UPDATE: Green Exchange Plans California Carbon Futures Market

The Green Exchange said Monday it will launch a futures market tied to California's planned program for limiting greenhouse gas emissions, the first among several efforts targeting what would be the biggest so-called cap-and-trade system in North America.

Contracts linked to California carbon allowances are expected to begin trading Sept. 11, according to the company, owned by a consortium of Wall Street banks, climate brokerages and CME Group Inc. (CME).

California has come front and center for exchanges and brokers that long have eyed the ascendance of carbon as a new class of tradable commodity, after hopes for a federal program died and progress in other regional efforts has been slow.

The push to list derivatives on the price of carbon comes after California last month delayed its cap-and-trade system one year. The regime is now to launch in 2013, following a legal challenge from community groups questioning the plan's usefulness in curbing pollution.

IntercontinentalExchange Inc. (ICE), operator of the world's largest carbon markets franchise in the European Climate Exchange, has viewed California's plan as a fresh start in the U.S. after a voluntary program run through the Chicago Climate Exchange came to an end. NYSE Euronext (NYX), which has revamped its French carbon-trading venture Bluenext, is also developing a California strategy as part of an advance into the U.S. and Asia.

ICE, through its Climate Exchange subsidiary, already offers a contract tied to a California offsets program. The Green Exchange's planned futures would be the first tailored to the state's coming cap-and-trade program, initially offering annual expirations tied to the anticipated price of carbon in December 2012, 2013 and 2014. Each contract will represent 1,000 tons of carbon dioxide.

"This will allow people to make investment decisions, be it in offset projects, emissions reductions within their own facilities, or in the purchase of energy or other raw materials," said John Melby, San Diego-based managing director for the Green Exchange.

Offering a contract ahead of the California program's official launch will provide a "price signal" that regulators, utilities and traders can use to hedge investments tied to emissions reductions, Melby said. The contracts carry provisions to manage further delays in the program, or its shutdown.

"We're confident the state will get there," he said.

The Green Exchange for months has been prepping a pipeline of products linked to the California plan since it survived a closely watched ballot initiative last November. The firm is considering its own contracts linked to emissions offset projects, Melby said, though issues related to buyers' liability still need to be worked out at the state level.

Representatives for both NYSE Euronext and ICE said they are watching California's program as it develops and are consulting with customers.

-By Jacob Bunge, Dow Jones Newswires; 312 750 4117; jacob.bunge@dowjones.com

--Cassandra Sweet contributed to this article.

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