US traders cross Pond for carbon market work experience

Growing numbers of US financial firms have started to play on the European Climate Exchange (ECX) as they seek to gain experience of how carbon markets operate ahead of the launch of a US cap-and-trade scheme.

Sara Stahl, business development director for the ECX, said the second half of the year had seen an influx of US firms joining the exchange, helping to drive traded volumes of carbon credits up to record levels.

"A lot of new players have joined the market this year as they were looking for the right level of liquidity, which has now been achieved," she said. "But we've also seen a lot of American firms get involved in the second half of the year after both Obama and McCain said they were going to introduce a cap-and-trade scheme."

As a result, the volume of carbon credits traded on the ECX during October was up 240 per cent year on year, while the overall volume for the year up to November was up 173 per cent.

Stahl added that US traders were primarily seeking to gain an insight into how the EU's emissions trading scheme works so that they can start "with a big bang" when a US scheme comes on line.

Obama's transition team has said that the development of a cap-and-trade scheme will be one of the top priorities of an incoming administration and the drafting of a climate change bill featuring such a scheme is expected to one of the first tasks faced by legislators when they return to Washington in the New Year.

In addition, Stahl said the outlook for the ECX remained upbeat for 2009, despite the backdrop of continuing economic difficulties.

"We will definitely see more growth next year," she predicted. "The Wall Street banks are now involved in the carbon market, but a lot of commodity trading firms are not involved yet. They trade everything else relating to energy, so it makes sense for them to trade carbon as well."

She added that they were waiting for "a bit more liquidity in the market", noting that while the ECX handles about 80,000 contracts a day, oil will see 600,000 trades in the same 24 hours. But she predicted that as the liquidity continues to grow, the case for more commodity traders to get involved will get ever stronger.