Bluenext signs Chinese carbon credit deal

By Kathrin Hille in Beijing
Published: June 18 2009 07:58

Bluenext, Europe’s largest carbon credit exchange, is planning to set up a joint venture with China Beijing Environmental Exchange, in a sign that foreign players are positioning themselves for a fight over running secondary carbon trading in China once Beijing allows the launch of such a market.

“We are aiming at launching a joint venture, which would also direct us to other countries, not only to China,” Serge Harry, Bluenext chief executive, told the Financial Times.
“With CBEEX to launch a market in China in the near future, we have to start somewhere,” said Philippe Chauvancy, sales director. “We have the network and the resources to be involved in the launch of the market in China.”
Bluenext, jointly owned by NYSE Euronext and Caisse des Dépôts, the French state-owned bank, and CBEEX set the cornerstone for an international trading platform for Chinese carbon emission credits on Thursday with an agreement to offer information on Chinese emission-reducing projects to potential foreign investors on Bluenext’s website.
The two exchanges also planned to launch a number of products that are still under regulatory review in China, Mr Harry said. He declined to provide details.
In Europe, Bluenext’s products (apart from carbon spot trading) include carbon futures and spreads, which allow investors to arbitrage. The exchange has also announced indices and exchange-traded funds.
The agreement comes ahead of a Copenhagen meeting in December which is due to decide on a successor to the Kyoto protocol, whose main provisions expire in 2012.
Mr Chauvancy said recent climate change talks between Washington and Beijing had brought hopes that the Copenhagen meeting could kickstart secondary carbon markets involving the US and China, the two largest CO2 emitters, on a large scale.
The Chicago Climate Exchange, owned by Climate Exchange, has teamed up with China National Petroleum Corp, to set up the Tianjin Climate Exchange.
Mr Harry said other foreign carbon exchanges were also in talks for China partnerships.
“Developing carbon trading has been our policy for 10 years now, but we haven’t come along far enough in completing a clear regulatory framework,” said Li Junfeng, deputy director at the Energy Research Centre of the National Development and Reform Commission, China’s main economic policy planner. “So now you can take the first step and go forward.”
Under the Clean Development Mechanism (CDM), developing countries can create certified emission reductions from renewable energy projects or other projects that have been certified to reduce carbon emissions.
“China is the world’s largest supplier of such reductions with about 100m tons a year, accounting for 66 per cent of all contracted CDM supply,” said Wei Zhihong, deputy director of the Global Climate Change Institute at Qinghua University. “This has the potential to grow to 1bn tons a year by 2020.”
Because the country does not need to reduce its emissions under the Kyoto protocol, all these reductions can be sold to foreign users who need carbon credits.
However, China’s supply has been piling up quickly as the country lacks channels for marketing and trading the credits, and Chinese utilities mainly sell emission reduction rights through brokers to foreign investors – a slow, comparatively inefficient and untransparent process.
Since January 2008, more than 1,700 certified emission-reducing projects have accumulated in the pipeline.
“Only 6 per cent of those 66 per cent China contributes to the global supply are actually completed,” said Alex Chang, vice-president at Energy Systems International, a carbon credit broker.
“If [China is] going to seriously commit to bringing emissions down, they need this kind of infrastructure instead,” said Daniel Dudek, chief economist at the Environmental Defense Fund, referring to the partnership between Bluenext and CBEEX.
CBEEX is one of several environmental exchanges in China. But since it was set up by the Beijing municipal government last August, it has mostly collected projects that qualify for CDM such as a hydropower station under construction in the north-western province of Gansu – which is expected to generate reductions of 70,000 tons of CO2 from 2010 – or the modernisation of a coal-fired municipal heating system, which will generate another 40,000 tons.
The exchange’s role would eventually have to be to package emission rights into different products, Mr Wei said.
Datang, China’s leading power generation enterprise, had Rmb80m ($11.7m) in revenues from the sale of CDMs.
“We are handling all this ourselves now, but we want the exchanges to do it for us,” said Tang Renhu, head of the CDM department at a Datang affiliate.
Copyright The Financial Times Limited 2009