London, 5 February 2005 – LAWFUEL – The Law News Network – Baker & McKenzie announced today that it has finalised a comparison of the three main emissions trading agreements. The study was commissioned jointly by the agreement providers: the International Swaps and Derivatives Association (ISDA), the International Emissions Trading Association (IETA) and the European Federation of Energy Traders (EFET).
The possibility of differences between the ISDA, IETA and EFET trading agreements has given rise to concerns that there may be what brokers and traders refer to as ‘basis risk’, meaning the obligations under the different agreements do not exactly match. This could be a problem for those both buying and selling the carbon credits known as EU Allowances under the EU Emissions Trading Scheme (EU ETS) which began on 1 January 2005: for example, market participants could be left with an obligation to deliver EU Emissions Allowances in circumstances where their supplier could avoid its obligation to deliver to them.
The Baker & McKenzie comparison of the trading agreements provides an important tool to market participants which will allow them to understand the key differences between the agreements and to effectively identify those differences which could give rise to a basis risk. Any risk can then be allocated appropriately and managed.
The Baker & McKenzie team comprised Anthony Hobley (Climate Change Senior Associate) and Emma Gilkes (Associate) in London and Astrid Raetze (Partner) and Martijn Wilder (Head of Global Climate Change Group) in Sydney.
Commenting on this study, Anthony Hobley, said: “We understand how important it is to help build confidence in a new market such as this by “bottoming-out” market concerns such as basis risk. The Baker & McKenzie comparison of the three EU emissions trading agreements will allow those participating in what is a fast emerging market to do so with a greater degree of confidence. ”
Astrid Raetze added: “The world’s largest carbon market started on 1 January 2005 and it has been estimated that there will be carbon trading transactions over e10 billion taking place by the year 2008. The development of standard contracts has been fundamental to help this new and emerging market come to life. By clarifying the differences between the contracts we are pleased to have taken this one step further, so contributing to market certainty and at the same time building upon our leading edge capability in this critical new market.”