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Emissions Trading and potential impact on electricity prices Corinne Boone, MD, Americas, CO2e CERT -- Toronto May 3

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Cantor Fitzgerald. Founded in 1945Over 2000 Employees -- 20 Offices in North America, Europe, AsiaCantor Fitzgerald Transacts >$200 Billion in Financial Markets DailyCO2e.com ? launched in 2000 -- subsidiary of Cantor Fitzgerald (and partially owned by Mitsui

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Emissions Trading and potentialimpact on electricity pricesCorinne Boone, MD, Americas, CO2e.comCERT -- TorontoMay 31, 2005

cantor fitzgerald
Cantor Fitzgerald
  • Founded in 1945
  • Over 2000 Employees -- 20 Offices in North America, Europe, Asia
  • Cantor Fitzgerald Transacts >$200 Billion in Financial Markets Daily
  • CO2e.com – launched in 2000 -- subsidiary of Cantor Fitzgerald (and partially owned by Mitsui & Co.) – offices in Toronto, New York, Santiago, London, Tokyo with many satellite offices across US and agency representation throughout world – Emissions Brokers, Renewable Energy Brokers, etc..
    • Builds on experience of CF in over 50 markets in last 50 years
    • Builds on experience of CF Environmental Brokerage Services started in 1992
      • US Emissions Markets
      • Voluntary GHG Markets
global picture
Global picture
  • Kyoto Protocol entry into Force, February 16, 2005
  • EU Emissions Trading Scheme up and running
  • Domestic trading scheme announced in Canada to start 2008
  • Domestic trading scheme expected Japan from 2008
  • Schemes in California and Eastern US States (‘RGGI’) from 2008 & 09
  • Scheme in NSW Australia now being extended to cover the whole country
  • Plus government buyers in Europe, Canada and Japan
  • Certified Emission Reductions (CERs) being sourced globally from developing countries to feed most of the above markets
background
Background
  • Came into force on 1 January 2005 (although trading has been going on for over a year). Implemented by the EU as part of its overall Kyoto compliance strategy – covers 40% of emissions in the EU
  • Covers the following sectors:
    • Power generation
    • Minerals
    • Iron and Steel
    • Pulp and Paper
  • Around 12,000 installations covered across Europe, ranging from prisons, hospitals and universities to the largest power generators.
european allowances euas
European Allowances (EUAs)
  • Defined in Directive 2003/87/EC of the European Parliament and of the Council of 13 October 2003
  • When surrendered to the regulator, 1 EUA enables an installation included in the scheme to emit 1 tonne of CO2
  • EUAs exist as an entry in electronic registries (one per Member State)
  • Anyone may open one or more registry account
  • EUAs are issued by each Member State to operators of installations included in the scheme, once its national allocation plan is approved by the EC
timeline
Timeline
  • First allocation 28th Feb 2005
  • First retirement of EUAs by 30th April 2006
  • Second allocation by 28th Feb 2006
  • Second retirement of EUAs by 30th April 2007
  • Third allocation by 28th Feb 2007
  • Third retirement of EUAs by 30th April 2008
  • 1ST ALLOCATION FOR 2ND PHASE BY 28TH FEB 2008 BUT THESE ALLOWANCES CANNOT BE USED FOR COMPLIANCE IN PHASE 1
prices and activity to date
Prices and activity to date
  • Since the start of the scheme, prices have ranged from 5 – 20 Euros – today high of 19.90 Euros …
  • Right now they are at around 19 Euro (very volatile), for delivery on 1 December 2005, and slightly more for 2006 & 2007 deliveries
  • So far -- > 50 million EUAs have traded – some predictions that could be 5 billion Euro market in 2005.
  • Predictions are, that activity will increase significantly in the next few months and continue to grow. Already some days are seeing 1 million allowances trading
  • Between 30 and 70 big companies will be trading actively, for compliance and speculatively, predominately utilities but also banks and spec traders
  • Typical lot size is 10,000 or 20,000 allowances, although you also see lots of 50,000 and 100,000 going through
  • No options yet, and only a few spot transactions
  • Some swaps…(CERs for EAUs with discounts)
price of carbon and price of electricity
Price of carbon andprice of electricity…
  • National Allocations in each Member State – last week the Italian Allocation having large impact on the market.
  • Gas, coal, oil and power prices – highest electricity prices in history in Germany – result of rising natural gas prices…
  • As electricity prices go up – Renewable prices go up – if “spot” market
  • Weather – harsh winters, mild to exceedingly warm summers, rainfall levels
  • Demand and supply due to increased economic activity
  • Market sentiment and individual participant pressure – easy market to move with minimal trades – has been known to jump 50cents in 10K one trade with no fundamental driver behind it
  • Demand and supply due to increased economic activity (much longer term)
  • Abatement costs in each country
canada
Canada
  • Climate Change Plan issued April 13, 2005
    • Domestic and International Trading – Government and Large Final Emitters –
    • Renewable Energy related incentives
  • Budget 2005 included provisions for –
    • Climate Fund – 75 – 115 MT
    • Partnership Fund – 55 – 85 MT
    • LFE 45 MT
  • Renewable Energy – 15 MT
    • Wind Power Production Incentive
    • Renewable Power Production Incentive
    • Tax Measures – for energy efficiency and renewable energy
canada cont d
Canada cont’d
  • Currently – Renewable producers cannot claim GHG offsets if receiving “Incentives” as “double-counting”
    • Government is claiming tonnes…
    • Renewable Producers are arguing against this…
  • “Offsets” Paper due out in June from Canadian government – some think there will be an component for renewables…
  • Ontario:
    • Green RFPs – goal of 2700 MWs by 2010
      • 3 RFPs – most recent one for up to 1000 MW
    • Project developers – may/may not receive “offsets” (depending if Government claiming tonnes…in return for contract premiums)
summary conclusions
Summary/conclusions
  • GHG and Renewables markets are developing
  • In the EU – Allowance prices seem to be following the price of power…
    • Lots of things affect EU Allowance prices…
  • Price of power – directly impacted by coal, gas and oil prices…
  • In Canada, much will depend on what GOC issues for implementation details…
  • In Ontario … contract negotiations…
  • How Canada uses green attributes
    • For compliance... In meeting Kyoto, etc.
    • Issue – if get WPPI or RPPI and Price Premium – potential for double counting.
one last thought
One last thought…
  • The real potential for Renewables and Renewable technology deployment … into developing countries who are part of Kyoto…
contact us
Contact us

Europe

Steve Drummond +44 20 7894 8333

Americas

Corinne Boone +1 416 350 2177

Sergio Vives +56 2 233 3323

Japan

Ken Yabe +81 3 3285 2705

Or simply visit our website at www.CO2e.com

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