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European Climate Exchange

Dive into the European Climate Exchange (ECX) and other major carbon exchanges. Learn about products, participants, hedging strategies, and market dynamics. Get insights on trading futures to manage price risks effectively.

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European Climate Exchange

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  1. European Climate Exchange The Carbon Market & Exchanges: Products, Participants and Strategies Sofia, 29 September 2009

  2. Climate Exchange PLC (CLE) European Climate Exchange (ECX) Chicago Climate Exchange (CCX) Chicago Climate Futures Exchange (CCFE) About ECX: Corporate structure Insurance Futures Exchange Services (IFEX)

  3. ECX Products 3

  4. Why do you need an Exchange? Liquid: central marketplace Regulated: clear set of rules Accessible: equal access for all market participants Cleared: credit risk management Transparent: all prices and volumes published Anonymous: counterparty is always ICE Clear

  5. Which contracts trade on Carbon Exchanges? Sources: ECX/ICE, Nordpool, Bluenext, EEX, Climex, Green Exchange

  6. Exchanges Market Shares

  7. Spot vs. Futures Contracts • Spot = agree on price, pay and deliver EUAs today • Futures = agree on price, but pay and delivery EUAs in the future eg. Dec09 • Trading futures with the objective of reducing price risk is known as hedging. Hedging with futures typically involves taking a futures position that is equal & opposite to the physical (spot) position • Benefits of hedging: - Lock in a profit - Reduce your price risk - Cleared market = no counterparty risk • Liquidity of the contracts used for hedging also important

  8. Case 1: You are short allowances and need to buy A long hedge is appropriate: buy futures before the price goes up Profit / Loss Price of EUAs 24 16 22 23 15 20 21 17 19 A rise in the price of EUAs will lower profits (or firm value)

  9. Case 2: You are long allowances and need to sell A decline in the price of EUAs will lower profits Profit / Loss Price of EUAs 24 16 22 23 15 20 21 17 19 A short hedge is appropriate: sell futures before price goes down

  10. Who is the Carbon Market? Eg. Power generators, Industrials, Project developers Eg. Investment banks, trading houses Eg. specialised traders

  11. ICE ECX Screen Shot BACK TO CONTENTS

  12. Access to the ECX market Step-by-step process: [1] Select ICE ECX Member (Clearing or Non-clearing) [2] Agree Terms of Business and specify what you want to trade (Spot/ Futures, EUAs/ CERs) [3] Deposit margin/security with Member [4] Trading can done electronically on the screen or by telephone with aggregator/broker

  13. ECX/ ICE Members

  14. Thank You for Listening! Sara Ståhl Director of Market Development European Climate Exchange Tel: +44 (0)20 7382 7804 Email: sara.stahl@ecx.eu Web: www.ecx.eu

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