U.S. exchanges launch cap and trade emissions contracts

The U.S. Chicago Climate Futures Exchange has completed the first exchange-traded deals in permits to emit carbon dioxide under a U.S. cap and trade scheme, the bourse said on Monday.

The Regional Greenhouse Gas Initiative (RGGI) comprises 10 northeastern states and may be a precursor to a federal U.S. carbon market, something both presidential candidates support.

Emissions trading schemes force businesses to buy permits to emit heat-trapping gas carbon dioxide, and the smaller the cap the higher the price of permits.

But the RGGI scheme -- which formally launches on Jan. 1 2009 -- caps carbon emissions by power generators at higher than historical levels, and as a result will not drive serious emissions cuts, said analysts.

"It seems it will be long (with surplus permits) for at least the first six years because of the way they set the caps," said Trevor Sikorski, analyst at Barclays Capital.

The Chicago futures exchange, owned by the Chicago Climate Exchange (CCX), offered the first exchange-traded RGGI contracts on Friday, CCX said.

The New York Mercantile Exchange Inc "NMW.N" (Nymex) launches a similar futures contract on Aug. 24. The over-allocation of permits undermines the credentials of the scheme, however, and suggests that RGGI has not learned from a European Union emissions trading scheme.

EU carbon prices collapsed in 2006 after the scheme allocated more emissions permits than businesses needed.

"Our expectation is RGGI prices will be low," said Sikorski. The CCX contracts settled on Friday at $5.58 per tonne of avoided carbon dioxide (CO2) emissions.

The EU this year tightened the cap on its scheme and EU allowances were trading at 23.6 euros ($34.75) on Monday morning.

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Source: Reuters Interactive website