AUSTRALIA: Sydney Futures Exchange to develop world’s first carbon trading market

The Sydney Futures Exchange (SFE) and its subsidiary, the New Zealand Futures and Options Exchange, have signed a Memorandum of Understanding with State Forests of New South Wales to develop the world's first exchange-traded market for carbon sequestration credits

Carbon sequestration credits are generated by trees absorbing carbon dioxide (CO2). Once purchased, the credits give the buyer the opportunity to offset carbon emissions.

Trading of these carbon credits is expected to commence at SFE in mid-2000. Trading would be consistent with Article 3.3 of the Kyoto Protocol to the United Nations Framework Convention on Climate Change. Article 3.3 recognises sequestration of carbon by newly planted forests as an offset to greenhouse gas emissions.

SFE Chief Executive, Mr Leslie Hosking, claims “SFE can create a carbon trading market that is truly global. We have a distribution network that taps into the world’s major trading zones and the ability to source supplies of carbon credits from a range of countries including Australia, New Zealand and the United States.

“There is growing interest from many companies around the world in finding ways to manage their potential emissions risk. By establishing an exchange-traded market for carbon credits before the Kyoto Protocol comes into force, SFE can provide organisations with an early opportunity to lock in a financial position and secure a competitive advantage.”

The carbon sequestered by Kyoto-consistent forests would form the underlying commodity traded. Each unit traded would be electronically serialised and denominated in one metric tonne of CO2 equivalent. Buyers could purchase these credits as a hedge in a future emissions trading market or bundle them with product sales to create emissions-free products.

The integrity of the market would be underpinned by transparent carbon accounting, an open carbon standard, ongoing verification and independent certification processes.

SFE says it expects that price discovery will be a key benefit of a carbon trading market. This will assist companies and governments in their investment and policy-making decisions leading up to the commencement of the Kyoto target period of 2008 to 2012.

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