buyers and sellers (e.g., a steel company and a project developer, respectively, in the case of carbon markets) In this issue brief, we discuss the role of financial are not well placed to forecast the price of an asset – a players in the carbon market, focusing on the critical piece of information for their decision-making. [...] Key areas of the reform include introducing a futures market in the K-ETS, The European Union (EU) permits financial players to permitting individual participation, and increasing the participate in the EU ETS, while South Korea did not in number of financial player participation in the K-ETS its beginning phases. [...] This resulted in a liquidity crisis driven consideration for the ICM will be on deciding where by low trading volumes, limited participation of entities, to allow financial participants to trade in the baseline and an oversupply of allowances to the extent that the and credit market or the offset market. [...] Like the EU ETS, the K-ETS relies on market stability measures to control the flow of allowances in the market and limits the holdings and borrowings of market participants. [...] However, allowing financial of KAUs on the Korean Exchange, which would boost players to participate in the carbon market requires liquidity in the market and increase the trading volume the establishment of a robust policy ecosystem that on the exchange – correcting imbalances (Etienne and safeguards the carbon market against manipulation.
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- India
Table of Contents
- Nishtha Singh Harman Singh Chetna Arora and Vaibhav Chaturvedi 1
- Executive summary 1
- 1. Introduction 2
- As India gears up for the launch of the ICM it is critical to deliberate on the different design aspects of an efficient carbon market. 2
- Financial sector is critical for the development of any economy. There are three major roles that financial players play in the market - financial intermediation price discovery and risk hedging. 3
- 2. Role of financial players and markets in the economy 3
- 2.1 Financial intermediation for efficient capital allocation 3
- 2.3 Risk hedging 3
- 2.2 Effective price discovery of underlying assets 3
- In financial markets different players trade derivative instruments for varying reasons. 4
- 2.4 Hedgers 4
- 2.6 Arbitrageurs 4
- 2.5 Speculators 4
- 3. Carbon as a commodity 5
- 4. Opportunities and challenges associated with the inclusion of financial institutions and instruments 5
- 4.1 Banks 5
- 4.2 Institutional investors asset management companies and commodity trading houses 6
- 4.3 Derivative markets 8
- 4.4 Trading platforms 9
- 5. Financial players in the EU ETS 9
- 6. Key questions and concerns of relevant stakeholders 10
- 6.1 Should financial players be allowed in the CCTS compliance 10
- 6.2 Should financial players be in- cluded in the CCTS compliance from the very beginning or after a couple of phases 10
- 6.3 What are the critical lessons to be learnt from existing markets like REC and PAT 10
- 6.4 What are the learnings from international markets that CCTS compliance could incorporate 11
- 7. Conclusion and recommendation 12
- Finally It is important to recognise that Indias carbon market differs significantly from those in the EU UK and other regions where financial institutions play a vital and multifaceted role. 12
- References 14
