Carbon Credit pricing in praxis

Transcription

1 Carbon Credit pricing in praxis KfW experiences in the EAU and CER/JI market Potsdam, 04 October 2012 Nils Medenbach Bank aus Verantwortung

2 Inhalt 1 EUA Exchange Trading 2 CER / ERU Primary Market Trading 3 Stabilizing the Market (brain storming) 2

3 EUA Exchange Trading

4 OTC trading versus Exchange trading Over the counter trading: Flexibility in agreeing on conditions (especially price and delivery date) Less transparent, less surveillance Liquidity risk and contractant risk Exchange based trading: Standardized trading rules Known trading, clearance and surveillance systems Increased security due to accreditation process Established supervision structure, reporting and publishing duties Complex infrastructure for reduction of contractant risk Anonymous trading 4

5 Trading activities EU ETS Market segments similar to other commodity markets: Spot and Future trading Future market has by far the largest share in EU-ETS trading (app. 90%). Until end of June 2012 the total traded volume in the future market was app billion EUAs Source: ICE, BlueNext, GreenX, KfW, DEHSt Monthly trading volumes during second trading period Only 2.2 billion EUAs were traded in the spot market (not counting OTC) 5

6 KfW EUA trading on behalf of the German Government Future Trading 2008 beginning only futures trading possible due to lack of complete registration infrastructure Divergence from secondary market price between -1.8 and +3.8% In 90% of trades the divergence was between -0.5 and +0.5% Trading volumes in futures market and ratio of German sales volumes via KfW Average KfW sales price and ICE Emissions Index (Future) 6

7 KfW EUA trading on behalf of the German Government Spot Trading Spot trading from 2009 onwards due to delay in registry linking Average daily sales volumes app EUA (incl. futures) Analysis of volumes and prices indicates that there was no significant impact on the market in either spot or futures market Trading volumes in spot market and ratio of German sales volumes via KfW Average daily sales price of KfW and BlueNext spot settlement price 7

8 KfW EUA trading on behalf of the German Government Futures Auctioning Standardized procedure with one round of bidding Prices develop along secondary market KfW sales at % of total traded volumes Trading volume in futures market and ratio of German auctioning via KfW Auctioned price and ICE Emissions Index (Future) 8

9 KfW EUA trading on behalf of the German Government Spot Auctioning Prices develop along secondary market Due to reduction of spot trading activities, the ratio of KfW auctions is significantly higher than in the futures market Still analysis shows no significant impact on prices and volumes either in spot- or in futures market Trading volume in spot market and ratio of German auctioning via KfW Auctioned price and BlueNext Settlement Price (Spot)) 9

10 Conclusions Efficient and reliable trading system: Almost 100% availability Flexible systems require little adaptation to existing trading platforms Efficient clearing and risk mitigation Efficient surveillance and control mechanisms: Proven control and surveillance structures from Government side and within the exchange High level of acceptance for the new trading instrument among market participants Efficient pricing mechanism: Essentially no pricing mechanism required in the auctioning approach 10

11 CER / ERU Primary Market Trading Bank aus Verantwortung

12 KfW Trading Activities Funds and purchase programmes KfW Carbon Fund Contracting period: Value of delivered credits: EUR 42 mil expected credits: EUR 17.8 mil EIB-KfW Carbon Programme II Contracting period: Value of delivered credits: N.A. expected credits: EUR 50.8 mil EIB-KfW Carbon Programme Contracting period: Value of delivered credits: EUR 14.9 mil expected credits: EUR 13.4 mil Belgian Carbon Purchase Programme COntracting period: Value of delivered credits: EUR 8,8 mil expected credits: EUR 6.9 mil 12

13 CER / ERU Primary Market Spot vs. Forward trading Primary Spot Primary Forward / Futures Direct OTC trading or tendering of issued CERs / CERs near issuance Pricing based on secondary market index (discount) No mitigation systems for contractant risk Incomplete spot due to transaction time (app. 2 months for contracting and delivery) Long term offtake agreement at fix price or index linked floating price Pricing based on secondary market index (discount) Contractant risks, delivery risks, registration risks, project risks etc. Usually payment on delivery (advance payment or coverage of transaction cost models possible) Long term contract management requirements 13

14 Primary market Pricing mechanism theoretically Fix price CER future as binding forward contract for delivery of CERs at an agreed date and pre determined price The fair forward price is determined by: Current CER Sport price Interest until delivery date Management costs Risk dividend (including risk) Availability 15,00 12,50 10,00 7,50 5,00 CER Forward Kurve scer The actual valuation of CER forwards results from published prices of trades in the market The CER forward graph shows the fair forward price of CERs with different delivery due dates 14

15 Primary market Pricing mechanism in praxis Negotiation process Contract price and terms depend on negotiation strength and relationship with counter party Asymmetric information Market knowledge Other market participants Project performance / risks Market distortions Complex price structures Valuation of fix prices / floors, early payment models, take over of transaction costs etc. depends on individual risk perception Competition and speculative bidding Incomplete pricing in of risks due to competition Race towards index price (for post 2012 sometimes above) Chinese floor pprice 15

16 Primary market pricing Conclusions Evolution of the market over time: Initial low level of market knowledge and transparency led to great price variations Rising level of information and competition led to decreasing spread between primary purchase price and secondary index Lack of transparency due to politically influenced market development: Huge discrepancy in analyst s market assessment Diverging / contrary market expectations by sellers and buyers Incomplete or no pricing-in of project risks and management costs Strong price competition does not allow for sufficient spread to cover risk dividend and management costs realistically No true risk coverage provided in most cases! 16

17 Stabilizing the Market (brain storming) Bank aus Verantwortung

18 Options for market stabilisation How to solve the demand dilemma in EU ETS Fixed price corridor: setting floor and cap price levels as boundaries Leads to strong fluctuations and technical pricing (low risk perception when nearing minimum price; low dividend expectation when approaching cap price) How to guarantee the minimum price in an open market environment (OTC)? The Central Bank of Carbon Interest rate as most important control tool of a central bank is absent Contolling the auctioned volumes is only a makeshift solution for politically set reduction targets Scarcity is defined by political decision, not by carbon central bank 18

19 Contact KfW Carbon Fund Nils Medenbach Senior Project Manager KfW Bankengruppe Palmengartenstrasse Frankfurt am Main Telefon/Phone Telefax/Fax nils.medenbach@kfw.de 19

20 Vielen Dank für Ihre Aufmerksamkeit Bank aus Verantwortung