News Releases

LONDON - Barclays Capital, the investment banking division of Barclays Bank PLC, today welcomed the connection of the Community Independent Transaction Log (CITL) with the International Transaction Log (ITL) - the final piece in the European emissions trading jig-saw.  The CITL is the system that tracks all of the trades of European Union Allowances (EUAs) under the EU ETS while the ITL is the system that tracks all of the trades of credits created under the Kyoto Protocol such as Assigned Amount Units (AAUs), Certified Emission Reductions (CERs) and Emission Reduction Units (ERUs).   At 08:01 CET today, Barclays Capital transferred a batch of CERs from the Swiss registry to Denmark, thereby confirming the successful link-up.

The linking of the CITL with the ITL is a landmark day in the global carbon market as it allows credits generated under the Kyoto Protocol flexible mechanisms to be transferred into EU installations emissions accounts.  This is essential for the market because:

• CERs can be used for compliance under the EU ETS and this has encouraged many participants in the market to invest in emission reduction projects in developing countries.  The vast majority of these contracts are for forward delivery on 1 December 2008.  By going live, this link means that all of these forward contracts can be physically settled, thereby avoiding a potentially devastating level of contract default from which the market would be hard pressed to recover.
• A number of Member States had stated that they would not issue EUAs until the CITL-ITL link was functional, due to the fact that phase 2 EUAs carry a shadow AAU which can only be transferred through the ITL.  The announcement of the go live date means that this impediment to issuance has been removed.  For the same reason as above, the go live announcement takes away the considerable risk of contract default that was also facing the EUA market.          

The potential costs of the wide-spread contract default on forward sold EUAs and CERs, due to the failure to link the CITL and ITL by the 1 December, has been estimated by Barclays Capital to be €4 billion.

We also welcome the news of the CITL and ITL link because it facilitates the development of spot delivered carbon contracts which will provide the following benefits:

• By trading for spot delivery, participants avoid any credit and delivery risk that would otherwise need to be managed.  For trades done on exchange (and increasingly on OTC), the credit and delivery risk is managed through the use of credit requirements on participants to the exchange and margin payments. Such requirements, while necessary, can be a barrier to participation of smaller firms in the market.  With around 85% of EUAs being held by 10% of the installations, there are a large number of small installations that will find forward trading prohibitive.  For these firms, the ability to trade spot will be attractive and their participation in the market will help increase the efficiency of the market.  This is an important sector for Barclays Capital and we are looking forward to welcoming new clients
• It brings forward the date when revenue from CER and EUA sales can be monetised, since the money only changes hands on the forward contract on the settlement date.  The emergence of spot selling allows for a more regular stream of revenue, and for many project developers which have a revenue stream exposed to such sales, this is a key development allowing them to step up their development efforts.
• It fosters the development of additional contract structures, such as new repo / arbitrage deals involving spot against December delivery contracts.

Commenting on the ITL go-live, Louis Redshaw, Head of Environmental Markets Trading at Barclays Capital, said:

“This is a very exciting development for carbon trading.  Whilst most markets start with spot, developing forward trading later, this has run the other way round, meaning that it has not been able to run with optimal efficiency and liquidity.  A fully functioning spot market will demonstrate that emissions credits can trade like other commodities across the globe.

“The European Commission is to be congratulated on a significant logistical achievement.  This development means that the 27 European countries are now linked with each other and with the other Kyoto signatories, and has established a mechanism which will simplify the inclusion of new countries as they develop compatible trading systems.”

Chris Leeds, Head of Environmental Markets Sales said: “We expect to see a significant rise in client activity in this area of emissions trading and have created a suite of simplified trading documents specifically for smaller clients  As the biggest liquidity provider in the emissions trading market, we are excited about the growth in client business   we expect to see.”

 

Ends

                              

For further information, please contact:

Will Bowen, Barclays Capital Communications
Tel: +44 20 7773 3250
will.bowen@barclayscapital.com

 

Notes to editors:

Emissions trading at Barclays Capital

Barclays Capital has been at the forefront of emissions trading since the inception of the EU’s Emissions Trading Scheme. Barclays Capital has played a key role in the drive toward industry standard documents and concluded the first ever trade using the industry standard documents published by the International Swaps and Derivatives Association (ISDA) in July 2004. In March 2005, it was the first bank to take delivery of physical CO2 allowances under a spot market trade and in May 2005 it executed the first financial emissions trade to use the new London Energy Brokers Association (LEBA) carbon index as a reference price. In March 2006, Barclays Capital also became the first bank to take delivery of CERs into a temporary holding account on the UN’s CER registry. Barclays Capital has been recognised as a key player in the emissions trading market through various industry awards, including:

- Three #1 rankings in Environmental Risk’s inaugural market survey (August 2008)

- Named Emissions Trading House of the Year– The Banker Investment Banking Awards (October 2007)

- Voted #1 in European Emissions Trading – Risk  Energy & Commodity rankings (Feb 2006 and March 2007)

- Voted #1 in CER Trading – Risk Energy & Commodity rankings (March 2007)

- Named Best Trading Company – Point Carbon carbon market awards (March 2006 and March 2007)

- Named Best Trading Company, EU Emissions Trading Scheme – Environmental Finance (December 2006 and December 2007)

- Named Pioneers in Emission Dealing – Energy Risk (December 2005)

 

About Barclays Capital

Barclays Capital is the investment banking division of Barclays Bank PLC. With a distinctive business model, Barclays Capital provides large corporate, government and institutional clients with a comprehensive set of solutions to their strategic advisory, financing and risk management needs.  Barclays Capital has offices around the world, employs over 20,000 people and has the global reach, advisory services and distribution power to meet the needs of issuers and investors worldwide.

For further information about Barclays Capital, please visit our website www.barclayscapital.com.

Barclays Capital - the investment banking division of Barclays Bank PLC. Registered in England 1026167. Registered office 1 Churchill Place, London, E14 5HP. Authorised and regulated by the Financial Services Authority and a member of the London Stock Exchange.