LCH.Clearnet to launch rival CO2 credit service

LONDON (Reuters) - London-based clearinghouse LCH.Clearnet is launching its own over-the-counter carbon credit clearing service to rival that of its European Climate Exchange partner Climate Exchange PLC.

Shares in Climate Exchange fell 4.4 percent following the news.

The move is being backed by the carbon market’s biggest brokers, including CantorCO2e and Tullett Prebon.

LCH currently provides over-the-counter (OTC) clearing for the European Climate Exchange (ECX), which is owned by Climate Exchange.

There are fears that brokers could take their OTC business away from ECX and remain with LCH as it goes it alone.

ECX currently sees around two thirds of its European Union Allowance (EUA) volume traded through OTC transactions.

LCH will offer clearing services for EUA futures and could steal a march on Climate Exchange by offering clearing services for U.N.-approved CER (Certified Emission Reduction) credit futures from 2008.

ECX has been trying to launch its own CER futures contract since this summer. But in September it said there were delays because of contract wranglings with LCH, which already does EUA clearing for the ECX.

LCH’s initiative is being backed by London Energy Brokers Association (LEBA) members CantorCO2e, Evolution Markets, GFI, ICAP, Spectron, TFS and Tullett Prebon Energy.

“We have been approached by the inter-dealer brokers to do this,” LCH spokesman Michael March said.

“The brokers are enthusiastically supporting our decision not only to expand our clearing services for EUAs but also introducing CERs,” he said.

“It should help the market by pooling liquidity which is fragmented at the moment,” said James Emanuel at CantorCO2e.

An ECX spokesman said it would consider a partnership with LCH, that could include compatible margin requirements as one option.

Shares in Climate Exchange were down 4.4 percent to 1118p by 10:46 a.m. EST, having earlier been flat at 1170p.

A Climate Exchange spokesman said the firm would press on with its plans to launch its own CER contract, and hoped to do so at the start of 2008.

Climate Exchange’s Chief Executive Neil Eckert told Reuters he was not surprised by Clearnet’s decision to launch its own CER service independently and that this would not preclude them from working together in future.

“We also want to get a CER contract on our screens (through ECX),” Eckert said.

“I am not surprised by LCH’s decision, they tried to do this last year. Time will tell what the effect is on ECX,” he said. He added this would not affect the carbon markets.

Intercontinental Exchange provides the trading platform for ECX.

Reporting by Chris Wills and Michael Szabo; Editing by Anthony Barker