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Carbon Markets and Emission Reductions Voluntary Carbon Market Grattan MacGiffin, Head of Voluntary Carbon Markets [email protected] EOI, Madrid February 2 nd , 2010
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Carbon Markets and Emission Reductions Voluntary Carbon MarketGrattan MacGiffin, Head of Voluntary Carbon [email protected]
EOI, MadridFebruary 2nd, 2010
About MF Global
1
Benefits of working with us
• Global distribution network, providing primary access to 70+ exchanges around the world
• Diversified and balanced business with solid balance sheet and strong growth
• Independent, predominantly agency model – focus is on providing the best execution, clearing and settlement services rather than taking positions on market direction
• Track record in risk; philosophy is to take measured risk and mitigate unexpected risk
MF Global (NYSE: MF) is a leading intermediary offering customized solutions in global cash and derivatives markets. We provide execution and clearing services for exchange-traded and over-the-counter derivative products as well as for non-derivative foreign exchange products and securities in the cash market. MF Global operates in 14 countries on more than 70 exchanges, providing access to some of the largest financial markets in the world and is the leader by volume on many of these markets.
2
Countries with offices and introducing broker (IB) relationships
Global Focus
• Operating in 14 countries
• 3,200+ employees
• 70+ Exchange affiliations
Diversified Global Presence
Our businesses are strategically aligned to optimize our clients’ access to our extensive array of products and our expansive global network.
MF Global has five strong institutional product lines and a retail clients division:
Countries with IB relationships
Global Product Focus
EOI - Carbon Markets
• Introduction
• Transacting VERs
• Retirement
• Facts and figures
• VER pricing
• Operating in the Voluntary Carbon Market
• VCM vs Regulated emissions
• The future
• Questions
Definition
• “In a voluntary carbon market, an entity (company, individual, or another ‘emitter’) volunteers to offset its carbon emissions by purchasing carbonallowances from a third party, who then takes this money and uses it towards a project that will reduce carbon in the atmosphere.”
• Alison Wise, National Renewable Energy Lab
Transacting VERs
Issues in dealing VERs
> Not commoditised
> No guarantees
> Interference from external agencies e.g. UN, DOEs
> Beauty in the eye of the beholder
> Changing fashions
> Legislative uncertainty
> Occasional bad press
= HARD WORK!
Typical deal counterparties
A typical example…
1 Project Developers e.g. Indian Wind project
2 Aggregators e.g. E&Y
3 Marketed e.g. Brokers
4 Buyer e.g. Retail Offset Provider
5 Corporate end-user
Other scenarios include:
> Seller – Buyer direct e.g. tender by large corporate
> Auctions – mixed success
+ Market speculators
Tips
• SELLERs
• Select standard carefully
• Understand what is selling
• Compile all paperwork
• Consider sale size/vintages
• Commit to sell
• Speak to experts
• Don’t cut corners
• Be realistic!
• Aim for repeat business
• BUYERs
• Assess carefully what you need
• Understand what is available
• Progress VERPA quickly
• Buy only what you need
• Commit to buy
• Speak to experts
• Accept unforeseen delays
• Be realistic!
• Aim for repeat business
Retiring VERs – an example
1 Seller submits project docs
2 Registry checks and verifies docs
3 Registry issues VCUs to Seller (logs details in VCSA registry)
4 Seller transfers VCUs to Buyer’s Holding account
5 Buyer transfers VCUs into their Retirement account
…Less than 10% of issued VERs are actually ‘retired’
North American 2009 OTC market by type
Source: New Energy Finance
Source: New Energy Finance Notes: Incl. VCI data from Jan-Aug, CCX OTC data, Aug - 18 Sept, and ACR transaction data
50%
19%
13%
6%5%
8%
3%1%LFG
Forestry
EOR
Livestock
ACR mixed/ not specified
CCX mixed / not specif ied
Ag soil
CMM
Total = 7.5Mt
International 2009 OTC market by type
Source: New Energy Finance
27%
25%22%
12%
11%
2%1%Fuel-switching
Industrial Gas
Wind
Run of River
Energy Efficiency
RE not specified
Methane
Total =1.0Mt
Source: New Energy Finance Notes: Incl. VCI data from Jan-Aug, CCX OTC data, Aug - 18 Sept, and ACR transaction data
Project type by standard
Source: New Energy Finance
Sectors
Standards Electrici ty Industry Transportation Agriculture Forestry Commerc ial /
Residential
C AR l ivestock CH4
m anure managem ent
reforesta tion , conservation based forest managem ent
land fill CH4
RGGI fugitive SF6 from transm ission livestock CH4 afforestation landfill CH4, e fficiency
VCS renewables, CH P, ef ficiency, SF6
process emissions, indust rial gases,
efficiency
fuel-switching, effic iency
livestock CH4, soil/crop practices
N2O
all LULUCF categories, avo ided
deforesta tion Ef fic iency
Gold Standard renewables, CHP efficiency fuel-switching, effic iency
e ffic iency, fertil iser N2O, l ivestock CH4,
biomass residue
ef ficiency, landfill CH4,
wastewater CH4
VER+ CDM-app roved CDM-approved CDM -approved C DM-approved CDM-app roved CDM-app roved
CCB A /R, ag ro -forest ry,
avoided deforesta tion
C CX renewable coal-mine methane,
efficiency, fuel-switching
fuel-switching, effic iency
agricu ltu ra l CH 4, soil/crop practices
N2O, o rganic waste disposal
A/R, IFM, and fo rest en richmen t
ef fic iency, fuel-switching
ACR renewable fuel switching, efficiency
fue l switch ing , effic iency
m anure managemen t
A /R,
REDD land fill CH4
North American 2009 OTC market by standard
Source: New Energy Finance
Source: New Energy Finance Notes: Incl. VCI data from Jan-Aug, CCX OTC data, Aug - 18 Sept, and ACR transaction data
49%
23%
16%
7%4%1%
CAR
ACR
CCX
CCB
VCS
None
Total = 7.5Mt
International 2009 OTC market by standard
Source: New Energy Finance
70%
26%
2%VCS
Social Carbon + VCS
Gold Standard
VER+
CCX
Total = 1.0Mt
Source: New Energy Finance Notes: Incl. VCI data from Jan-Aug, CCX OTC data, Aug - 18 Sept, and ACR transaction data
Historical/ projected voluntary market transaction volumes
Source: New Energy Finance
9 15
43 54
1
10
23
69
3 147
3 1
31 1 3
14
0
2 0
4 0
6 0
8 0
100
120
140
20 05 200 6 2007 2008 20 09 (conservative)
2009 (o ptimistic)
C C X (h istorical )
OTC (h istorical )
123 Mt
66 Mt
25 Mt
11Mt
69Mt
8 8Mt
OT C vo lum e 2008
R em ain in g vo lu m e exp ected
C C X tra ded vo lu m e
123 Mt
66 Mt
25 Mt
11Mt
69Mt
8 8Mt
OT C vo lum e 2008
R em ain in g vo lu m e exp ected
C C X tra ded vo lu m e
Source: New Energy Finance, Ecosystem Marketplace. Notes: 1) projections for 2009 volume include an assumption for the OTC market size that the VCI captures 1/3 of the global voluntary market, in line with our annual study “State of the Voluntary Carbon Market”
MtCO2e/yr
Pricing
Historical prices and volumes on the CCX
Source: New Energy Finance
US$/tCO2e
0
5
10
15
20
25
30
0
1
2
3
4
5
6
7
Q4 03
Q1 04
Q2 04
Q3 04
Q4 04
Q1 05
Q2 05
Q3 05
Q4 05
Q1 06
Q2 06
Q3 06
Q4 06
Q1 07
Q2 07
Q3 07
Q4 07
Q1 08
Q2 08
Q3 08
Q4 08
Q1 09
Q2 09
Q3 09
Volume Prices
OTC Wholesale prices by standard
9.8
7.0 6.8
3.0
1.4
0.0
2.0
4.0
6.0
8.0
10.0
12.0
Gold Standard Other (CCB, Social Carbon,
others...)
CCAR VCS CCX
Attracting business
VER pricing sample
source: MF Global, CCX
-480.820.43CFI OTC
-330.150.1CFI on exchange
no changeno change7CRT
-7€ 7€ 6.50Gold Standard
-452.751.5VCS Industrial
2056VCS Premium
% changePrice last issue2009 vintaget CO2e
VER prices - December 4
Carbon Finance, Dec 2009-Jan 2010, Volume 7, Issue 1
21
Marketing
Voluntary Carbon Market vs Regulated Emissions
Source: “State of the Voluntary Carbon Markets 2009”, Ecosystem Marketplace and NCF
MarketsVolume (MtCO2e) Value (US$ million)
2007 2008 2007 2008
Voluntary OTC 43.1 54.2 262.9 396.7
CCX 22.9 69.2 72.4 306.7
Other exchanges 0 0.2 0 1.3
Total Voluntary Markets 66.0 (2.2%) 123.4 (2.9%) 335.3 (0.5%) 704.8 (0.6%)
EU ETS 2,061.0 2,982.0 50,097.0 94,971.7
Primary CDM 551.0 400.3 7,426.0 6,118.2
Secondary CDM 240.0 622.4 5,451.0 15,584.5
Joint Implementation 41.0 8.0 499.0 2,339.8
Kyoto [AAU] 0.0 16.0 0.0 177.1
New South W ales 25.0 30.6 224.0 151.9
RGGI - 27.4 - 108.9
Alberta’s SGER(a) 1.5 3.3 13.7 31.3
Total Regulated Markets 2,919.5 4,090.0 63,710.7 119,483.4
Total Global Markets 2,985.5 4,213.4 64,046.0 120,189.0
Transaction volumes and values, globally 2007-08
The future
Likely scenarios
• Bounce back to upward growth trend in global VCM
• Continued evolution of standards and market transparency
• US legislation (sometime!)
• The rise of REDD
• Innovator of new project methodologies
• More forward trading as market matures
• CCX OTC growth
• US offsets to dominate growth
• Big driver of “green tech” industries
