Exchange-traded products for the EU Emissions Market

Milano Energia

Milan, 5 October 2005

Peter Koster, Chief Executive Officer, European Climate Exchange

2

Contents

• Background on the European Emissions market;

• Market characteristics: Volumes, Prices and Players

• Introduction to the European Climate Exchange;

• How do emissions relate to other energy markets?

• Looking ahead: the carbon market & the future

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European Climate Exchange

» The European Climate Exchange (ECX) is a wholly-owned subsidiary of the Chicago Climate Exchange (CCX) which, in collaboration with the International Petroleum Exchange (IPE), offers a series of emissions products;

» ECX Carbon Financial Instruments futures Contracts are listed and traded on the IPE and offers a pan-European electronic trading platform where industry and financial institutions can trade CO2 under the EU Emissions Trading Scheme;

» ECX CFI futures Contracts are financially guaranteed by LCH.Clearnet;

» At current prices, the EU carbon market has an annual baseline value of €50 bn in 2005;

» ECX/ IPE has become the leading CO2 emissions exchange in Europe with 38 million tonnes traded in the first five months of activity;

» ECX, IPE and Powernext will co-operate to offer futures and spot contracts on an integrated screen.

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Development of the EU Emissions Market

Futures market

Spot market OTC derivatives

Forward market

First forward trade in February 2003

First cash-settled OTC trade in

February 2005

First spot trade in February 2005

ECX IPE futures contract launched on 22nd April 2005

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Market Development

• Forward trading began in February 2003 and 10 MtCO2 were traded in 2004 –approximately 140 million tonnes CO2 traded first in the 9 months of 2005;

• Market infrastructure:– Increasing numbers of market participants – 50-60 now active;– 9 brokers;– 7 exchanges;

• All 25 National Allocation Plans now approved by EU Commission;

• 11 National registries currently operational (fully or partly).

• Companies from all industrial sectors included in EU Emissions Trading Scheme have traded at ECX/IPE.

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Price and volume ECX

-

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

22 Apr 09 May 23 May 07 Jun 21 Jun 05 Jul 19 Jul 02 Aug 16 Aug 31 Aug 14 Sep

-

5.00

10.00

15.00

20.00

25.00

30.00

35.00

5 months activity = 42 million tonnes CO2 traded on ECX

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Market Shares

53%

30%

17%

OTC ECX/ IPE Other Exchanges

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IPE ECX CFI volatility

ECX CFI volatility vs. settlement price

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

70.00%

Vo

lati

lity

(%

)

-

5.00

10.00

15.00

20.00

25.00

30.00

35.00

Pri

ce

(€

)

Settlement Price

Volatility

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Correlation with other IPE markets

Energy Product Price Correlation

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NBP Winter05 (p/th) Power Winter05 (£/MWh) Brent Dec05($/bbl) CFI Dec05 (€/t)

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Correlation with other IPE markets (2)

Spark Spread vs Carbon Price

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Sp

ark

Sp

read

Pri

ce (

£)

10

15

20

25

30

35

Car

bo

n P

rice

(€)

Spark Spread CFI Dec05 (€/t)

How can you trade ECX CFI futures Contracts on IPE?

• Trade directly as an IPE Member; or

• Order-Route as a customer of an IPE Member or a Broker electronically (or place orders by telephone);

ABN AMRO Futures*

Accord Energy

ADM Investor Services International*

Amerex

Atel Trading

Bache Financial*

Banco Santander*

Barclays Capital*

Bear Stearns International*

BHF Bank*

BNP Paribas Commodity Futures*

BP Gas Marketing

Breakwater Trading

Calyon Financial*

Cargill Investor Services*

Climate Change Markets*

Credit Suisse First Boston (Europe)*

Deutsche Bank*

Dresdner Bank*

E.On UK

Electrabel

Fimat International Banque*

Fortis Bank Global Clearing*

Goldman Sachs*

ICAP*

JP Morgan Securities*

Kyte Broking

MAN Financial*

Marquette Partners (UK)

Merrill Lynch International*

Merrill Lynch Commodities (Europe)

Mizuho Securities*

Morgan Stanley & Co International*

Optiver

Refco Overseas*

Saxon Financials

Scottish Power Energy Management

SEB Bank*

Sempra Energy Europe

Shell Energy Trading

Shell International Trading & Shipping

Smartest Energy

Spectron Energy Services

Starmark Trading

TFS Derivatives

Tradelink

UBS*

Members in ECX CFIs on IPE

*Entities marked with a star are able to offer clearing services to third parties.

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IPE ECX CFI futures - Contract specifications

Settlement Physically settled against transfer of EU allowances.

Settlement cycle Quarter-ends on Mar / Jun / Sept / Dec cycle to Mar 2008 – first expiry in December 2005.

5 annual contracts – Dec expiry 2008 – 2012.

Contract size 1000 tonnes CO2 (i.e. 1000 allowances).

Tick size €0.05 per tonne (i.e. €50.00 per contract).

Trading hours 8:00am to 5:00pm (GMT/BST).

Closing price Weighted average of trades during the daily settlement period.

Fees Members €2 per lot per side, Non-members €2.5 per lot per side. LCH.Clearnet clearing fee €1 per lot per side.

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Other information

• INFORMATION VENDORS CODES:

Bloomberg (MOA/EMIT) Reuters (0#CFI)

CMS (UX) IDC (<17>t, UX)

CQG (UX) IPE Energy Live (LUX)

E-Signal/Futuresource (LUX) Telerate (GB@UX)

• VAT:Interim TMO status received – transfers between the Member and the LCH.Clearnet will be zero-rated for VAT purposes.

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Chicago Climate Exchange

• Voluntary, legally binding pilot greenhouse gas trading program;

• Includes emitters and specified offset projects in North America;

• All six greenhouse gases included (converted to CO2e);

• Emitters commit to cut 1% per year (achieve -4% in 2006);

• Over 100 international companies have signed up for CCX membership inc Dupont, IBM, Stora Enso, Rolls Royce, Motorola, American Electric Power, Confederation of British Industry etc.

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Looking ahead..

• By year end integrated platform ECX/ IPE (futures) and Powernext (spot);

• ECX/ IPE plan to launch more emission derivatives: options and spreads;

• EU ETS will foster the development of the CDM and JI market;

• Carbon becomes an integrated part of the energy portfolio;

• Linking Europe to other trading schemes.

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Legal disclaimer

• ECX/ IPE is seeking recognition from the Commisione Nazionale per la Societa e la Borsa (CONSAB) as a foreign market under Article 67(2) of Consolidated Finance Act. The application is currently pending;

• The information given in this presentation is not, and is not intended to be, an invitation to access the market directly or via a non-Italian member;

• The information given in this presentation is not, and is not intended to be, a solicitation or an offer to buy or sell any of the products that are traded on the market.

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Thank You!

For more information, please contact: • Albert de Haan, Commercial Director albert.dehaan@ecxeurope.com• Sara Stahl, Carbon Economist sara.stahl@ecxeurope.com

Telephone: +31 (0)20 799 7990

Website: www.ecxeurope.com