The European Climate Exchange has launched a futures spread trade facility to allow hedgers to adjust their exposure to Carbon Emissions Reduction certificates and EU Allowance certificates.
The facility will allow traders, with a single transaction, to go long the CER future and short the EUA, or vice versa. The counterparty will take the opposite position. The contract is physically settled by delivery of the certificates. The price is quoted as the price of CER futures minus the price of EUA futures, so it can be negative. Pricing is set using the established price for the CER leg and applying the traded differential to derive the price of the EUA leg. The facility will have its own clearing limits, separate from the carbon futures.
EUAs are permits...