Competition In Environmental Markets Heats Up

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Close followers of the environmental finance space have known it for a while; Climate Exchange (CXCHF.PK or CLE.L) is sitting on a potential gold mine. The market for environmental commodities, but especially carbon emissions, is slated to grow significantly over the next 5 to 7 years. It was therefore only a matter of time before competition sprung up, both from small players trying to leverage their technological platforms and from the big guys. The big guys came out swinging this week, with NYMEX announcing a partnership with JP Morgan and Morgan Stanley, among others, to set up a platform to trade various environmental contracts, including European carbon credits. The partnership, called The Green Exchange, will also look to cooperate with the brokers who currently drive most of the volume in the EU ETS (around 70% of European carbon trades are conducted OTC). NYMEX officials had hinted at this a few months ago, so there is no big surprise here. The surprise really lays with the scale of the partnership, and I think it’s now fair to say that this may not bode well for Climate Exchange. The timing of this announcement is also interesting. At a time when certain world leaders are doing all that they can to emasculate multi-lateral efforts to tackle global warming, big finance just sent a powerful reminder that this is no negative sum game, and that a growing tranche of the business community could profit from a well-designed program to cut greenhouse gas emissions. Hopefully our leaders heed the call.

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