Barclays Executes Forward Trade Agreement For U.S. Carbon Markets

Feb 18 2009 | 9:23am ET

Barclays Capital, the investment banking division of Barclays Bank, on Tuesday executed its first trades on a forward trade agreement which includes provisions for U.S. emissions allowances associated with the Regional Greenhouse Gas Initiative (RGGI).
RGGI, the first mandatory carbon cap-and-trade program in the United States, is an independent program involving 10 Northeastern states.

The over-the-counter (OTC) trades were arranged on the basis of a contract developed by Barclays and took place outside regulated exchanges such as the New York Mercantile Exchange and the Chicago Climate Exchange. According to Barclays, the contract includes provisions to mitigate price and delivery risks associated with RGGI allowances.

"Standardized documentation is a crucial step in the development of liquidity of not only RGGI but of any eventual federal carbon cap-and-trade program,” said James Macintosh, U.S. emissions trading vice president for Barclays Capital. “The RGGI program is already off to a promising start, with trading volume increasing as the first emissions compliance period progresses. We believe this contract will provide further liquidity and transparency as a complement to the existing exchange-cleared market."

Barclays Capital will make the agreement available to the marketplace through OTC brokers and direct distribution.

The RGGI demands that fossil-fuel power generators buy a permit for every ton of carbon dioxide emitted. Barclays used the new forward contract to execute trades with Calpine Corp and the Royal Bank of Canada.

The goal of the RGGI is to reduce carbon-dioxide emissions from the burning of fossil fuels 10% by 2019. As an independent program, the RGGI operates under different rules and regulations than the cap-and-trade programs operating in the U.S. since the mid-‘90s under the administration of the Environmental Protection Agency (EPA).

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