Monday, October 19, 2009

Death of a market

A few months ago in a post called The collapse of the CCX carbon emissions contract we discussed the hurdles faced by the carbon permits market, traded on the voluntary exchange named the Chicago Climate Exchange (CCX). Given that "cap & trade" process requires someone to pay money in order to emit what they need to emit, the only way such a process can work is with regulation that enforces caps on emissions. The "voluntary" thing was simply a preparation for the legislation, which ultimately never came and looks fairly dead right now.

Here is the latest on the CCX saga. The parent of CCX, the Climate Exchange PLC (traded in the UK) continues on, surviving on the European cap & trade legislation.

Price of Climate Exchange PLC shares

In the US however, the carbon contract has flatlined at 10 cents per ton (from over $7 at its peak).

And the volume has collapsed as well. The volume spike last year was a time when commodity prices and hopes for cap & trade were flying high. With democrats favored to take the White House, some form of carbon legislation was sure to come. But the world had changed quickly in the Fall of 08 and any thought of imposing new significant costs on US corporations fell out of favor.

Markets like this can't develop on their own. Nobody wants to pay for something they don't need unless they are forced to do so. And speculators/investors (which every market needs in order to function properly) won't participate in a market that has no natural buyers. This looks like the end of the CCX contract market - for now.
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