NASDAQ OMX COMMODitieS
1. nAsDAQ oMX Commodities’ carbon market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2. Background to the carbon market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3. nAsDAQ oMX Commodities carbon products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4. trading carbon products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5. What influences carbon prices? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
6. How to get more information? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
7. overview over tradable units regulated by Kyoto protocol and Kyoto flexible mechanisms . . . . . . . . . . . . . . . . . . . . . . 11
8. terminology for the carbon market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
1. nAsDAQ oMX CoMMoDities’ CArBon MArKet
nAsDAQ oMX Commodities and nord Pool AsA provide access to the world’s largest power derivatives markets and one
of europe’s largest carbon markets. nord Pool AsA is responsible for the exchange operations of global carbon products,
including the ownership of the nordic derivative products. nAsDAQ oMX Commodities comprises carbon products,
international derivatives, clearing business and consulting services provided for commodity markets globally. the acquisition
of these products and services was completed in october 2008.
eU legal framework constituted the basis for initialisation of nAsDAQ oMX Commodities emission market and trading in
european Union allowances (eUAs). Being the first carbon exchange, nAsDAQ oMX Commodities started listing eUAs as
standardised exchange contracts as early as 11 February 2005. in June 2007, nordPool/nAsDAQ oMX Commodities was the
first exchange to offer trading in project-based certified emission reductions (Cers) regulated by the Un. A total of more
than 135 participants are present in the nAsDAQ oMX Commodities carbon market.
The marketplace role
electricity generators emit substantial volumes of carbon dioxide, since much of its output is fuelled by coal or gas.
Consequently, the electricity industry is one of the biggest sectors within eU ets covering more than 50% of total eU
allocation. Because the emitters must now pay for these emissions, electricity generating costs have risen.
For nord Pool/nAsDAQ oMX Commodities, which is the leading marketplace for financially settled power contracts, it was
important to the establish a new marketplace for emissions to satisfy the needs of nord Pool’s members from the nordic
and european electricity industry. the main intention behind the emission market is to offer carbon contracts that allow
members to manage the price risk these allowances present for electricity generation or industrial production.
nord Pool//nAsDAQ oMX Commodities has facilitated an efficient, transparent and confidence-inspiring development of
emission market similar to the one for nordic power. this is achieved by offering standardised products in a regulated
marketplace with strict requirements for information management.
NASDAQ OMX COMMODitieS CArbON prODuCtS 3
2. BACKgroUnD to tHe CArBon MArKet
the market for carbon emission allowances and carbon credits has emerged as a consequence of the Kyoto protocol, and
covers both developed and developing countries. only industrialised countries (so-called Annex i Parties to the protocol)
have committed to binding emission targets under the protocol. Collectively, they have undertaken to reduce greenhouse
gas emission by roughly five per cent compared with the 1990 level by end of 2012 (that is by the end of the first commitment
period of Kyoto protocol, so-called Kyoto period).
in response to this global climate action the european Parliament introduced a Directive (2003/87/eC) establishing a scheme
for greenhouse gas emission allowance trading (eU ets). Under that Directive, years 2005-2007 are defined as a three-year
trial period (phase i) before entering a five-year Kyoto period (phase ii), which began on 1 January 2008.
in addition to regional carbon trading schemes (as eU ets) other emission trading opportunities have been opened through
Kyoto protocol’s flexibility mechanisms:
• Joint implementation (JI),
• Clean development mechanism (CDM)
• International governmental trading of assigned amount units (AAUs). AAU can be defined as the total amount of
greenhouse gases that each Annex i country is allowed to emit during Kyoto period. they are issued by Un and
are tradable units of one Co2 equivalent (1tCo2e)
All Kyoto mechanisms may be used by Annex i countries to fulfil their Kyoto commitments. CDM permits industrialised
countries to finance projects for reducing greenhouse gas emissions in developing countries, while Ji allows industrialised
countries to finance such projects in another industrialised country (including countries with economies in transition).
Credits earned through these mechanisms are known as certified emission reductions (Cers) and emission reduction units
The benefits of emission allowances
each allowance has a “value” corresponding to one tonne of carbon dioxide equivalent (1tCo2e). its price accordingly defines
the cost of emitting greenhouse gases, and gives the emitter an opportunity to assess alternative courses of action. these
include reducing the output of a commodity which causes carbon emissions, installing new technology to reduce emissions,
or buying additional eUAs/Cers, if this is cheaper than cutting emissions. the market price for eUAs accordingly represents
an important economic factor for european power generators.
4 NASDAQ OMX COMMODitieS CArbON prODuCtS
A european Union allowance (eUA) is the official name for european emission allowances, which is defined from 2008 as
the official Kyoto allowance for countries within eU ets (european Union emissions trading scheme). one eUA entitles the
holder to emit one tonne of carbon dioxide or carbon-equivalent greenhouse gas.
By 28 February each year, member states issue new eUAs to all companies covered by eU’s ets. these awards are made in
accordance with national Allocation Plans approved by the european Commission and based on the Kyoto protocol’s
obligations. eUAs are awarded for one year at a time.
By 30 April each year, companies are obliged to deliver report on the number of eUAs registered on their accounts in the
national registry and how it corresponds to company’s actual emissions in the preceding year. eUAs can also be carried over
from one year to another if a company proves to have released less greenhouse gas emission than the amount of eUAs it
holds on the account in a particular year of the compliance period.
A certified emission reduction (Cer) is the name for a carbon credit obtained through the CDM previously described. this
mechanism facilitates transfer of both capital and technology from the industrial part of the world to developing countries.
Projects must be approved by the Un’s CDM executive board before generating new Cers. Project based credits can be used
by eU companies for compliance in the Kyoto period. the limit for using Cers is currently set up to approximately 13.4% of
Carbon market in phase I and phase II
eU ets phase i – the “learning phase” - demonstrated that a carbon price succeeded in encouraging to emission abatement
within europe and in developing countries. However, verified emission data in 2005-2007 showed that the emission cap for
2005-2007 had been set too low in relation to actual emissions.
As a consequence, the price for phase i eUA was based on wrong assumptions and led to high volatility in the carbon market.
After reaching the level of over 30 euro in April 2006, the eUA phase i lost two-third of its value within a few days following
an uncoordinated release of verified emission reports. the price has slid further to the level under one euro and the inability
to carry forward the allowances to subsequent compliance periods has made the allowances almost worthless.
Market interest in the second part of 2006 has shifted out of phase i and began to focus on phase ii. it was expected that the
compliance caps in the Kyoto period would be much more stringent.
revision of allocation for phase ii resulted in a reduction in cap by roughly 6% below 2005 verified emissions. one of the
other changes in the eU ets design, apart from stringent cap, is the possibility of banking eUAs to the subsequent period,
which will bring the sense of market continuity and encourage further investment in new abatement technologies. Another
is inclusion of the aviation sector in the scheme from 2011.
NASDAQ OMX COMMODitieS CArbON prODuCtS 5
Focus on post-Kyoto development
the future of global carbon market depends on many factors; one of them is the further development of eU ets and the
establishment of a new international climate treaty.
in December 2008, the european Commission ratified a new eU climate and energy package including a review of the existing
eU emission trading scheme. the Commission proposed gradual reduction of emission allowances allocated to installations
covered by the scheme, eU-wide harmonisation of method and limited use of Cers/erUs for compliance.
one of the significant changes, in the post-Kyoto period for the power sector is that the majority of installations covered by
the scheme will not receive eU allowances for free. Auctioning in other sectors covered by the scheme will also be gradually
phased-in. However, the exception will be made to energy intensive industries that are subjected to risk of “carbon leakage”.
the new eU countries within the power sector that are heavily dependent upon coal will also be partially exempted and
receive a certain amount of allowances for free. new industries will be added to the scheme, so will new greenhouse gases.
the fact that we entered the Kyoto period implies that carbon trading now concerns all the countries that ratified Kyoto protocol
and have to comply with binding targets. these include new-comers like Australia that ratified Kyoto in December 2007.
in the course of 2008, new carbon regional carbon markets have started to emerge. the first American regional carbon
initiative rggi was launched on 1 January 2009. Australia plans to start its emissions trading scheme in 2010. Japan and
south Korea are going to introduce their own voluntary markets outside the Kyoto scope. the Us is expected to launch a
federal emission trading scheme in the future either within or without the scope of international climate treaty.
At the recent conference of parties (CoP) in Poznan, 192 member countries of United nation Framework for Climate
Convention have agreed to finalise a new global climate agreement (successor to Kyoto protocol) by the end of 2009, taking
effect of 2013.
this time the parties to the UnFCCC discussed the necessary extension of the list of Annex i countries ( i.e. countries with
emission targets) to some of largest and fastest growing economies in the third world. such a direction of policy gives
indication that Ji mechanism (or its successor) may play significant role in the post-Kyoto future.
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3. nAsDAQ oMX CoMMoDities CArBon ProDUCts
the major difference between the financial electricity market and the emission market is that there is a physical delivery
of eUA and Cer to the buyer and a financial settlement to the seller, while the financial electricity market has only
European Union Allowances (EUAs)
Forward and spot market
• Physical forward contracts for 2009-2012, covering the whole Kyoto period
• Spot contract (day-ahead EUA)
• Contract size 1 EUA = 1000 ton CO2 (=tCO2)
Certified Emission Reductions (CERs)
• Physical forward contracts for 2009-2012, covering the whole Kyoto period
• Contract size 1 CER = 1000 ton CO2 (=tCO2)
• Based on the EUA contract, same rulebook, unless this is specifically stated in the articles
• In accordance with EU ETS Directive (excluding projects related to nuclear power production, land use, land use
change, forestry and hydroelectric power generation exceeding 20 MW)
• Combination products CER/EUA SWAPs and STRIPs for 2009-2012
NASDAQ OMX COMMODitieS CArbON prODuCtS 7
4. trADing CArBon ContrACts
in the future, all nAsDAQ oMX members can trade carbon contracts on their existing membership. However, before the
trading and clearing platform are alike, you need a membership with nord Pool AsA (trading) and nAsDAQ oMX Commodities
(clearing) in order to trade carbon contracts. Members will trade through the efficient and user friendly CLiCK trade XttM
electronic trading system. Precondition for trading eUA/Cer is exchange and clearing membership. in addition all participants
in the eU ets market must establish an account in an eU national registry for allowances. this account must be registered in
nAsDAQ oMX Commodities before trading can commence.
Trading and clearing services
• Continuous trading via CLICK Trade
• Voice execution by the marketplace desk
• Counterparty risk: Nord Pool Clearing (NPC) acts as a counterparty in all exchange trades and cleared non-
exchange trades. nPC guarantees physical delivery of eUAs/Cers to the buyer and financial settlement to the seller.
• Collaterals: cash deposit in a pledged bank account and/ or an on-demand bank guarantee
• Netting between EUA and CER
• Delivery method: the seller transfers EUAs/ CERs to NPC accounts in the Danish registry
• Clearing services includes clearing Over-The-Counter trades (OTC) and bilateral
the daily closing price is set by the exchange by the end of each day.
For more information, please see nord Pool’s rulebook on www.nordpool.com
How to read the product calendar
All products have a specific code. these codes are used to identify the different products.
in nAsDAQ oMX Commodities/nord Pool emission markets the following codes are used:
EUA = Emission allowances forward contract
Ticker code: EUAmth-yr, where mth = month, yr-year
the ticker code shows the delivery month and delivery year
EUA SPOT = Emission allowance spot (day-ahead) contract
Ticker code: EUADddmm-yr where D=day
the ticker code shows trading day and the contract is only traded for one day
CER = Certified emission reduction forward contract
Ticker code: CERmth-yr where mth = month, yr-year
the ticker code shows the delivery month and delivery year
the content of a product is base on the Julian calendar.
For example: a month includes all days (Monday through sunday), 24 hours each day. the length of month, and
year are variable. the specification below is therefore more indicative. Please note that all carbon products are
traded in eUr.
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5. WHAt inFLUenCes CArBon PriCes?
Carbon prices are primarily influenced by fundamental factors known from the electricity market like weather, coal, gas and
oil prices. the price of eUA is also strongly influenced by political decisions made by the eU concerning the total amount of
allocated allowances (eU cap) and allocation mechanisms (free or auction).
Additionally, political decisions concerning the limit of project-based credits allowed to be used for compliance has created
a link between eUA and Cer prices. these prices are said to mutually influence one another. the critical factors for price
correlation are demand for Cers - how many Cers are allowed to be imported to eU system and supply of Cers - how many
are issued from CDM projects.
NASDAQ OMX COMMODitieS CArbON prODuCtS 9
6. HoW to get More inForMAtion
EU Point Carbon
Kyoto Protocol/UNFCCC Reuters
International Emission Association Montel
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7. OVERVIEW OVER TRADABLE UNITS REgULATED By
KyOTO PROTOCOL AND KyOTO fLExIBLE MEChANISMS
Unit Unit name Issuer Description Kyoto protocol
eUA european Union eU Units issued and traded within eU ets.
Unit Unit name Issuer Description Kyoto protocol
AAU Assigned amount Un Units representing the initial assigned Article 3.7
units amount of each Annex B Party.
rMU removal units national registry Units given for net removals from land use, Article 3.3, 3.4
land-use change and forestry activities.
erU emission reduction national registry Units converted from AAUs or rMUs on Article 6
units the basis of Ji projects.
Cer Certified emission CDM registry Credits given for emission reductions Article 12
reductions certified for a CDM project.
tCer temporary Cers CDM registry Credits given for emission removals certified Article 12
for an afforestation or reforestation CDM
project (to be replaced upon expiry at end
of the second commitment period).
iCer Long-term Cers CDM registry Credits given for emission removals Article 12
certified for an A&r CDM project (to be
replaced upon expiry at end of the project’s
crediting period or in event of storage
reversal or non-submission of a
NASDAQ OMX COMMODitieS CArbON prODuCtS 11
8. TERMINOLOgy fOR ThE CARBON MARKET
eU allowance, Cer, erU and an alternative allowance. Certified emission reduction. A reduction in emissions
Allowances grant the holder the right to emit a specific intended to slow down the process of global warming and
quantity of pollution (e.g. one tonne). the total quantity of climate change. An emission credit obtained through the
allowances issued by regulators dictates the total quantity CDM. Achievement of reduction corresponding to one
of emissions possible under the system. At the end of each tonne of carbon dioxide or carbon equivalent greenhouse
compliance period, each source must surrender sufficient gas in developing countries. One CER = one tonne of
allowances to cover their emissions during that period. carbon dioxide equivalent. nord Pool accepts all Cers
excluding Cers not recognised by the eU Commission
Alternative allowance pursuant to the Directive (generated from nuclear facilities,
A unit of account, representing a right to emit one tonne land use, land use change and forestry activities. Cers
of carbon dioxide equivalent, either issued by a member generated from hydroelectric power production project
state in return for a similar unit from an emissions trading activities with a generating capacity exceeding 20 MW are
scheme in a non-member state pursuant to Article 25 of also excluded from nord Pool’s market place.
the directive, or an allowance from an emissions trading
scheme in a non-member state recognised by the eU CITL
Commission pursuant to the Directive, that may be used Community independent transaction log.
for determining compliance with emissions limitation
commitments as prescribed by the scheme rules. Commitment period
the five-year Kyoto protocol commitment period
Annex 1 countries scheduled to cover 2008-2012 where the industrialised
36 industrialised countries and economies in transition nations have undertaken to reduce greenhouse gas
listed in annex 1 of the Un’s framework convention on emissions up to 2012 by roughly five per cent compared
climate change. with the 1990 level (Kyoto phase i).
Carbon dioxide equivalent (CO2eq) Compliance period
the universal unit of measurement used to indicate three-year period referred to in article 11(1) of the
the global warming potential (of each of the six directive or the relevant subsequent five-year period
greenhouse gases). referred to in article 11(2) of the directive.
Carbon dioxide (CO2 ) Compliance period trade allowance
A naturally occurring gas present in the earths’ An allowance for a specific compliance period that the
atmosphere. A by–product from burning fossil fuels and seller agrees to transfer to the buyer and the buyer agrees
biomass, land use changes and other industrial processes. to accept from the seller.
Carbon dioxide is the reference gas against which other
greenhouse gases are measured. Contract amount or transaction amount
Contract price multiplied with the CPtA quantity
(amount in euros).
Contract price or transaction price
the amount specified in an order or agreed in a transaction
to be the purchase price per allowance (expressed in euros).
12 NASDAQ OMX COMMODitieS CArbON prODuCtS
CPTA EU ETS
Compliance period trade allowance. the european Union emissions trading scheme (eU ets)
is the largest multi-national, greenhouse gas emissions
CPTA quantity trading scheme and is a main pillar of eU climate policy.
the number of allowances specified in an order or Under the scheme, each participating country has a
transaction. national Allocation Plan (nAP) specifying caps on
greenhouse gas emissions for individual power plants and
Delivery day other large point sources. each facility gets a maximum
the actual day that nord Pool Clearing transfers CPtA to amount of eU emission ”allowances” (eUA) for a
the net buyer’s delivery point. particular period. Facilities can either reduce their
emissions or purchase allowances from facilities with an
Delivery point excess of allowances.
the holding account.
Final trading day
Deviation margin Final day for exchange trading in a specific series.
the price margins specified in the transaction error schedule,
to be subtracted from or added to a reference price as Greenhouse gas emissions
further specified when dealing with transaction errors. Components of the atmosphere which contribute to the
greenhouse effect (global warming).
Directive 2003/87/eC of the european Parliament and of Hedge transaction
the Council of 13 october 2003 establishing a scheme for A transaction that reduces the market risk of a net
greenhouse gas emissions allowance trading and amending transaction, without being a close-out transaction.
council directive 96/61/eC, as amended from time to time.
Emission trading Any digital record of an account holder of nord Pool
A general term used for the three Kyoto protocol flexibility Clearing in a registry approved by nord Pool Clearing
mechanisms. intended to control and reduce pollution by that will be used to record the issue, holding, transfer,
providing economic incentives for achieving reductions in acquisition, surrender, cancellation, and replacement
the overall global emissions of greenhouse gas. of allowances.
emission reduction Unit. specified under the Kyoto protocol international transaction log.
as a specific amount of greenhouse gas emissions reductions
achieved through a Ji project. JI
Joint implementation. Project-based mechanism
EU developed under the Kyoto protocol, designed to
the european Union. assist annex 1 countries in meeting their emission reduc-
tion targets through joint projects with other
EUA annex 1 countries.
european Union emission allowance (also defined from
2008 as the official Kyoto allowance for eU ets countries). Listed products
one eUA entitles the holder to emit one tonne of carbon Products admitted by nord Pool for exchange trading; in
dioxide or carbon equivalent greenhouse gas. this respect allowance product series admitted for listing.
NASDAQ OMX COMMODitieS CArbON prODuCtS 13
Kyoto protocol Spot margin
the framework established by United nations for rules Advance collateral from an account holder to cover risks in
and regulations handling carbon emissions trading and spot transactions.
carbon reduction plans.
Member state A transaction where the delivery day is the subsequent
Any one of the twenty-seven countries who have joined clearing day.
the european Union (eU).
Transaction or allowance transaction
Net transaction An agreement where the seller undertakes to transfer an
A transaction established by aggregating and netting all agreed CPtA quantity in an allowance product series while
purchase or sales transactions in a product series recorded the buyer undertakes to make payment of the contract
in a clearing account, as calculated and notified by nord amount at the applicable delivery day.
Pool Clearing to the account holder at the end of clearing
hours each clearing day. Transaction error schedule
the schedule set in the trading schedule specifying
Registry account deviation margins and volume limits to be applied in case
An account with a relevant european registry for of trading errors in the ets.
transferring eUAs. nord Pool Clearing will use this account
for delivery of eUA spot and forward. Transaction note
An electronic or fax notice furnished by nord Pool Clearing
Scheme or EU allowance scheme after trading hours to account holders who have entered
the scheme for transferring allowances between either or into transactions this clearing day.
both of (a) persons within the eU and (b) persons in third
countries, in either case as recognised in accordance with, Transaction volume
and subject to, the procedure of the directive established the CPtA quantity to be subject to transfer following a
in, and as implemented by the national laws of, each transaction.
member state and certain non-member states.
Security collateral agreement the transfer of a CPtA quantity to a delivery point, in
An agreement entered between an account holder and accordance with and for the purposes of the scheme.
nord Pool Clearing, providing nord Pool Clearing with
security rights in respect of collateral. Transfer Request
A request made in accordance with the scheme to effect
Settlement days a transfer.
t: final trading day. the net-seller must transfer the allow-
ances to nord Pool Clearing’s registry account before 16.00 UNFCCC/FCCC
Cet. United nations Framework Convention on Climate Change
t+1: nord Pool Clearing transfers the eUAs/Cers to the (of 9 May 1992) is an international environmental treaty
buyer’s registry account during the day. opened up for signature in New york on 9 May 1992. The
t+2: payment instructions sent to the banks for the treaty aims at reducing emissions of greenhouse gas in
seller’s payment. order to combat global warming.
t+3: cash is available for the sellers.
14 NASDAQ OMX COMMODitieS CArbON prODuCtS
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NASDAQ OMX COMMODitieS CArbON prODuCtS 15
About nord Pool AsA and nAsDAQ oMX Commodities
nord Pool AsA and nAsDAQ oMX Commodities provide access to the world’s largest power derivatives markets and one of europe’s largest carbon markets. nord Pool AsA is responsible
for the exchange operations, including the ownership of the nordic derivative products. nAsDAQ oMX Commodities comprises international derivatives, carbon products, clearing business
and consulting services provided for commodities markets globally. nord Pool AsA and nAsDAQ oMX Commodities have more than 390 members from over 20 countries across a wide
range of energy producers and consumers, as well as financial institutions. For more information, please visit www.nordpool.com and www.nasdaqomx.com/commodities.
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