issue 18.0, New Values Newsletter

1. New Values news
New Values likes to involve you in its plans and ideas. We keep you constantly informed about what we’re doing and how we’re responding to the latest market developments.

2. Jos Cozijnsen’s column
He’s a familiar figure: Jos Cozijnsen, the man behind emissierechten.nl and guest speaker at various meetings on emissions trading. Every month he airs his opinion in his column.

3. Diary
It’s important to stay up to date in a market that is continually subject to change. New Values keeps you informed about interesting congresses and workshops in the Netherlands and abroad.

1. New Values news

Progress of SendeCO2 collaboration

New Values and the Spanish SendeCO2 recently announced their strategic collaboration in the field of CO2 emissions trading. The collaborative link is intended to create the first genuine pan-European trading market in CO2 emissions rights. This past week we have worked hard behind the scenes on achieving this pan-European market. Although the details have not all been worked out, it is clear that one central infrastructure will be used.

For all transactions and participants the APX continues to operate as the central counter-party. This means that the settlement of transactions can continue to occur very efficiently, even if for example they take place between a Spanish and a German party. For (future) dealers on the New Values trading platform, this means that membership of New Values grants them direct access to the mutual order books, including those of the Spanish market. Which then leads to higher liquidity. And this for the same, low transaction costs.

Trading in Guarantees of Origin restarted

From January 1, 2005 the taxability lapsed on Guarantees of Origin. This led to a highly uncertain market situation. This uncertainty had two reasons: first it was unclear which dealers would remain active, and secondly it was unclear what the price should be for a Guarantee of Origin. As far as the latter reason is concerned, CertiChange as a trading place can certainly fulfil an important role. Accordingly, with effect from the second half of April 2005, the first transactions again took place. Up to and including April 19 there were 15 transactions for a total of 31,296 MWh. A careful start, but extremely valuable for the further development of what is still a highly promising market. The expectation is that at least 600 GWh will be traded this year. Based on our April experience, we estimate that the price level will lie between Eur 0.20 and Eur 0.55 per MWh.

The spot trading still suffers delays – technical problems between the CITL and national registries

Technical problems still constrain the spot trading with EU-Allowances. Especially the interfaces between the CITL (Community Independent Transaction Log) and national registries are still susceptible to failures. The good side of it: One main reason for the low system availability is the high security standard for the CITL. Indeed, the connection between the CITL and a national registry is capped if the CITL detects irregularities during the daily automatic security checks. Although this procedure will eventually lead to a highly failure-proof system, each error has to be tracked manually in the meanwhile.

According to the DEHSt, the German authority is the most advanced of the users of the French registry system Seringas. However, due to this they cannot benefit from the experience of other users, making the development work more time consuming. A full access for companies to their registry accounts will probably several weeks more, until the interface to the CITL is working properly. A deadline has not been announced, yet. Meanwhile, companies have read-only access to their accounts in Germany, without the possibility to make transactions.

The spot-trading on the trading platform CLIMEX for German Companies therefore still demands a little bit more patience.

2. Jos Cozijnsen’s column

EU CO2 market: discrepancies in implementation speed are fine in 2005-2008 trial phase.

This could be a whinge. I could lay hard-hitting criticism at the feet of, well, who actually? And the whole thing would be so negative. Granted, the performance has been out and out bad: two months after the deadline only 8% of the annual quota of 2.2 billion in emission rights has been handed over to companies; four of the 25 Member States have an operational Emission Register. Of the emission rights to be allocated this year, only 0.6% have been traded.

My business consists of advising how to set up CO2 business, but things are not yet so great with this business. With the emphasis on not yet. Because if we look back in 2008, it will seem that quite some results have been achieved. There are, for example, technical reasons (registers don’t communicate well), taxation-legal reasons (is an emission right a financial instrument or is it in fact VAT-liable?), cold-water reasons (I’ll wait anyway until 2007), and also obstinacy (I don’t like trading in air) or a lack of daring (you can earn from it). There are also cultural reasons: the German DEHSt wants to have it all set in stone in one go, while the Dutch NEa would rather introduce trading in steps. But Spanish colleagues don’t find the current implementation speed low at all.

I actually believe the speed is exactly right, and even find the difference in implementation rates quite chastening. But what do you expect from someone who has been busy since Kyoto with emission trading, and who is convinced that it’s the only way to manage CO2 on a large scale? But I can hardly grasp that on February 28, two billion emission rights were transferred to 12,000 accounts in 25 countries! The current, admittedly fragmented manner of EU rollout offers opportunities for learning, from each others’ mistakes, from each others’ solutions, and to develop instruments and become aware of the possibilities. In this way we can indeed round off an instructive trial period in 2008, and that was also the intention. Because then we are dealing with serious emission reductions.

3. Diary

6-7 June, Climate Change and Investment, Asset Allocation in a Carbon Constraint World,
London, info: Environmental Finance (PDF).

16-17 June, Emerging Carbon Markets, can they deliver?,
Chatham House, RIIA, London

11-12 July, "EU Emissions Trading, Competitive and Financial Implications",
Brussels, info:Environmental Finance (PDF)

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