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

Emissions Trading and potential impact on electricity prices Corinne Boone, MD, Americas, CO2e.com CERT -- Toronto May 31, 2005. Cantor Fitzgerald. Founded in 1945 Over 2000 Employees -- 20 Offices in North America, Europe, Asia

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

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

  2. 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

  3. GHG Market – Status Report

  4. 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

  5. EU ETS

  6. 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.

  7. 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

  8. 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

  9. 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)

  10. 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

  11. Canada

  12. 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

  13. 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)

  14. 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.

  15. One last thought… • The real potential for Renewables and Renewable technology deployment … into developing countries who are part of Kyoto…

  16. 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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