief Executive and Director, Sydney Futures Exchange Limited, Tel: +61 (0)2 9256 0555, Fax: +61 (0)2 9256 0666, Website: www.sfe.com.au. Australasian Emissions Trading Forum website: www.aetf.net.au. Mr Bill Frew Manager, Public Affairs, State Forests of New South Wales, Tel: +61 (0)2 9980 4568, Fax: +61 (0)2 9980 7010, Website: www.forest.nsw.gov.au.