Trading in Carbon Emissions: Gearing Up for the Next Big Market

by Axel Pierron, May 11, 2009
Industry Trends
Global, Asia-Pacific, EMEA, Latin America, North America


Carbon emission trading has been growing at an astronomical rate, with trade volumes increasing from 800 Mtons in 2005 to 4,200 Mtons in 2008. The market is concentrated in Europe, but with the US, Australia, Japan and other countries finalizing their emission reduction policies, market volume will rise rapidly.

In this report, Trading in Carbon Emissions: Gearing Up for the Next Big Market, Celent provides an overview of the carbon emission market. The report examines current market dynamics, covering major emission markets/exchanges, transaction mechanisms, trading patterns, technology and platforms used, clearing facilities, market participants, and instruments traded.

Growth in the carbon emission markets has caught the attention of almost all market participants, including investors, brokers, and exchanges. The European Union was the first to set up a mandatory emission reduction policy, which led to the evolution of emission markets in this region. The top four European emission exchanges (ECX, BlueNext, NordPool, and EEX) handled 98% of trading volumes in 2008. CCX and Green Exchange are prominent non-European emission exchanges, but their current trade volumes are low.

Most of the developed nations are trying to adopt some kind of market mechanism to deal with emission issues. The EU Emission Trading System is considered by many countries to be the prototype on which to base their own trading systems. Exchanges in other parts of the world such as NYMEX, MCeX, ICE, TSE, ACX, and the HK Stock Ex have started to lay down the infrastructure to cash in their future potential.

"The foundations for carbon emission markets have recently been laid, so we can expect to see sustained growth in the future," says Ranjit Behera, Celent analyst and coauthor of the report. "With President Obama's aggressive initiatives to establish emission reduction policies and Japan, Australia, and other countries finalizing their policies, the emission market will soon see a rapid increase in transaction levels."

"Incumbent exchanges, with their vast experience in equities, bonds, and commodities, are in a better position to handle emission trading," says Axel Pierron, Celent Senior Vice President and co-author of the report. "Leading exchanges like NYMEX, ICE, Hong Kong Stock Exchange, TSE, and ASX have already built a preliminary emission trading infrastructure, and other exchanges will soon follow suit."

This report covers the kind of emission products traded and delves into the various modes of trading (i.e. exchanges and non-screen trades). The report also provides a glimpse of emerging emission markets and exchanges worldwide.

Celent is a research and advisory firm dedicated to helping financial institutions formulate comprehensive business and technology strategies. Celent publishes reports identifying trends and best practices in financial services technology and conducts consulting engagements for financial institutions looking to use technology to enhance existing business processes or launch new business strategies. With a team of internationally based analysts, Celent is uniquely positioned to offer strategic advice and market insights on a global basis. Celent is a member of the Oliver Wyman Group, which is a wholly-owned operating unit of Marsh & McLennan Companies [NYSE: MMC].

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