Montreal Climate Exchange to launch carbon futures

The MCeX set the launch date after the Canadian government announced further details of its greenhouse gas emissions regulations, having initially announced the plan in July 2007.

The exchange said that its decision to launch was based on an assessment of the Canadian federal government’s air emissions policy, which is to include targets for intensity-based Canadian emissions reductions and offsets program terms, and followed detailed consultations with potential market participants, including large industrial emitters.

According to Luc Bertrand, President and CEO of MX and chair of MCeX, the Canadian government has now provided enough “regulatory certainty regarding intensity based emissions reduction targets and the definition of a single compliance standard for tradable credits. This will enable emitters to more accurately forecast their individual intensity-based reduction targets and exposures."

MX filed an application with its lead regulator, the Autorité des marchés financiers (AMF), requesting approval of market rules designed to govern the trading of MCeX environmental products on its electronic trading platform, SOLA. A decision on the AMF application is expected in the near future.

The application illustrates two main benefits offered by the contracts. Firstly, that they will provide a price discovery mechanism that generates the price signals needed by large industrial emitters to measure the “cost of a tonne of carbon”.

Secondly, that the contracts will provide a method of managing risk associated with price fluctuations using carbon futures contracts within a secure, liquid market.

“The demand for environmental derivatives continues to grow worldwide and the time is right to build a critical mass of trading activity in Canada,” said Dr. Richard Sandor, Chairman and Founder of the Chicago Climate Exchange. "MCeX products will meet demand from industrial participants to manage their emissions risks at the lowest cost while also creating continuous incentives for technological innovation that reduce carbon emissions.”

Global carbon markets were worth 40 billion Euros in 2007, an 80% increase from 2006 figures according to a recent report published by carbon consultancy Point Carbon. The total traded volume increased by 64% from 1.6Gt (billion tonnes) in 2006 to 2.7Gt in 2007.

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