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March 20/07 London UK
The UK has moved a step closer to setting binding emission targets for corporation and even individuals. In an attempt to cut emissions by 60% by 2050, a draft "Climate Change Bill" calls for an independent panel to set ministers a "carbon budget" every five years. On the other hand the Conservative Party currently in opposition, in what is regarded a pre–election stand has proposed new pollution taxes on airlines. Meanwhile current Chancellor Gordon Brown may be about to introduce high vehicle taxes for Super Utility Vehicles (SUVs) (4x4) which has thought to pollute more than any other type of cars. The proposed news laws and taxes have been attacked by industries such the airlines who say that new laws would drive jobs overseas. The government says that draft Climate Change Bill introduced on 13 March 2007 sets out a framework for moving the UK to a low carbon economy and that it also demonstrates the UK's leadership as progress continues towards establishing a post–2012 global emissions agreement.
Across the Atlantic, industries, analysts, researchers and policy makers are watching developments in the UK with interest. On February 21, 2007, more than 80 large companies and other organizations from around the world urged all governments to set a price on carbon under a new global agreement to stabilize greenhouse gas concentrations in the atmosphere.
Such a move would likely set up a new international framework to force Green Houses Gases (GHG) cutting policies in each country. "Climate change is an urgent problem requiring global action to reduce emissions" of CO2 and other GHGs, according to a joint statement by the Global Roundtable on Climate Change at Columbia University in New York. More than 80 companies and organizations signed "The Path to Climate Sustainability" statement. American Electric Power, Exelon, FPL Group and NRG are among the US companies that signed the statement. Vatenfall, Endesa and Iberdrola are among the major European companies on the statement. In a 26–page document, the participants said that "clear efficient mechanisms should be established to place a market price on carbon emissions that is reasonably consistent worldwide and across sectors in order to reward efficiency and emission avoidance, encourage innovation and maintain a level playing field across technological options".
At Climate Exchange around the world especially in the US and Europe, these developments have increased growing investor interest in the carbon trading sector. The Climate Exchange, the AIM–listed company behind the European Climate Exchange (ECX) and the Chicago Climate Exchange (CCX), was briefly valued at more than 510 million ($1 billion) in February, as its share price hit 12 – up from a listing price of 1.02 in 2003. A number of US institutional investors – including Merrill Lynch and Goldman Sachs – have taken, or increased, sizeable stakes in the company in ECX gaining a direct exposure to the carbon market.
Goldman Sachs for example has invested more than $1.5 billion in renewable energy and clean technologies during 2006, the investment bank said in a report summarizing its achievements in the first year of its environmental initiative. The bank’s Environmental Policy 2006 Year End Report, released in late January, says Goldman Sachs has made "considerable progress" in meeting the objectives of its environmental policy announced the previous year (see Environmental Finance December 2005–January 2006, page 8). At the European Climate Exchange the average Average Daily volume for futures contracts was 1,258,750 (1,011,636 in January) and 1,780,550 and (1,710,727 in January) for EFP throughout February 2007
Carbon dioxide (CO2) is a new commodity upon which derivatives instrument are developed. The gas that makes up part of the atmosphere, that plants take in and we breathe out, is being commoditized and bought and sold as if it were a barrel of oil or a tonne of coal. According the ECX, there is a fundamental difference between trading in CO2 and more traditional commodities; what people are selling is akin to a right to emit carbon dioxide. Typical sellers expect to emit less CO2 than they are allowed, so they may sell that unused right to emit to someone who emits more than their allocated amount. The underlying commodity being traded at ECX are EU allowances (EUAs) as issued under the EU ETS. One EUA equals one tonne of CO2 (right–to–emit). Approximately 2.2 billion EUAs in total have been granted yearly to the 12,000 installations falling under the EU Emission Trading Scheme. The ECX is currently offering Futures contracts, exchange–for–physical (EFPs), Exchange–for–Swap (EFS) and many more instruments that can be traded as Over–the–Counter Derivatives Contracts (OTCs).