French emissions exchange BlueNext has taken its first step toward a carbon trading platform in China with a deal to offer its clients a database of Chinese carbon-cutting projects, its chairman said on Thursday.
Serge Harry said that the agreement with China-Beijing Environment Exchange should put information about available Chinese certified emissions reductions (CERs) -- greenhouse gas offsets issued under the Kyoto Protocol -- on traders' screens by the end of the summer.
There is no investment in the deal, because it is a simple swap of information about credits for access to buyers, Harry told Reuters, but the partners hope to seal a joint venture before the end of the year.
BlueNext is a joint venture between NYSE Euronext and France's state-owned Caisse des Depots.
Harry declined to give details on the project or the scope of the investment, but said it would aim to expand BlueNext's reach in a country that is the world's top emitter and will need massive spending to curb rapid growth in greenhouse gas output.
We want also to spend time with our colleagues here in Beijing in order to develop a trading facility, especially to have a kind of worldwide market on CERs, Harry said.
He said the new index for traders using BlueNext would include thousands of projects, but declined to say how many credits, created under the United Nations' Clean Development Mechanism (CDM), might be on offer.
CDM projects allow polluters in rich nations to pay for emissions reductions in poorer countries to put toward their own quotas of cuts. Ventures can range from tiny village-level projects to massive clean coal or chemical plants.
Many CDM project managers in China agree deals with buyers to cover the costly certification, and those with credits already committed would have little to gain from listing on BlueNext.
Smaller projects that might benefit from exposure to traders often struggle to secure up-front cash needed for certification. Harry said BlueNext would not get involved in funding projects but was optimistic that the volume of credits would be high.
On the primary market it really depends on the capacity to finance new programs, but we saw this morning that there are some big hydro programs, so that is potentially a million tons of CO2 being there, he said after the signing ceremony.
HOW TO MAKE MONEY?
The potential for emissions reductions in energy-intensive China has spurred massive foreign interest.
But it is still unclear how easy it will be to make money in a country with no internal emissions trading market and uncertainty hanging over what international commitments it will make to cut greenhouse gasses.
The Chicago Climate Exchange (CCX), owned by UK-based Climate Exchange Plc has signed a deal to set up a Chinese emissions exchange, but has declined to say how much it will invest or when trading might start.
Harry said BlueNext was still not sure when it would start turning a profit or how much it could earn, but had a solid business model that would allow it to bring in revenue.
We are in a young activity, its very difficult to be a predictor, especially for the next five years, he said.
It is very difficult at this stage to put a figure.
BlueNext is interested in opportunities both from any potential domestic emissions exchange, and from connecting China to international trading. He expects opportunities even if UN-led talks on a successor agreement to Kyoto, to be held in Copenhagen late this year, do not end in a strong global deal.
Copenhagen will be a plus, if it is a success it will speed up the projects, bring more visibility, but even without Copenhagen we have a place for a joint venture.
Commenting on a probe underway in France into a suspected multi-million euro value-added tax (VAT) fraud in the French carbon emissions market, Harry said the company had not been contacted by police or other authorities.
We have no contact at this stage. And again we are more concerned by the integrity of the market and to find solutions together with the French authorities, he said.
He added that it was important to ensure market integrity but there was no proof of wrongdoing.
There is no proof of any fraud on that point, there is a risk that was identified and I think the French authorities took good decisions, he added.
France last week made carbon permits exempt from VAT to prevent a potential tax scam in which fraudsters could have imported credits tax free, charged buyers VAT and then disappeared without handing over the revenue.
(Editing by Rupert Winchester)