INTERVIEW: RGGI Program Fuels Trading At Climate Exchange
March 27 2009 - 4:38PM
Dow Jones News
Trading on the Chicago Climate Futures Exchange has surged this
year as the market signs up new participants and existing members
increase activity with the first regional U.S. cap-and-trade
program taking effect.
After posting record monthly volumes in February, the CCFE
surpassed that mark halfway through March as a "sea change in
attitudes" sweeps the country, according to exchange chief Dr.
Richard Sandor.
As the Obama administration and Congress move quickly to develop
the country's first mandatory cap-and-trade program for emissions,
"it's no longer a question of if we're going to see a national
cap-and-trade program, but when," Sandor said in an interview.
Sandor heads the Chicago Climate Exchange, the dominant U.S.
spot carbon market, which operates a voluntary cap-and-trade market
in greenhouse gases like carbon dioxide. The Chicago Climate
Futures Exchange, a subsidiary, has markets in emissions
derivatives.
Volume on the CCX's derivatives markets has taken off as
companies sought to comply with the Regional Greenhouse Gas
Initiative, or RGGI, a 10-state cap-and-trade program in the
Northeast that took effect in January, Sandor said.
The launch of RGGI has been a source of "incredible, exponential
growth," for the exchange, Sandor said.
That activity has carried over to the exchange's new contracts,
dated for 2013 and beyond, structured around a presumed national
cap-and-trade system as financial and industrial entities position
themselves in advance of the program, which Sandor sees arriving
sometime in U.S. fiscal year 2010.
U.S. market activity for the remainder of the year will largely
be tied to Washington's shaping of a cap-and-trade proposal, the
timetable set for emissions reductions and the financial exposure
that U.S. firms believe they will face under such a program, Sandor
said.
He said he is convinced that a cap-and-trade system will be
implemented, despite some lawmakers' calls for a carbon tax
instead. Critics charge that tying emissions prices to a market
exposes them to volatility and possible manipulation.
Sandor dismissed such concerns as "a 1980s question" that was
answered by the 1990 Clear Air Act, which created a cap-and-trade
market in sulfur dioxide and has reduced emissions by 50%, he
said.
He also pointed to success in reducing emissions via
cap-and-trade in Europe, where the European Climate Exchange - the
Chicago operation's London-based counterpart - also handles the
majority of trading.
In the U.S., the Chicago Climate Exchange faces potential
competition from the Green Exchange, a venture backed by CME Group
Inc.'s (CME) Nymex unit that launched in 2008 but has yet to gain
much market share.
-By Jacob Bunge, Dow Jones Newswires; (312) 750 4117;
jacob.bunge@dowjones.com