Looking to capture the market on environmental futures, the New York Mercantile Exchange (Nymex) announced last week that it is teaming with financial institution heavyweights to form The Green Exchange venture. The new exchange will offer a comprehensive range of environmental futures, options and swap contracts for markets focused on solutions to climate change, renewable energy, and other environmental challenges.
Nymex's partners in the project are Evolution Markets Inc., Morgan Stanley Capital Group Inc., Credit Suisse, JPMorgan, Merrill Lynch, Tudor Investment Corp., ICAP and Constellation Energy. The Green Exchange products are expected to begin trading during 1Q2008 and will be cleared by Nymex. The Green Exchange venture is expected to launch as a U.S. Commodity Futures Trading Commission (CFTC)-regulated exchange in 1Q2009, pending regulatory approval.
"The broad slate of new environmental products will perfectly complement Nymex's energy complex, enabling The Green Exchange customers to efficiently manage the cost of reducing their 'carbon footprint,'" said Richard Schaeffer, Nymex chairman. "The Green Exchange expects to focus on both global and regional compliance trading while also building liquidity and demand for the highest quality voluntary standards in the market. Underlying all this will be the ability for all market participants to manage risk and take positions in environmental derivatives markets."
Initially, The Green Exchange intends to offer trading in global carbon-based contracts, such as carbon allowances under the European Union Emissions Trading Scheme, carbon credits under the U.N. Clean Development Mechanism, and verified greenhouse gas emission reductions used in accordance with voluntary carbon standards. The Green Exchange will also offer contracts for U.S. sulfur dioxide and nitrogen oxide emissions allowance trading programs, as well as contracts for national Green-e certified voluntary renewable energy credits.
"Leveraging financial markets is an essential part of addressing environmental challenges such as global warming, and The Green Exchange is the right financial marketplace at the right time," said Evolution Markets CEO Andrew Ertel. "We've identified a set of contracts that address climate change, encourage renewable energy development, and tackle air quality. The Green Exchange will be more than a financial marketplace. It will be an engine behind global efforts to improve the environment."
Nancy King, head of U.S. Emissions at Morgan Stanley, said, "We believe the global emissions markets represent huge growth potential and are excited to be part of the development of this important exchange."
The backers of the exchange said they have "worked extensively" with utilities, investment banks, environmental brokers, environmental groups, and institutional asset managers to establish a set of contracts that enable market participants to effectively manage risk and gain direct exposure to the global carbon market and other U.S. environmental markets. The group said it has also consulted with environmental groups to select the highest quality voluntary carbon and renewable energy offset standards as the basis for products.
Paul Tudor Jones, founder of Tudor Investment Corp., said, "Tudor Investment is thrilled at the historic opportunity to join with Nymex and our partners to launch The Green Exchange, in order to provide financial market participants with high quality and liquid green products in order to achieve the larger goal of harnessing market forces to improve the environment in the years and decades ahead."
The group said it is in discussions with additional strategic partners from a broad cross-section of market participants including banks, brokers, hedge funds, and energy and industrial corporations. It anticipates announcing additional strategic partners in the near future.
Products will be listed for trading on the CME Globex electronic trading platform and for clearing on the Nymex ClearPort platform. All contracts will be cleared through the Nymex clearinghouse as regulated futures contracts. In order to ensure broad global market participation, The Green Exchange will have:
The group noted that The Green Exchange venture intends to offset all of its electricity use with Green-e certified renewable energy credits, and intends to offset its remaining non-power related carbon emissions through the purchase of voluntary carbon credits, making the exchange fully carbon neutral.
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