Activity remains depressed on this exchange 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.

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The table above 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.

The MCX has confirmed publicly that it has been in discussions with provincial representatives, including from Alberta, with regard to the establishment of new derivative products the underlying unit of which would be emission reduction units issued under the provincial cap & trade systems. It is unclear however, aside from a deal with Alberta, whether or not a deal with any other province will increase the level of activity on the MCX in the short term since there exists the same level of uncertainty with respect to the provincial cap & trade systems as there is with the federal system (i.e. will they emerge and if so when).

A more interesting route, but one which the MCX has not indicated it will go down, would be the introduction of a futures contract based on one or more voluntary market standards.

OTC Market

Activity in the voluntary OTC markets across North America picked up in the second quarter of 2009, with Voluntary Carbon Standard (VCS) credits up between 8 and 25% to the $4 to $5 range in early July as compared to May 2009 and Californian Climate Action Reserve (CCAR) credits (Carbon Reduction Tons or "CRTs") up $1 to between $7 and $8 for the 2009 vintage, during the same period 4. The Chicago Climate Exchange reports that volumes for all Chicago Climate Futures Exchange-traded products are up 70 percent so far in 2009 5. Volume in the Canadian OTC carbon market has remained soft from our perspective.

On July 23rd the VCS announced that its Board of Directors had ruled unanimously to allow projects hosted in Canada to issue Voluntary Carbon Units without the corresponding cancellation of Assigned Amount Units under the Kyoto Protocol. Previously, Canadian projects did not have access to the VCS standard, which has become one of the most important "brands" in the voluntary carbon market, accounting for a third of that market in 20076 and 48% of the market in 2008 7. This change creates a significant opportunity for Canadian projects to now create credits that will be more liquid and eventually transferable into the regulatory cap & trade systems looking to come on line in North America within the next 2-3 years8.

It is of note that the VCS accepts all of the project methodologies approved under the Clean Development Mechanism (CDM) and the CCAR. As a result, based on the Proposed Fast Track Eligibility List set out in Annex I of the Guide for Protocol Developers released by the federal government on June 13, 2009, which includes 14 protocols drawn from the CDM and CCAR, Canadian project developers can now, more that ever, create a carbon commodity that has a solid current value in the voluntary market and is likely to be accepted into the eventual federal offset system. This was possible in the past using the ISO 14064 standard but the release of the Fast Track Eligibility List and the opening up of the VCS to Canadian projects should increase the potential liquidity of the credits created in the short term and in the long term, increase the level of comfort that those projects that meet the criteria for both will generate credits that will be saleable in an eventual federal cap & trade system.