The Emission Units Allowances
Market: organization and rules
CO2 Expo 2005 - Fiera di Roma
29 september 2005
2
Index
1. Units Registy
2. Market organized by GME
3. European market
3
1. Units Registry
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APAT Register
 The Agency for Environmental Protection and Technical Services
(APAT) has been incharged to manage the emission units Registry.
 For each operator, a deposit account will be opened on the
Registry.
 On the deposit account the emission units will be credited according
to the national allocation plan.
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Units trading
 Once allocated, emission units can be traded.
 Trades can be carried out OTC or through an organized market.
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OTC trades
 In the case of OTC trades units transfer will be realized on the
initiative of the seller.
 The seller will submit in the APAT Registry selling operation.
The principal data to be submitted are the following:
 quantity to be transferred
 Units typology
 obligation period (i.e. 2005-2007)
Account ID of the buyer
 Units traded will be automatically transferred from the seller
deposit account to the buyer deposit account (after Central
Administrator check)
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2. Market organized by GME
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The organized market
 Market organized by GME is an internet based platform
 Operators can access to the market through user ID and
password
 User ID and password will be assigned to all market’s operators
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The organized market
GME DEPOSIT ACCOUNT c/o APAT
 For the market functionality, GME opens an deposit account c/o
APAT
 The operators that are going to sell the emission units on the GME
market platform transfer, temporarily, these units on GME deposit
account.
10 The organized market
European National Registers
FR
UK
SP
APAT Register
Operators deposit accounts
GME
deposit
account
11 The organized market
 Market rules provide that:
 In order to market participation, units will be temporally
transferred to GME.
 GME binds itself to re-transfer unsold units to each
potential seller.
 The potential seller authorizes GME to transfer the units
sold in the market to the buyer.
12 The organized market
INITIAL DEPOSIT
 In order to guarantee the sellers, the buyers will have to make an
initial deposit on the GME account.
 This deposit is remunerated, guarantees the payment of the
penalty and it will be used only in the case of a buyer unfulfillment.
 Each operator could buy units in proportion to the initial
deposit.
13 The organized market
Deposit account
+
Initial deposit
Trades security
The organized market
Optional deposit
 The buyers can make an optional deposit on a GME account.
 This deposit guarantees, real time, the fulfillment of trades
covered by the deposit amount.
 GME uses this deposit to pay the units bought by an operator.
 The units covered by the optional deposit will be immediately
transferred to the operator and can be traded within the same
market session.
15
The organized market
 After market sessions:
European National Registers
FR
UK
SP
APAT Register
Operators deposit accounts
GME
deposit
account
16 The organized market
MARKET SESSIONS
 Market is organized in sessions.
 Within each session, trades will be carried out continuously.
 It will be possible to submit continuously bids/offers during the
sessions.
17 The organized market
TRADING BOOK
 Bids and offers will be arranged in the trading book.
 Each trading book shows the best bids and offers arranged on
the basis of the price priority ( in the case of identical prices, bids
and offers will be arranged according to the time stamp registered by
GME informatics system).
 GME organizes a different trading book, for each reference year
(2005, 2006, 2007), referred to the emission units allowances assigned
by the National Allocation Plan (EUAs).
18 The organized market
Bids and offers
 The operators insert the bids/offers with the following
specifications :
 Reference year
 Operation type (bid or offer)
 Quantity
 Price
 It’s possible to modify or delete bids/offers that have not been
subject to automatic matching for the entire quantity.
 In the case of partially accepted bids/offers the modification or
the deleting is possible only for the residual parts.
 The modified bids/offers lose their original time stamp.
19 The organized market
 Bids and offers can be inserted:
 with price limit
 at market price (without price limit)
20 The organized market
 Bids and Offers with price limit
A Bid with price limit will be matched with offers with a price lower or equal to
the limit.
Ex: Buy 50 @ 24
A Bid of 50 units at 24 will be matched with the first offer of 40 at 22 and with
only 10 units at 23. The buyer will
 buy 40 @ 22
 buy 10 @ 23
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21 The organized market
After the matching:
If a quantity is not completely satisfied, the system will generate a new
proposal with price equal to the limit and quantity equal to the quantity non
matched
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22 The organized market
 Bid and Offers at market price (without price limit)
Bid at market price will match with offers, from the one at lowest price upward,
till the quantity is completely satisfied.
Es: Buy 150 @ Market
A Bid of 150 units at will match with the best offer of 40 units at 22, with the
second offer of 60 units at 23 and with the third offer of 20 units at 25.
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23 The organized market
After the matching, the buyer will:

buy 40 @ 22 €

buy 60 @ 23 €

buy 20 @ 25 €
The situation will be the following:
The quantity not satisfied (30 units) will be cancelled.
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24 The organized market
PAYMENTS
 Once sessions are closed, the operators will receive trades
confirmations
 Buyers will have to make a payment on the GME account
 After receiving payments, GME:
 will insert trades on Register (the sold units will be transferred
from GME deposit account to buyer deposit account) allowing the
right ownership change;
 will make payments towards the sellers
25 The organized market
PAYMENTS
 In the case of unfulfillment of the payment by deadline, the trade
will be deleted.
 A penalty will be imposed to the unfulfilling buyer (on the initial
deposit and pro the seller)
 The seller will maintain the ownership of the units and will
receive a payment as indemnity.
26 The organized market
 The organized market presents the following advantages:
 Easiness to find the counterparty
 liquidity and prices efficiency
 trades security
27 Potential market developments
 On the future it will be possible to organize the following trading
books:
 ERUs (Joint Implementation projects credits),
 CERs (Clean Development Mechanism projects credits )
 RMUs (natural sinks absorption projects credits)
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3. European Market
29 The European Market
 For the 2005-2007 period about 6,5 billion units have been
assigned to almost 12.000 plants in Europe.
 It’s estimated that about 10% of the assigned units will be
traded among the operators. The countervalue, at a price of 20
€/tonn, is almost 13 billion euros.
30 The European Market
 Brokers have been organizing OTC trades for the last two years
 This year some emission units organized markets have been
started:
 NordPool
 European Energy Exchange (EEX)
 European Climate Exchange
 Powernext
 Energy Exchange Austria (EXAA)
31 The European Market
 Until today 70 million units have been traded
 Two thirds of the trades have been carried out OTC and one
third on organized markets.
 The trend is the migration of the volumes from OTC trades to
organized markets.
32 The European Market
EUAs: price trend (August 2003 – August 2005)
30.0
26.0
22.0
18.0
14.0
10.0
6.0
08/2003
08/2004
08/2005
Font: PointCarbon
33 The European Market

The reasons of the prices growth can be the following:

PNA recently approved are more restrictive than
expected;

High Oil price and increase of the gas/coal spread;

Shortage of structural sellers among the EU-15;


The new EU members aren't respecting the expectative :

They didn’t obtain “generous” allocations

Low abatement costs but still not operative Registers

Growing economies : they should need units
JI and CDM have regulatory risks and long
implementation times.
Price differential between EUAs and ERUs or CERs is growing (i.e:
Netherlands bought Ji project credits for 5,18 €/tonn)
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Gestore del Mercato Elettrico SpA
Viale Maresciallo Pilsudski, 92 - 00197 Roma
tel. + 39.06.8012.1
fax +39.06.8012.4102
E-mail: [email protected]
Internet: www.mercatoelettrico.org