From the September 01, 2011 issue of Futures Magazine • Subscribe!

Carbon marches on

Out with the old…

The IntercontinentalExchange (ICE) last year shelled out roughly $600 million for Climate Exchange PLC, which owned the Chicago Climate Exchange (CCX), the Chicago Climate Futures Exchange (CCFE) and the European Climate Exchange. It shuttered CCX at the end of 2010, and in August announced it was closing CCFE next year, but launching 21 over-the-counter emission-reduction contracts based on many of the same markets that CCFE traded.

All 21 are based on U.S. products that were developed regionally in the wake of the U.S. failure to develop a federal cap-and-trade regime, but they will be listed on ICE Clear Europe in part to avoid Dodd-Frank requirements mandating screen-based trading of certain derivatives.

"The underlying reasons for the demise of the CCFE are not that different from what was cited as prompting the closure of the CCX," says Molly Peters-Stanley, the voluntary carbon associate in Ecosystem Marketplace’s Carbon Program. "You had a lack of regulatory signals from the U.S. federal government, as well as economic conditions that drove oversupply."

She adds that the demise of CCFE will not have a significant impact on carbon trading in the United States.

"The CCFE is not significantly more active than any of the other exchange we track," she says. "The traded volumes that will be lost will most likely shift to ICE Clear Europe or to other platforms that are launching similar offerings."

She points out that the Green Exchange, a subsidiary of CME Group, is launching a California Carbon Allowance futures contract in September and that BlueNext, a subsidiary of NYSE.Liffe, is investigating the launch of a series of new products.

The 21 products being launched on ICE Clear Europe include the Carbon Financial Instruments that CCX created as well as spot and forward contracts under California’s Climate Action Reserve and the Regional Greenhouse Gas Initiativ, which trades across several Northeastern states.

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