• Current Offer for UK Allowances= £2.20 per allowance*
  * Indicative price only, volume on offer = 1,000 allowances - please call Natsource for latest prices at + 44 (0) 20 8213 5333 or e-mail london@natsource.com

Prices are available for any volume but they will be greatly affected by the volumes that are required by the buyer.  Please call Natsource for prices on specific volumes of allowances.

Market Outlook
Prices of UK allowances have risen slightly on the back of steady buying interest over the summer at the low allowance prices below £2 per allowance. At current prices, allowance purchases still provide an excellent opportunity for companies to minimize exposure resulting from missing 2006 CCA Targets.  Buyers can often get a better price for allowances by showing a bid rather than simply lifting the current offer. Natsource can assist its clients in this regard.

About Natsource
Natsource Europe Ltd (NEL) has been the most active transaction services provider in the UK Emissions Trading Scheme.  We assist companies to manage their risks either under Direct Entry obligations or CCAs.

Natsource Europe is the company’s European subsidiary of Natsource LLC. Natsource is a leading global provider of asset management, advisory and research services, and transaction services around the world.  Natsource assists leading private firms and governments in strategic management of energy and environmental risk.  Natsource is headquartered in New York and has a global reach, with offices in many of the world’s major financial centers.

Natsource offers competitive fee rates to arrange transactions.  For further information please contact Tim Atkinson at Natsource or e-mail tatkinson@natsource.com.

UK Emissions Trading Scheme
The UK ETS was initiated in April 2002 and was the world's first domestic, economy-wide GHG emissions trading scheme.  Natsource arranged the first trade in the UK ETS and a large portion of subsequent transactions.

There are two categories of participants in the scheme:  Climate Change Agreement (CCA) Participants, and Direct Participants.

Climate Change Agreement (CCA) Participants

Although the scheme is described as voluntary, most participants have chosen to participate as a means of reducing their tax liability under the Climate Change Levy (CCL), a downstream tax imposed on energy use in the industrial, commercial, and public sectors.  Companies receive an 80% reduction in their CCL by meeting emission reduction targets established through Climate Change Agreements (CCAs).  Over 12,000 sites are covered by these CCA Participants.  They are able to use the UK ETS to either help meet targets, and therefore minimise the risks of losing the CCL rebate, or generate extra revenue through selling any over-achievement.  In many cases trading offers a simple, effective and flexible tool to companies.

Direct Participants
To promote additional participation in the program, the Government provided incentive payments to firms in exchange for their agreement to achieve specific quantities of emission reductions below a baseline amount.  The payments were provided through an auction in 2002 in which $309 million was distributed to 34 participating firms that competed for the payments by bidding emission reduction targets.  These “Direct Sector” participants, or “Direct Participants,” are also able to use emissions trading to purchase or sell allowances

Information on Contracts and Credit Issues
Those interested in trading should be aware of the various contractual and credit issues associated with trading UK Allowances.  Once counterparties have agreed upon the key terms of the transaction, such as price, volume, delivery and payment date, they must agree to contact terms to execute the trade. 

Counterparties do not need to develop such documents themselves.  Standard contracts are available in the market place.  These range from a relatively simple contract to execute one-off trades and keep admin to a minimum to longer agreements which allow counterparties more legal comfort.  Both of these contracts are widely used in the market and can be obtained from Natsource.  Clients are advised to undertake their own legal review of such contracts.  
 
The standard terms of a trade in the spot market require delivery by the seller of allowances 1-3 business days after a contact has been agreed and payment by the buyer 10 business days after delivery (there may be some variation on this depending on counterparty).  In some cases it may be necessary for a buyer to make payment prior to delivery.  Credit issues become more significant when trading is on a forward basis.  Natsource attempts to raise any potential issues associated with credit as they arise. 

The UK ETS Registry

Once the terms of a trade have been agreed, the allowances are delivered by transferring allowances from the seller's registry account to the buyer's designated account.  Prior to the establishment of CCA compliance accounts, participants can establish a trading account with the UK Registry to hold any purchased allowances.  This can be done through the UK ETS registry website at www.defra.gov.uk/etr.

Due to the operation of the gateway, which restricts the transfer of allowances from the relative sector to the absolute sector, buyers should hold the allowances in an absolute sector trading account prior to transferring them into the relative sector to meet compliance requirements.  This avoids the problems of the gateway should a company not need all of the allowances for compliance and want to sell allowances back into the market.