Our comments regarding the MCX are unchanged since our last report. Activity remains depressed on this market due to the uncertainty that the underlying element of the forward contracts (Canadian federal GHG emission reduction units) will be available for delivery on the contract expiration dates.
The updated table (click here to view) shows the trading volume since January 1, 2009 for the four (4) contracts that are currently traded. Until such time as the federal government begins to create more certainty with respect to the timing of the coming into force of GHG regulation in Canada, there is little reason to expect any significant pick-up in the transaction volumes handled by the MCX.
We continue to believe that a short term solution for this lack of activity would be for the MCX to diversify its product offering into the voluntary market, however, this has not happened yet.
Activity in the North American voluntary carbon market picked up in the third quarter of 2009 after significant decline in the early part of 2009. This renewed activity was reflected in a reported increase in the average price of voluntary carbon units. Increased volume was delivered on the back of trading activity in Climate Action Reserve reduction units, which were seen as a pre-compliance play as a result of text of the Waxman-Markey Bill that made it through the US House of Representatives.1
International reports of the success of reverse auctions in which buyers indicate the type of VER they wish to purchase and the sellers bid against each other on price, tend to indicate that the market in the second half of 2009 was a buyers’ market; our experience has been that this trend is likely wrong as a broad statement. While it is true that the Climex platform traded around a quarter of a million VERs in September and November, our experience has been that projects with a social component were in demand and that there was increasing demand during the third quarter for certain projects in particular.2
As the financial crisis eases, we expect the voluntary market to be robust in 2010 as it becomes better understood by a wider section of the financial sector. We believe that buying carbon credits, be it for reasons of corporate social responsibility, carbon neutrality or pre-compliance, is now firmly embedded in the culture of many businesses and that this activity, to the extent there are available funds, will continue to be carried out by an increasing number of businesses.