Rocky, fascinating and exciting

We spoke with Henry Derwent, who has recently been appointed the new CEO of IETA, and he shared his thoughts on EU ETS and the carbon market

In your new role with IETA, how will you move the organisation forward in line with the EU ETS?
I have arrived at a very important time. New proposals (for phase three) are on the table. Council and members of the EU Parliament are just getting to grips with what the Commission wants. It is so important for businesses in all aspects of trading to continue with the development of the ideas being proposed. I’m sure IETA’s role in doing that will establish its name more widely and offer a key input on behalf of the multi sector stake holders: the power sector, aluminium and chemicals, and the financial services.

With regard to commercial considerations for CDM project development, what do you perceive to change in the market?
This week (March 17-21) is crucial as is sees the first screen-based derivatives trading entry into the exchange market and the introduction of a major new player, in the form of Nilex. I think both those things will extend the visibility and the reach of the bio-carbon market.

In the longer term I see another step change in volume and sophistication of the market. There will be a greater set of possibilities for company to cover their risks. The fact that these are becoming available means better flexibility for smoothing new pathways to lower emissions. This will help reduce the actual or implicit cost of achieving the aim.

How do you think the voluntary carbon market will grow in the coming years?
There is likely to be huge growth and diversification. Interest in carbon reduction and off-setting will spread faster than the formal trading systems.
Companies increasingly want to test the suitability of different products for the hedging or corporate responsibility needs.

Within ten years I think this diversity will reduce back down to a smaller set of products, but there will be a substantial role for voluntary market outside the instruments that are a formal part of the UN based international system.

The voluntary market is becoming more aware that the impact on profits is not direct. But the benefits for companies are in how they can show they are a sustainable and how they advertise themselves. There may be scope for secondary markets, but it’s likely the principle areas will be primary.

To a Chief Financial Officers or Institutional Investor, what benefits can his stakeholders gain from his company engaging in emissions trading?
If a company is already subject to regulations through the EU ETS or emerging regional or national schemes, then trading can smooth the path-way to achieving compliance. They can blend domestic reductions in carbon by choosing to buy or sell, particularly if they are over achieving.

Even companies that are not already subject to regulatory compliance must start thinking about the future. This thinking should impact on their investment plans and strategies in case carbon trading is going to affect them later on. More and more companies will have to become compliant. More and more will want to work out whether they are a buyer or a seller. And more and more of their investors will want to see an account of what they are doing about emissions.

Lastly, what other issues regarding emissions trading are likely to make their presence increasingly felt?
The big issue is what happens in America. At the moment we have the three Presidential candidates all saying they will reduce the national cap trading scheme. How those promises relate to the Kyoto-type mechanisms are the most important issues affecting emissions trading across the world.

There will probably be a national cap scheme after the first year of the presidency and there will bi-international off-sets used through the pathway towards agreements. The impact will be rocky, fascinating and exciting.
The balance between the emergence of clarity of US trading and the way international agreements develop, with the US coming in as player again, will be very interesting indeed.