Market News IETA/IEA/EPRI Workshop Paris, September 22, 2008 Andrei Marcu, CEO, BlueNext
What is BlueNext? since 2005 Powernext Carbon 2008 BlueNext SA BlueNext is the environmental exchange with global ambition Two shareholders are committed to the long term success of BlueNext and will support the company in its future technical and financial developments 40% 60% 2
Lessons learnt from phase I Has the EU ETS delivered? Well functioning market Emission reductions CDM development Cultural change
Volume en MtCO2 The Start of Period II of EU ETS Exchange Vs. Brokers Trades made on secured platforms have increased continuously since 2005 especially on spot trading where 95% of contracts have been traded on exchanges in 2008 against 85% in 2007. Total volumes on European market (EUA) and breakdown between OTC and exchange trades 1 800 1 600 1 400 1 200 1 000 31% 38% 800 600 28% 400 200 0 24% 2005 2006 2007 2008 (août) Volumes Brokers Volumes OTC Clearing Volumes Ecran (bourses) Source: BlueNext from Reuters
Market shares The Start of Period II of EU ETS Spot Vs. Spot market has become more financial in the last months: more and more players are doing arbitrage between spot and futures contract. This is due to the increasing liquidity seen on the spot market and number of members on BlueNext Spot. In the actual context of financial crisis, investors try to diversify their investments. Carbon market, spot and futures, is a way to enlarge their product portfolio. Market Segmentation in 2008 on EUA markets 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Jan-08 Feb-08 Mar-08 Apr-08 May-08 Jun-08 Jul-08 Aug-08 Spot market market (Dec08) - Screen trades Source: BlueNext from ECX
Millions volumes breakdown by maturity On EUA market, volumes are concentrated on first delivery (December 2008). However, on CER market, volume breakdown is more homogeneous This can be explained by the fact that, on CER market, market players need to cover their total number of CERs whereas on EUA market, they only need to cover the difference between emissions and allocation. Réparition des volumes négociés par échéances (ECX) du 14 mars au 14 septembre 2008 800 700 600 500 400 300 200 100 0 Vol Dec08 Vol Dec09 Vol Dec10 Vol Dec11 Vol Dec12 Volumes EUA (ECX) Volumes CER (ECX) Source: BlueNext à partir d ECX
Jun-05 Aug-05 The Start of Period II of EU ETS Prices Oct-05 Dec-05 Feb-06 Apr-06 Jun-06 Aug-06 Oct-06 Dec-06 Feb-07 Apr-07 Jun-07 Aug-07 Oct-07 Dec-07 Feb-08 Apr-08 Jun-08 30 25 EUA Spot and prices ( /t) and volumes Growing Oil price Rumours on French Conection to ITL Moves in energy prices 20 15 10 5 0 Spot EUA 05-07 prices ( /t) Spot EUA 08-12 prices ( /t) EUA front settlement ( /t) Source: BlueNext, ECX
Jan-08 Jan-08 Jan-08 Feb-08 Feb-08 Mar-08 Mar-08 Apr-08 Apr-08 May-08 May-08 Jun-08 Jun-08 Jul-08 Jul-08 Jul-08 Aug-08 Market prices 30 29 28 27 26 25 24 23 22 21 20 19 18 EUA Spot and prices ( /t) and volumes Growing Oil price Rumours on French Conection to ITL Moves in energy prices Spot EUA 08-12 prices ( /t) EUA Dec08 prices ( /t) Source: BlueNext, ECX 8
Market Segmentation EUAs Traded Volumes (Mt) and Market Breakdown CERs Traded Volumes (Mt) and Market Breakdown Spot Exchanges 23 2% Exchange (Screen) 555 39% Spot OTC 1 0% OTC 263 19% Exchange (Screen) 89 30% OTC 42 14% Exchanges (OTCC) 578 40% Exchange (OTCC) 166 56% Source: Own calculations based on BlueNext and Exchanges Data
Main issues for post 2012 Most important issues in the EU proposal: Flexibility between ETS and non ETS sectors Coverage: gases, sectors, installations Community registry vs national registries Allocation Auctioning vs. free allocation, benchmarking Regulation on auctioning : how are auctions organized? Use of auction revenues (earmarking?) Use of offsets : quality & quantity Small installations Key word for phase 3 : harmonization
Additional «Elephants» in the room Post 2012 uncertainty : international negotiations & impact on EU ETS Effort : 20 30% reduction Countries with binding reductions? Countries & sectors CDM able Potential sectoral agreements
Domestic ETS Alberta 2,6 Mt CCX 25 Mt RGGI 188 Mt EU ETS 2100 Mt Swiss ETS 2,4 Mt JVETS 0,5 Mt Mandatory Cap & Trade Schemes Existing Mandatory Cap & Trade Schemes To be launched Voluntary Cap & Trade Schemes Upcoming national ETS? Australian ETS ~ 500 Mt NZ ETS ~ 70 Mt Source: BlueNext
Exchanges & Products FUTURES EXCHANGES Opening Products Services EU Market Places BlueNext Opening June 2005 SPOT EXCHANGES Products Services EUA, CER Continuous trading 2008 Volume (Kt) 38 231 BlueNext ECX EEX Nord Pool April 2008 April 2005 Oct. 2005 Feb. 2005 EUA, CER EUA, CER EUA, CER EUA, CER, Options, Swap, Options (EUA) Climex EEX Exaa Nord Pool March 2005 March 2005 June 2005 February 2005 EUA, (CER) EUA EUA EUA Continuous trading, auctions Continuous trading Fixing Continuous trading 1 308 703 97 104 North American Market Places NYMEX Mar. 2008 EUA, CER, RGA + NOX, So2 MCeX May 2008 Canadian emissions (large emitters) Indian Market Places NCDEX April 2008 CER MCX Jan. 2008 Mini CFI, CER, Options MCX Jan. 2008 Mini CFI, CER 13
Issues from the exchange perspective Direct interest as an exchange: a well functioning liquid market (exchanges live by volume) Liquidity: ability to find a counterparty for a transaction, broad participants, tight bid & ask spreads Long term interest: a stable ETS, long-term existence. Must deliver on the intersection Environmental objective Broad societal concerns, including accounting for competitiveness
Phase III debate BlueNext interests Presence of CERs will CERs have higher market velocity? Consistency on CERs across EU cannot filter if no consistency Auctioning vs free allocation- will auctioning increase liquidity? How can auctioning be done to maximize liquidity? Type of auctioning Timing Frequency Participation What is better for solid infrastructure - one registry vs 27 registries. More gases and sectors: more underlying, diversity of abatement better liquidity
Supply/demand outlook until 2012 The Kyoto Balance 4000 3500 3000 1325,0 870,0 413,0 2500 189,0 201,0 248,0 4,0 2000 763,0 454,0 1500 101,0 8,0 1000 1 510,0 1208,2 500 0 EU Gap Japan's Gap ROE & NZ Canada's Gap EU Policy Steps Japan Policy Steps EU Sinks Japan Sinks ROE/NZ Sinks EU CER & ERU Japan CER & ERU ROE/NZ CER & ERU CER & ERU Credits Available Now 279,8 Current Shortfall
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