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
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.
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