Carbon trading

TRADING WITH VIRTUSE

With over 10 years on the market and 200 million tons traded, Virtuse combines trading expertise, intelligent data and unparalleled knowledge of Chinese, European and Global emissions, energy and renewables markets. In 2010 Virtuse pioneered the carbon emissions industry under EU ETS and became one of the largest emissions broker in Europe. In 2014 company became the first foreign broker on Chinese ETS in freshly launched China Emissions Exchange (CEEX) in Shenzhen, and has developed to one of the largest international broker and trader in China.

Virtuse carbon team has a primary focus on the compliance customers to allow them to efficiently and effectively manage their carbon exposure. Virtuse offers industrial clients access to the carbon market and portfolio management in variety of carbon products. The team offers advice and trading strategies to suit all market participants including compliance clients, institutional as well as private investors. Virtuse provides effective solutions tailored specifically to manage and optimize the carbon position and complete sales and trading strategies throughout the transaction.

CARBON PRICING BASICS

The amount of CO2 in the atmosphere is increasing at an unprecedented pace. The rate of CO2 growth over the last decade is 100 to 200 times faster than what the Earth experienced during the transition from the last ice age. In order to mitigate the threats of man-made climate change, environmental, business and political leaders have developed and implemented various types of mechanisms. The most widely adopted and ultimately credited for most CO2 reductions are: carbon tax and cap-and-trade programs (ETS). The first one serves a good start and a carbon price floor in many countries, but it is also largely perceived by the market participants as a punishment. The latter is embraced more positively and serves as a reward for emissions reductions. In short, ETS is vastly superior to carbon tax, it creates competition between the emitters and triggers new investments and R&D.

For instance, one company (A) which invested in cleaner technologies will sell the surplus to one that didn’t (B). Company A can afford to maintain the same price for end customers because its investments in clean technology and profit from selling the surplus but Company B most likely will have to increase the price for end customer. In time only the companies which developed the proper solution will survive. At least this is the logic behind ETS system. In a case of carbon tax, companies usually pass on the cost directly to the end consumers. In a nutshell, carbon tax is a good launching pad for the future ETS, however, as such, possesses large disciplinary attributes, where a ETS, rewards and motivates polluters to reduce their emissions.

WAYS OF TRADING CARBON

There are three ways to trade allowances:

  1. Bilateral Trading
    This is the simplest form of trading. It is a peer-to-peer transaction between two participants and there are no intermediaries involved in the trade. The main drawbacks for this way of trading are high transaction cost, low transparency, high level of counterparty risk and the lack of free advisory services. However, some blockchain technology companies are currently working to eliminate these imperfections. 
     
  2. OTC Broker Trading
    At this form of trading a broker brings market participants together and pools liquidity in a market place. Client receives free advisory services and the costs are usually low in comparison to other forms of trading. Broker may even buy and sell on behalf of a client on the carbon exchanges which provide a high degree of transparency. 
     
  3. Exchange Trading
    This form of trading is arguably the most transparent and possessed the highest level of safety. However, the transaction and administration costs are by far the largest out of all forms of trading due to high membership and clearing fees involved. Emissions exchanges are usually constituted by the governments as natural cartel like oligopolies and many times create large barriers to entry for mid and small-sized participants. Overall, it is fair to say that exchanges favour large corporations to smaller ones and act a hindrance to the progress in free-market trading.