The NZX’s hopes of being a world leader with its TZ1 carbon trading platform are being challenged by several Asian financial centres, which are gearing up to get a piece of the global carbon trading action. Hong Kong, Tokyo, Singapore, Mumbai, Shanghai and Beijing are all considering opening exchanges for trading carbon credits. The Hong Kong Stock Exchange is going over a feasibility study it commissioned toward the end of last year to determine how to position itself in the carbon trading market. And Chinese authorities are working on their own plans for a carbon trading platform, with Beijing and Shanghai competing to take the lead. Meanwhile, the Mumbai-based Multi Commodity Exchange of India, which has a strategic alliance with the Chicago Climate Exchange, launched futures trading in carbon credits in January.

Singapore is aiming to become Asia’s carbon trading hub and is offering tax incentives to carbon trading firms. It is banking on its robust financial institutions and proximity to Kyoto Clean Development Mechanism (CDM) projects in South-east Asia. And the South Korean Stock Exchange plans to launch carbon trading sometime this year. Until now, Asia’s role in global carbon trading has been largely limited to supplying carbon reduction emission (CER) credits under the CDM. China accounts for 61% of global CERs, followed by India with 12%. Most CERs are purchased by European companies and Govts to meet their emission reduction targets under the Kyoto protocol.

The bulk of the CER trading takes place through brokers, bi-lateral agreements and personal negotiations. Asia does not have any real trading platforms or exchanges for banking or transacting carbon credits. But this is set to change. KPMG analyst Rahul Kar says trading in CERs, Voluntary Emission Reductions (VERs) and derivatives are the obvious possibilities for Asian exchanges. Kar notes the VER market is small, but has the potential to grow. Hong Kong’s Cathay Pacific airlines recently introduced carbon offset options for its passengers using VERs. The airline is buying VERs from greenhouse gas emission reduction projects, mainly in China. Other companies may follow suit to cater to green demands of their customers, or simply to put forward a socially responsible image.

But many market analysts are sceptical about Asia’s carbon trading dream. Though Asia has a large supply for CERs, there is no local demand in the region except from Japan, which remains the sole buyer of CERs in Asia to meet its Kyoto obligations. Other Asian countries still do not have regulations planned which require companies to reduce emissions or buy credits.

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