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The Emission Units Allowances Market:
organization and rules
CO2 Expo 2005 - Fiera di Roma
29 september 2005
2. Market organized by GME
3. European market
Index
1. Units Registy
2
1. Units Registry
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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.
APAT Register 4
Once allocated, emission units can be traded.
Trades can be carried out OTC or through an organized market.
Units trading5
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)
OTC trades6
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2. Market organized by GME
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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
The organized market
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.
The organized market
GME DEPOSIT ACCOUNT c/o APAT
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APAT Register
European National Registers
GME deposit account
Operators deposit accounts
FR UK SP
The organized market10
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.
The organized market11
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.
The organized market12
Deposit account Initial deposit +
Trades security
The organized market13
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.
The organized market
APAT Register
European National Registers
GME deposit account
Operators deposit accounts
FR UK SP
After market sessions:
The organized market15
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.
MARKET SESSIONS
The organized market16
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).
TRADING BOOK
The organized market17
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.
Bids and offers
The organized market18
Bids and offers can be inserted:
with price limit
at market price (without price limit)
The organized market19
Bids and Offers with price limit
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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
The organized market
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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
The organized market
Bid and Offers at market price (without price limit)
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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.
The organized market
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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.
The organized market
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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
PAYMENTS
The organized market
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.
PAYMENTS
25 The organized market
The organized market presents the following advantages:
Easiness to find the counterparty
liquidity and prices efficiency
trades security
The organized market26
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)
Potential market developments27
3. European Market
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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.
The European Market29
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)
30 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.
31 The European Market
EUAs: price trend (August 2003 – August 2005)
30.0
26.0
14.0
10.0
6.0
22.0
18.0
08/2003 08/2004 08/2005
Font: PointCarbon
The European Market32
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)
33 The European Market
Gestore del Mercato Elettrico SpA
Viale Maresciallo Pilsudski, 92 - 00197 Romatel. + 39.06.8012.1 fax +39.06.8012.4102
E-mail: [email protected]
Internet: www.mercatoelettrico.org
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