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Carbon capitalists warming to climate battle using derivatives (a new financial industry)
Economic Times ^ | 12/8/2009

Posted on 12/08/2009 10:36:54 AM PST by SeekAndFind

Across Uganda, thousands of women warm supper over new, $8 orange-painted stoves. The clay-and-metal pots burn about two-thirds the charcoal of the open-fire cooking typical of East Africa, where forests are being chopped down in the struggle to feed the region’s 125 million people.

Four thousand miles away, at the Charles Hurst Land Rover dealership in southwest London, a Range Rover Vogue sells for £90,000 pounds. A blue windshield sticker proclaims that the gasoline-powered truck’s first 45,000 miles (72,421 km) will be carbon neutral.

That’s because Land Rover, official purveyor of 4x4s to Queen Elizabeth II, is helping Ugandans cut their greenhouse gas emissions with those new stoves.

These two worlds came together in the offices of Blythe Masters at JPMorgan Chase & Co. Masters, 40, oversees the New York bank’s environmental businesses as the firm’s global head of commodities. JPMorgan brokered a deal in 2007 for Land Rover to buy carbon credits from ClimateCare, an Oxford, England-based group that develops energy-efficiency projects around the world. Land Rover, now owned by Mumbai-based Tata Motors, is using the credits to offset some of the CO2 emissions produced by its vehicles.

For Wall Street, these kinds of voluntary carbon deals are just a dress rehearsal for the day when the US develops a mandatory trading program for greenhouse gas emissions. JPMorgan, Goldman Sachs Group Inc. and Morgan Stanley will be watching closely as 192 nations gather in Copenhagen next week to try to forge a new climate-change treaty that would, for the first time, include the US and China.


Those two economies are the biggest emitters of CO2, the most ubiquitous of the gases found to cause global warming. The Kyoto Protocol, whose emissions targets will expire in 2012, spawned a carbon-trading system in Europe that the banks hope will be replicated in the US.

The US Senate is debating a clean-energy bill that would introduce cap and trade for US emissions. A similar bill passed the House of Representatives in June. The plan would transform US industry by forcing the biggest companies , such as utilities, oil and gas drillers and cement makers, to calculate the amounts of carbon dioxide and other greenhouse gases they emit and then pay for them.

Estimates of the potential size of the US cap-and-trade market range from $300 billion to $2 trillion.


Banks intend to become the intermediaries in this fledgling market. Although US carbon legislation may not pass for a year or more, Wall Street has already spent hundreds of millions of dollars hiring lobbyists and making deals with companies that can supply them with “carbon offsets” to sell to clients.

JPMorgan, for instance, purchased ClimateCare in early 2008 for an undisclosed sum. This month, it paid $210 million for Eco-Securities Group, the biggest developer of projects used to generate credits offsetting government-regulated carbon emissions. Financial institutions have also been investing in alternative energy, such as wind and solar power, and lending to clean-technology entrepreneurs.

The banks are preparing to do with carbon what they’ve done before: design and market derivatives contracts that will help client companies hedge their price risk over the long term. They’re also ready to sell carbonrelated financial products to outside investors.

Masters says banks must be allowed to lead the way if a mandatory carbon-trading system is going to help save the planet at the lowest possible cost. And derivatives related to carbon must be part of the mix, she says.

Derivatives are securities whose value is derived from the value of an underlying commodity — in this case, CO2 and other greenhouse gases.


“This requires a massive redirection of capital,” Masters says. “You can’t have a successful climate policy without the heavy, heavy involvement of financial institutions.”

As a young London banker in the early 1990s, Masters was part of JPMorgan’s team developing ideas for transferring risk to third parties. She went on to manage credit risk for JPMorgan’s investment bank.

Among the credit derivatives that grew from the bank’s early efforts was the credit-default swap. A CDS is a contract that functions like insurance by protecting debt holders against default. In 2008, after U.S. home prices plunged, the cost of protection against subprime-mortgage bond defaults jumped. Insurer American International Group Inc., which had sold billions in CDSs, was forced into government ownership, roiling markets and helping trigger the worst global recession since the 1930s.


Now, that story — and the entire role the banks played in the credit crisis — has become central to the US carbon debate. Washington lawmakers are leery of handing Wall Street anything new to trade because the bitter taste of the credit debacle lingers. And their focus is on derivatives. Along with CDSs, the most-notorious derivatives are the collateralized-debt obligations they often insured. CDOs are bundles of subprime mortgages and other debt that were sliced into tranches and sold to investors.

TOPICS: Business/Economy; Culture/Society; News/Current Events
KEYWORDS: capandtrade; carbon; derivatives

1 posted on 12/08/2009 10:36:55 AM PST by SeekAndFind
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To: SeekAndFind; livius; DollyCali; According2RecentPollsAirIsGood; Thunder90; Little Bill; ...

Beam me to Planet Gore !

2 posted on 12/08/2009 10:40:08 AM PST by steelyourfaith (Time to prosecute Al Gore now that fellow scam artist Bernie Madoff is in stir.)
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To: SeekAndFind

It is always about MONEY isn’t it.
Nothing more than the Madoff types running GW/CC schemes.

3 posted on 12/08/2009 10:40:23 AM PST by Marty62 (former Marty60)
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To: SeekAndFind
“Once you price CO2 and put a price on it, you find, as you would with any other product, it tends to be rationed. We as a people on this planet have lived under the false concept that air and water were free. And we’ve learned with a planet of 7 billion people, that we have to ration these precious goods. And the good old price system is the best way to do it.”

Richard Sandor, father of the carbon trading scam.

Bastille day can't come soon enough.
4 posted on 12/08/2009 10:40:25 AM PST by cripplecreek (Seniors, the new shovel ready project under socialized medicine.)
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To: SeekAndFind

How is the Range Rover’s first 45K miles “Carbon Neutral”, when the supposed offset is a bunch of cheap charcoal stoves burning CHARCOAL, which is far from Carbon neutral. I don’t get it. Less trees being cut down? Then how in the world do you get charcoal? Hello.....

I guess one has to be a total and complete moron to be deceived into thinking this is actually doing anything for the environment.

And we apparently have a large number in our own Congress who are just that moronic.

Climate change is a fraud. WE owe nothing to third world countries. This has nothing to do with the climate or environment, and has everything to do with power and redistribution of wealth - aka - worldwide socialism under a different name.

The old Soviets are actually winning the old Cold War. And without firing a single bullet or missile.

5 posted on 12/08/2009 10:46:11 AM PST by TheBattman (They exchanged the truth about God for a lie and worshiped and served the creature...)
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To: SeekAndFind


6 posted on 12/08/2009 10:46:41 AM PST by Dick Bachert (THE 2010 ELECTIONS ARE THE MOST IMPORTANT IN OUR LIFETIMES! BE THERE!!!)
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To: cripplecreek

It’s already happening :

Climate Exchange announces Monthly trading update

Press Release
3 December 2009


Monthly Trading Update for the European Climate Exchange,
the Chicago Climate Exchange and the Chicago Climate Futures Exchange
Climate Exchange plc, below outlines the trading volumes for the month
of November 2009 for the European Climate Exchange (ECX), the Chicago
Climate Exchange (CCX) and the Chicago Climate Futures Exchange (CCFE).


. November saw continued strong activity in the European market with
438,974 contracts traded, the fourth consecutive month of volume
growth. There was record screen volume on 30 November, largely
driven by EUA spread activity. Average Daily Volume for the month
again exceeded 20 Mt

. PHASE III EUAs saw further interest as the Dec 13 EUA Futures
contract traded regularly, and the Dec 14 contract traded for the
first time with 300,000 tonnes being cleared onto the exchange

. Whilst ECX has seen a noticeable increase in positions being rolled
forward from Dec 2009, open interest in the Dec 2009 EUA futures
remains above 150 million tonnes at month end (see chart 5 below);
this level is 50% higher than the open interest of the Dec 08
contract at this time last year

. 47,648 contracts traded on CCX in November, a 77% increase from the
26,886 contracts traded in October

. On 20 November, CCFE launched the Carbon Financial Instrument
United States Offset (CFI-US-O) and Carbon Financial Instrument EA
(CFI-EA) Futures Contracts

. Total Open Interest on CCFE reached a record high of 158,156
contracts on 24 November

Total ECX Products (Contracts*)

2009 2008 Change

November 438,974 322,456 +36.1 %
YTD 4,749,007 2,620,278 +81.2 %
Open Interest 839,678 547,643 +53.3 %

*1 contract equal to 1,000 EUAs/CERs
ECX EUA Futures Contract

2009 2008 Change
November 325,490 208,239 +56.3 %
YTD 3,505,800 1,872,340 +87.2 %
Open Interest 390,845 258,760 +51.0 %
ECX EUA Options Contract

2009 2008 Change
November 36,820 9,745 +277.8 %
YTD 390,753 221,615 +76.3 %
Open Interest 214,744 118,161 +81.7%
ECX EUA Daily Futures Contract (’Spot’) (launched 13 March 2009)

2009 2008 Change
November 7,081 - -
YTD 54,147 - -
ECX CER Futures Contract (launched 14 March 2008)

2009 2008 Change
November 64,789 90,272 -28.2 %
YTD 709,684 496,596 +42.9 %
Open Interest 140,900 112,772 +24.9 %
ECX CER Options Contract (launched 16 May 2008)

2009 2008 Change
November 3,400 14,200 -76.1 %
YTD 84,530 66,200 +27.7 %
Open Interest 93,189 57,950 +60.8 %

ECX CER Daily Futures Contract (Spot) (launched 13 March 2009)

2009 2008 Change
November 1,394 - -
YTD 4,193 - -
CCX CFI (Contracts)

2009 2008 Change
November 47,696 38,852 23%
YTD 437,302 688,175 -36%
CCFE (Contracts)

Total CCFE Products

2009 2008 Change
November 56,547 21,450 164%
YTD 1,272,972 440,544 189%
Open Interest 157,409 90,328 74%

CCFE SFI and NFI Futures & Options Contracts

2009 2008 Change
November 30,654 12,359 148%
YTD 520,262 376,098 38%
Open Interest 87,009 63,540 37%

CCFE Carbon Complex including CFI, RGGI, CCAR and CFI-US

2009 2008 Change
November 25,043 7,929 216%
YTD 744,040 56,944 1207%
Open Interest 62,392 21,225 194%
Other CCFE Products including IFEX

2009 2008 Change
November 850 1,162 -27%
YTD 8,670 7,502 16%
Open Interest 8,008 5,563 44%

For breakdown of daily trades, please refer to websites as follows:




Richard Sandor, Executive Chairman of Climate Exchange plc, said:”Policy
discussions are making important progress in the United
States and globally and carbon markets are continuing to see solid

Neil Eckert, Chief Executive Officer of Climate Exchange plc,
said:”November represents another month of growth in most areas of our
exchange especially in our core EU ETS contracts. The notable exception
is CER volumes which are down for this month by comparison to the same
month last year. We hope that events over the next few weeks
in Copenhagen will restore a level of confidence that will aid future
growth in this part of our business.”


Richard Sandor, Chairman Climate Exchange plc and 001 312 554 3370

Chairman & CEO Chicago Climate Exchange

Neil Eckert, CEO Climate Exchange plc 0207 382 7801

Patrick Birley, CEO European Climate Exchange 0207 382 7818

Jonny Franklin-Adams and Simon Law, Fox-Pitt, Kelton 0207 663 6000


Peter Rigby/Alex Parry, Haggie Financial 0207 417 8989 /
07813 808 738

About Climate Exchange plc

Climate Exchange plc is a holding company whose subsidiaries are
principally engaged in owning, operating and developing exchanges to
facilitate trading in environmental financial instruments including
emissions reduction credits in both voluntary and mandatory markets.
Its three main businesses are the European Climate Exchange (ECX) which
operates the leading derivatives exchange focused on compliance
certificates for the mandatory European Emissions Trading
Scheme, Chicago Climate Exchange (CCX) which operates a voluntary but
contractually binding cap and trade system for greenhouse gas emissions
in the U.S., and the Chicago Climate Futures Exchange (CCFE) the
leading U.S. regulated environmental products exchange whose contracts
include mandatory U.S. emissions such as SO2 , NOx and RGGI CO2.

About European Climate Exchange

The European Climate Exchange (ECX) manages product development and
marketing of futures, options and spot contracts based on CO2 EU
allowances (EUAs) traded under the EU Emissions Trading Scheme and
Certified Emission Reductions (CERs) issued under the Kyoto Protocol.
ECX contracts are listed and traded on the ICE Futures electronic
platform, offering a central marketplace for emissions
trading alongside other energy commodities with standardised
contracts and clearing guarantees. ECX/ ICE Futures is the most
liquid Exchange for carbon derivatives trading. More
than 100 businesses have signed up for direct membership to trade ECX
products. In addition, several thousand ICE clients can access the
market via banks and brokers.

About Chicago Climate Exchange, Inc. and Chicago Climate Futures

Chicago Climate Exchange (CCX) is a financial services business whose
objectives are to apply financial innovation and incentives to advance
social, environmental and economic goals. CCX is the world’s first and
North America’s only contractually binding rules-based greenhouse gas
emissions allowance trading system, as well as the world’s only global
system for emissions trading based on all six greenhouse gases. CCX
members are leaders in greenhouse gas management and represent all
sectors of the global economy, as well as public sector innovators.
Greenhouse gas emission reductions achieved through CCX are the only
reductions in North America being achieved through a legally binding
compliance regime. Independent third party verification is provided by
FINRA. For a full list of CCX members, daily prices and other Exchange
information please see the CCX website.

The Chicago Climate Futures Exchange (CCFE), a wholly owned subsidiary
of the Chicago Climate Exchange, is a CFTC designated contract market
which offers standardized and cleared futures contracts on emission
allowances and other environmental products. Clearing services are
provided by The Clearing Corporation. Market surveillance services are
provided by the National Futures Association, the industry wide,
self-regulatory organization for the U.S. futures industry.

7 posted on 12/08/2009 10:52:45 AM PST by SeekAndFind (wH)
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To: SeekAndFind
Hmmmm, financial derivatives, isn't that special. Creating something of value from something that is not yours.... That is what a big part of what was responsible for the stock market crash we recently experienced.
8 posted on 12/08/2009 11:03:08 AM PST by Cyclone59 (I ROCK, Guitar Hero said so........)
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To: Marty62

The scary thing is, it’s ultimately not about money.

The money is there to rope in the second layer of the pyramid: as lenin said, “the capitalist will sell you the rope you hang them with.”

The Soros’s, Algores, the “accademics,” and motley aristocrats behind this already have money, enough that they take it for granted.

They want power. World power.

9 posted on 12/08/2009 11:04:08 AM PST by tsomer
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To: SeekAndFind

Fantastic! If the collapse of financial institutions wasn’t enough for you the first time, here comes the sequel!

10 posted on 12/08/2009 11:08:37 AM PST by Brett66 (Where government advances, and it advances relentlessly , freedom is imperiled -Janice Rogers Brown)
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To: tsomer

Yes, they have the arrogance to believe they are the GODS that DESERVE to tell every other human how to live or how to die>

11 posted on 12/08/2009 11:28:03 AM PST by Marty62 (former Marty60)
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To: Brett66
Fantastic! If the collapse of financial institutions wasn’t enough for you the first time, here comes the sequel!

The idea really isn't new. Ken Lay and his cronies at ENRON were pushing for such a market over 10 years ago. It is only now that Cap and Trade is being taken seriously ( because we have the Dems in control... DUH !! ) that this idea is now being taken seriously once again.
12 posted on 12/08/2009 11:29:28 AM PST by SeekAndFind (wH)
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To: SeekAndFind
These people are capitalists the way Nazis were war heroes.

Frowning takes 68 muscles.
Smiling takes 6.
Pulling this trigger takes 2.
I'm lazy.

13 posted on 12/08/2009 1:17:21 PM PST by The Comedian (Evil can only succeed if good men don't point at it and laugh.)
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To: TheBattman
How is the Range Rover’s first 45K miles “Carbon Neutral”, when the supposed offset is a bunch of cheap charcoal stoves burning CHARCOAL, which is far from Carbon neutral.

They use less charcoal than before.

14 posted on 12/08/2009 9:21:19 PM PST by Toddsterpatriot (Math is hard. Harder if you're stupid.)
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