Overview of the Montréal Climate Exchange
The Montréal Climate Exchange (MCeX) provides a market-based solution to help companies and all those involved in addressing the most serious environmental challenges, especially reducing air pollutant and greenhouse gas (GHG) emissions.
The mission of MCeX is to provide a transparent and credible marketplace where contracts on pollutant and GHG emissions are exchanged. This marketplace operates according to the best international practices and proposes a low-cost, reliable and wide access to actors of environmental markets.
The Montréal Climate Exchange is a joint venture between the Montréal Exchange (MX) and the Chicago Climate Exchange® (CCX). The MX brings to this new market its expertise in leading edge trading systems, clearing, market regulation and financial risk management. The CCX contributes its expertise in operating an environmental market; it is the world’s first and North America’s only voluntary legally binding rules-based greenhouse gas emissions allowance trading system.
Canadian Carbon Market
Climate warming has been accelerating globally and is now one of the major environmental challenges facing humanity. To face up to this important issue, causing severe environmental and economic risks, the Government of Canada published in March 2008 the final version of the Regulatory Framework for Industrial Greenhouse Gas Emissions to reduce these emissions on its territory starting in 2010.
Energy development in Canada has been increasing for the last years. In such a context, the federal government has decided to adopt intensity-based greenhouse gas (GHG) emissions reduction targets. These targets are designed to promote a balance between Canada’s economic growth and the need to reduce GHG emissions. In addition to internal reduction through the development of new technologies, key regulated industrial emitters will be able to choose from several compliance measures in order to ensure compliance with their GHG emissions reductions obligations. One of these measures, the market solution is a private initiative and is called “the carbon market”.
Thus, in collaboration with the Chicago Climate Exchange® (CCX), the Montréal Climate Exchange (MCeX) has decided to launch trading of futures contracts on Canada carbon dioxide equivalent (CO2e) units. These contracts will allow regulated industrial participants to manage their emissions risks at the lowest cost while also creating continuous incentives for technological innovation. The new MCeX contract, traded on the Montréal Exchange's (MX) electronic trading platform SOLA®, will give key regulated industrial emitters and other potential stakeholders the price signals needed to measure “the price of a ton of carbon”.
Proposed futures contract and advantages offered
The futures contract proposed by the MX is based on 100 Canada carbon dioxide equivalent (CO2e) units. Each unit, as defined by the Government of Canada, allows for the emission of one metric ton of carbon dioxide equivalent (CO2e)1.
Now that the federal government has established mandatory reduction targets starting in 2010, MX and MCeX will offer through futures contracts:
The MX is bringing its values of transparency and security to this new market. The environment market will attract a large number of economic agents such as industries, investment banks and investors, thereby ensuring the liquidity of the futures contracts on Canada carbon dioxide equivalent (CO2e) units.
Tradable Canada carbon dioxide equivalent (CO2e) units eligible for physical delivery are:
Canadian Regulatory Framework for Industrial GHG Emissions and Domestic Trading System
The system proposed by the Canadian government is described as a “baseline and credit system”. This system is based on the allocation of units to a company for exceeding its intensity-based greenhouse gas (GHG) emissions reduction targets [1 credit = right to emit one metric ton of carbon dioxide equivalent (CO2e)1].
The baseline and credit system works like this: at the end of each compliance year, the emissions of the large regulated industrial emitters will be verified. Each emitter must then offset its GHG emissions against its intensity-based GHG emissions reduction target established by the government. The discrepancy between the imposed target and the actual emissions may be offset by, among other things, the purchase of units on the domestic market. The initial compliance year is 2010.
As part of the federal plan published in March 2008, in addition to internal reductions, large regulated industrial emitters will be able to choose from the following three compliance measures in order to ensure compliance with their GHG emissions reductions obligations in Canada:
1. Buying units on the domestic carbon market:
a. Regulated emitters’ credits will be issued by government authorities at the end of a compliance year to regulated emitters that reduce the intensity of their GHG emissions below the target established by the federal government. These emitters will be able to sell their credits on the market or keep them for subsequent compliance years.
b. c. Offset credits will be attributed to companies that will not be subject to intensity-based emissions reduction targets but will be involved in voluntary projects to reduce their eligible GHG emissions.
2. Futures contracts proposed by the MCeX will be based on these Canadian units.
3. Contributing to a technology fund: The contribution to this fund will be limited to 70% of emitters’ compliance needs in 2010. However, this contribution rate will gradually be reduced between 2011 and 2017, and the contribution limit will disappear in 2018. The fund’s contribution rate has been fixed at $15/metric ton of CO2e between 2010 and 2012, and $20/metric ton of CO2e in 2013. The contribution rate would then be indexed to the nominal GDP.
4. Buying international units (CERs or Certified Emission Reductions) under the Kyoto Protocol’s Clean Development Mechanism (CDM). Access to CER credits for compliance purposes would be limited to 10% of each regulated emitters’ target.
1 GHG emissions are calculated based on the equivalent quantity of carbon dioxide required to produce a similar warming effect. The six GHGs are carbon dioxide, methane, nitrous oxide, hydrofluorocarbons, sulphur hexafluoride and perfluorocarbons.
Overview of the US Chicago Climate Exchange
Chicago Climate Exchange (CCX) operates North America’s only cap and trade system for all six greenhouse gases, with global affiliates and projects worldwide.
CCX Members are leaders in greenhouse gas (GHG) management and represent all sectors of the global economy, as well as public sector innovators. Reductions achieved through CCX are the only reductions made in North America through a legally binding compliance regime, providing independent, third party verification by the Financial Industry Regulatory Authority (FINRA, formerly NASD). The founder and chairman of CCX is economist and financial innovator Dr. Richard L. Sandor, who was named a Hero of the Planet by Time Magazine in 2002 for founding CCX, and in 2007 as the "father of carbon trading."
CCX emitting Members make a voluntary but legally binding commitment to meet annual GHG emission reduction targets. Those who reduce below the targets have surplus allowances to sell or bank; those who emit above the targets comply by purchasing CCX Carbon Financial Instrument® (CFI®) contracts.
CFI Contracts, the CCX Tradable Commodity
The commodity traded on CCX is the CFI contract, each of which represents 100 metric tons of CO2 equivalent. CFI contracts are comprised of Exchange Allowances and Exchange Offsets. Exchange Allowances are issued to emitting Members in accordance with their emission baseline and the CCX Emission Reduction Schedule. Exchange Offsets are generated by qualifying offset projects.
Goals of CCX:
Benefits of Membership:
CCX Offsets Program
CCX's integrated greenhouse gas (GHG) reduction and trading system includes a full portfolio of offset projects. CCX issues tradable Carbon Financial Instrument® (CFI®) contracts to owners or aggregators of eligible projects on the basis of sequestration, destruction or reduction of GHG emissions.
All CCX Offsets are issued on a retrospective basis, with the CFI vintage applying to the program year in which the GHG reduction took place. Projects must undergo third party verification by a CCX-Approved Verifier. All verification reports are then inspected for completeness by the Financial Industry Regulatory Authority (FINRA).
Since the inception of the CCX Offsets Program in 2003, CCX has established programmatic rules designed to provide easy to understand performance criteria for potential Project Proponents. Such criteria allow CCX and CCX-Approved Verifiers to distinguish best-in-class projects from business-as-usual projects and to reduce the subjectivity of project-specific reviews. CCX weighs a variety of factors related to each potential project type such that eligibility would be based on whether or not a particular category of actions provides the following characteristics:
CCX rules ensure that all of the identified principles outlined in ISO 14064-2 Specification with guidance at the project level for quantification, monitoring, and reporting of Greenhouse Gas emission reductions or removal enhancements are adopted for projects to ensure that offsets are issued based upon industry accepted standards.
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