The European Climate Exchange (ECX) opened trading yesterday for emissions credits that extend beyond the Kyoto compliance period. The Kyoto Protocol, which went into force in 2005, will sunset in 2012. International negotiations are currently underway for a successor agreement that will run from 2013-2020.

ECX opened the futures markets for the December 2013 and 2014 settlement periods, with credits for 10,000 tons of carbon emissions being purchased by an undisclosed party for 27.7 Euros (approximately $42) per ton. These credits may be used in the European Union Emissions Trading System (EU-ETS) for compliance with future emission reduction obligations to which the European Union is expected to commit. The European Commission recently issued proposed Directives for governing the next phase (Phase III) of the EU-ETS, beginning in 2013, with the intent that the market will continue even if there were no post-Kyoto agreement in place.

London is, in many respects, the center of the carbon trading market. As recently as six weeks ago, publications such as the Financial Times and the Times of London published articles expressing doubts about the market. Two of the most critical problems facing the carbon market relate to the process for issuing credits under the United Nations process and uncertainties over the structure of the post-Kyoto regulatory system. While the inefficiencies of the Clean Development Mechanism certification process remain, this trade reflects confidence that, at least in the EU, there will likely be a functional carbon market beyond the expiration of the Kyoto Protocol.

For further information about this topic, please contact Akin Gump.