ICAP will begin brokering trades for emission credits and renewable energy derivatives within the next few weeks. Currently the firm is putting contacts in place and as soon as prices are available will begin to broker its first trades, according to Katleen De Cock, weather and environmental derivatives broker at ICAP in London.
The firm is looking at adding these products because the Kyoto protocol is creating a market opportunity for trading obligation certificates, which prove that companies are complying with the new agreement. The Kyoto protocol requires manufacturing companies to produce 5% of power production from renewable energy sources by 2003, and prove that via renewable obligation certificates. Likewise, the U.K. government is implementing a Greenhouse Gas Emissions (GHG) trading scheme.
Andy Ertel, president of Evolution Markets in Stamford, Conn., said that there is very little trading of these products, especially in the U.K., but that there are many players anxious to get into the market. "I'm not saying they won't be able to compete," Ertel said, explaining that the market will develop over a period of the next five years. To get involved in the market a broker needs to make a long-term commitment to trading these products. He added that it is difficult to make money within the first one to two years of brokering. The firm has been brokering GHG trades in the U.S. for 18 months.
