On May 30, 2008, the Montréal Climate Exchange (MCeX) officially launched the trading of a futures contract on Canada carbon dioxide equivalent (CO2e) units.
As was noted by MCeX chairman Luc Bertrand at the official launch ceremony, "the listing of the MCeX futures contract is a 'first' and it makes the Montréal Climate Exchange the first regulated environmental market in Canada." The MCeX is a joint venture between the TMX Group's Montréal Exchange (MX) (the Canadian derivatives exchange) and the Chicago Climate Exchange® (CCX), which operates the world's first greenhouse gas (GHG) emissions reduction and trading system. The launch of the MCeX is intended, in the words of CCX Chairman and Founder Richard Sandor, to position Canada "at the forefront of environmental finance and integrated emissions trading."
The MCeX carbon futures contract has been designed to help industrial participants manage their emissions risks on a cost and market-efficient basis and to create incentives for technological innovations that reduce GHG emissions. The future contract (symbol: MCX) is listed for trading on the MX SOLA® electronic trading platform and will be cleared by the Canadian Derivatives Clearing Corporation (CDCC). Each CO2e unit, as defined by the Government of Canada, is an entitlement to emit one metric ton of CO2e. The contracts, each of which represents 100 units, are to be physically settled by the transfer of the units at the designated registry via the CDCC. In the event of a shortage of CO2e units, or if the designated registry in not in place at the expiration of the contract, the contract will be settled in cash.
Industrial, institutional and other market participants can trade contracts by placing orders with approved participants of the MX using its current trading infrastructure, or becoming MX approved participants themselves. The first trade on the MCeX was executed at a price of C$9.50 per ton.
The MCeX aims to capture early stage carbon trading opportunities in the Canadian market and become the leading market for publicly-traded environmental products in Canada. The MCeX expects to attract a variety of participants to its platform, including regulated industrial emitters (for compliance with GHG reduction rules and risk management), financial institutions and institutional investors (as a new asset class and to hedge portfolios subject to CO2e pricing exposure), hedge funds (to take speculative positions to exploit inefficiencies, volatility and regulatory uncertainty in the CO2e market) and insurance companies (to hedge insurance products linked to CO2e pricing risks).
Although initial trading is expected to be thin while the market gets off the ground, the MCeX anticipates developing a critical mass of trading activity in carbon futures as the federal and provincial governments enact regulations that commit industries to mandatory carbon reduction targets. Notably, the premiers of Quebec and Ontario recently announced plans to establish an interprovincial Quebec-Ontario GHG reduction scheme and a multi-sector cap-and-trade system by January 1, 2010. The Quebec government also recently joined the Western Climate Initiative (WCI), which includes Arizona, British Columbia, California, Manitoba, Montana, New Mexico, Oregon, Utah and Washington and is committed to completing the design of a market-based mechanism to help achieve the WCI's GHG emissions reduction goals. The establishment of the MCeX is also part of the province's green plan, Quebec and Climate Change, A Challenge for the Future. The Quebec government has further noted that the official launch of the MCeX is a significant development in its commitment, following the merger between the MX and the Toronto Stock Exchange, to maintain Montreal as home of Canada's principal derivatives exchange and to position Quebec as the lead Canadian jurisdiction in the North American emissions trading space.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
