ASX set to run carbon trading

Australian
Tuesday 15/7/2008 Page: 28

THE Australian Securities Exchange is the frontrunner to operate a futures market worth up to $12 billion to support a national emissions trading system. Legislation expected to be passed late next year will require a marketplace for companies to buy and sell carbon certificates required by the scheme. The ASX was perfectly positioned to facilitate this activity because of its existing infrastructure and client base, emerging markets general manager Anthony Collins said.

"ASX already runs a very large energy futures market," he said. "All the likely permit holders under the scheme are already trading over-the-counter and exchange-based futures contracts, so it's going to be very easy for them to access our infrastructure to manage their risks and compliance." The ASX will also be able to integrate the required settlement functions into its Austraclear system.

"They're going to be traded, but they also need to be settled. "To get the certificate you need to pay the money. "Austraclear is integrated into all the back-office systems to settle electricity and gas accounts and we'll put the permits into Austraclear. "This will be an interface for the national registry that will hold the permits so people can settle their spot and derivatives transactions efficiently and safely." Mr Collins priced an emissions trading market at about $12 billion, based on the federal Government's indications that the scheme would have 70 per cent coverage of the market about 420 million tonnes of carbon, priced at $30 a tonne.

The ASX would be able to get any system up soon after the legislation was introduced, with minimal effort. Mr Collins stressed that the $12 billion value was not the actual cost of starting an emissions trading scheme. The National Generators' Forum estimates that $150 billion is required to meet a 60 per cent reduction on year 2000 estimates by 2050, or about $3 billion a year. This far exceeds earlier reports that reported businesses would spend $7 billion by 2015. The Government will set up the registry in charge of selling off the permits.

But it wants the financial markets to service the scheme, regardless of whether they use existing infrastructure. "They're not going to mandate somebody to build a new exchange, or that people have to trade in a particular way," Mr Collins said. "They'll say here is the registry, here are your obligations and they very much expect the market to figure out the methods of trading. "The Government's objectives are to get the design of the scheme right, to get the right coverage and trajectory, and once the permits are either auctioned or allocated, they get compensation and other issues dealt with.

"I get a sense they're pretty relaxed and confident the market will service the scheme." The market operator also expects a wave of investment as companies developing the technology to support green energy initiatives raise capital on the ASX. "It's a growing sector, if you look at companies investing a lot in these new technologies, such as AGL and Origin Energy. "You're looking at market capitalisation of $13 billion to $14 billion. "They're an important part of the ASX, but there are at least 15 to 20 start-up companies also listed with us developing these clean technologies, such as clean coal, hot rocks and solar."