The Role of Technology in Markets for Environmental Tradable Permits

Transcription

1 The Role of Technology in Markets for Environmental Tradable Permits Presented to the 32 nd International Association for Energy Economics (IAEE) International Conference, "Energy, Economy, Environment: The Global View." Parviz Adib, Ph.D., Director & Reiner Musier, Ph.D., Vice President & CMO APX, Inc. Santa Clara, California, USA Page 1

2 Agenda 1. Introduction 2. Environmental Markets 3. Tracking Mechanism 4. Users Expectations 5. Technology Platform 6. Environmental Registries 7. Final Remarks 8. Q&A Page 2

3 Introduction Environmental commodity markets are expected to expand significantly during the Obama Administration The value of transactions are projected in trillions of dollars. Will expand beyond Renewable Energy Credits or Certificates (RECs) widely known in today s markets. Require infrastructure capable of tracking of prices, market activity, forensic reporting and full audit trail capabilities for transactions for the lifetime of the program Regulators expect the ability to investigate fraud or manipulation Market participants need information technology infrastructure to integrate with existing financial and transaction systems Page 3

4 Environmental Commodities Operational Cycle and report compliance with Fulfill Obligations Environmental Regulations drive direct investment to create Corporate Obligations enable buying and selling to drive the demand for Markets are traded in Environmental Commodities Page 4

5 Environmental Markets Compliance or Mandatory Markets: Buyers are companies that sell power to end-use consumers in states with regulatory requirement such as renewable portfolio standard (RPS). In carbon markets, buyers can also be generators as well as non-power sector companies with compliance obligations. Voluntary Markets: Buyers are corporations or individuals seeking to offset their carbon footprint, support renewable energy, and in some countries lower dependence on foreign oil. Many companies are also taking voluntary action to anticipate or shape future mandatory programs. Page 5

6 Environmental Commodities Four Broad Categories Carbon Allowances or Permits (Permission to emit one metric ton of CO2 equivalents (CO2e)) Carbon Offsets (One metric ton project based reduction in CO2e) Renewable Energy Credits or Certificates (RECs) (One MWh of power generated by a renewable resource) Energy Efficiency and Conservation Credits or Certificates (EECs) (One MWh of power conserved or load reduced) Other names for Carbon Commodities Carbon Credits, Verified Emission Reductions (VERs), Emission Reduction Units (ERUs), Voluntary Carbon Units (VCUs), Carbon Reduction Tons (CRTs) or Certified Emission Reductions (CERs). Page 6

7 Tracking Mechanism Plays an important role in the oversight, transparency and integrity of certificates Its accuracy and robustness are crucial to be accepted by global financial markets Corporations Renewable Energy Market Depository Regulators Energy Carbon Efficiency & Offsets & Demand Emission Response Allowances Page 7

8 Trusted and Reliable Tracking Mechanism Emission allowance (auctioned or allocated) Project-based carbon emission reduction credit Renewable energy certificate (REC) Energy efficiency certificate Validated Independent third party Created Unique serial numbers Tracked Corporate accounts Traded Full security and audit trail Retired Permanently Page 8

9 Needs of Global Financial Markets Expected scale of market activity for the new environmental commodities will require: Reliable information technology infrastructure Comprehensive (worldwide) coverage Security Back-up systems Geographically redundant data centers Web-based access and reporting 24/7 help desk services Page 9

10 Registry Structure Supporting multiple roles Supporting complex work processes and approvals Enabling multiple levels of public and private information, data security, visibility Certificate Ownership, Reporting, & Transactions Company 1 Approval, Verification & Certification Market Operator Third Party Verifiers Administration Data complete and correct Contract & Billing in place Third Party Technology Infrastructure & Administration Company 2 VER Project 1 REC Project 1 Transaction 1 Transaction 1 REC Project 1 VER Project 1 VER Project 2 REC Project 2 Transaction 2 Transaction 2 REC Project 2 VER Project 2 Certificate Balances Certificate Balances Page 10

11 Functional Requirements of Registries Creation of unique serialized Certificates to enhance tracking of ownership and meeting regulatory compliance obligations Transactions of Certificates and trading between parties Integration with financial markets, including brokerage, exchange and auction mechanisms Management of Certificate balances by Account Holders Potential banking of Certificates for use in future compliance or borrowing Page 11

12 Functional Requirements of Registries (Continued) Full audit trail and transaction history from origination to retirement Web-based access with full transparency for stakeholders and regulators Equal access for large and small firms across all sectors Clear rules and guidelines for access and use of the system Full access by regulators for market oversight Reporting mechanisms for participants A secure market system, with redundant data centers and geographic redundancy for secure 24/7 operations Page 12

13 Registries Benefits for Account Holders Enhancing compliance with regulatory requirements Having a one-stop shop for environmental market data and customized reports Assessing their environmental commodity standing and market position (quantity and price) against benchmarks (statistical averages) reflecting all corporations within the existing databases and markets Conducting economic evaluation of various emission reduction alternatives to identify, evaluate, and prioritize economic and practical environmental options that will maintain or enhance their competitive position Tracking emission allowances, offset credits or permits and evaluating corporate environmental balance sheet Identifying opportunities to enhance and optimize their competitive position via environmental commodities markets Page 13

14 Technology Platforms Meets the expected growing financial scope and size envisioned for tradable permits Provides a mechanism that resembles the operation of current credit cards with multiple currencies across the world Handles permits created by various governments in the world to meet global environmental goals Handles all kinds of transactions and transfers by permit owners complying with existing mandates in their regions or willing to meet other objectives globally Page 14

15 Platform s s Essential Elements Security: Multiple data centers and web hosting services are essential with adequate redundancy and capability to switch in between in a short period of time. Scalability: Highly scalable architecture to handle growing numbers of users by the addition of web-servers without any interruption in production or the need of software changes. Service Oriented Architecture: To allow for autonomy in implementation and provide for implementation of distributed, loosely coupled components to localize, and therefore minimize, the impact of change. Software and Hardware Platforms: Today s available hardware, database management systems, and middleware products offer reliability, resiliency to operational failure, and security needed for environmental and financial markets. Software-as-a-Service: SaaS delivery model offers user interface in an industry standard browser using Adobe, Google, or Microsoft technology. Vendors handle all necessary software upgrades, including revisions to address changes in laws, regulations, and market rules. Page 15

16 Business and Technology Standards Business standards covering agreements, securities templates and contracts, credit rating, environmental reporting, reference data, and credit event protocols Technology standards governing data exchange message formats and communications protocols with particular emphasis on: Transmission Control Protocol/Internet Protocol (TCP/IP) Data exchange standards as defined by the United Nations Framework Convention on Climate Change (UNFCCC) and underpin the Community Independent Transaction Log (CITL) for interoperability Messaging standards defined for pre-trade, trade, and post-trade clearing and settlement in financial markets Environmental market reporting as a contributor to broader financial reporting and financial performance management as environmental markets develop Page 16

17 Management Process for Registries Page 17

18 Environmental Commodity Registries Some of the existing environmental registries are: Gold Standard Registry Climate Action Reserve (formerly California Climate Action Registry) Voluntary Carbon Standard The Climate Registry European Emission Trading Scheme (EU ETS) Registries (CDM, ITL, CITL, country registries) Ontario Emission Trading Registry Various Renewable Energy Certificates or Credits (RECs) Registries in North America Page 18

19 Final Remarks Final Remarks Environmental regulations are complex and multi-jurisdictional requiring sophisticated infrastructure to manage. Effective regulatory oversight requires infrastructure capable of tracking massive amount of information and the ability to investigate the possibility of fraud or manipulation via queries and reports of historical information. Corporations need a trustworthy and reliable technology infrastructure to manage obligations and to track credits and transactions with high integrity in the business processes. Registries with desirable features are needed to enhance market operations, facilitate transactions, integrate with financial markets, support corporate environmental asset management, and improve market efficiency and transparency. Participants need extensive support and information technology infrastructure to handle massive volumes of trade and transactions and the ability to integrate with existing financial and transaction systems through integrated technology and standards. Page 19

20 Q & A Page 20

21 Contact Information Parviz Adib at For more information on APX, please contact us at (408) or Page 21

22 Company Introduction APX provides the highest quality transaction and data infrastructure for energy and environmental markets Largest provider of hosted power market operations systems and support Largest provider of technology and related services to environmental markets Page 22

23 APX MarketSuite Page 23

24 APX Environmental Management Account TM APX Environmental Management Account includes: APX Portfolio Access TM APX Transact TM APX Report TM APX Contracts TM APX Project Track TM APX Registry Services Full Global Support Page 24