The European arm of the New York Stock Exchange is planning to export is carbon-trading business to North America and Asia through a joint venture with APX Inc. The timing is perhaps not fortuitous, since the carbon-trading market seems to experiencing a fall from grace.
NYSE Euronext will combine its Paris-based BlueNext unit with APX Inc., a U.S.-based provider of trading technology, to broaden market offerings tied to renewable energy and emissions. The new NYSE Blue joint venture will compete with offerings from IntercontinentalExchange Inc. (ICE) and CME Group Inc. (CME) in an emerging market whose growth has been partly stalled by the halt of efforts to enact cap-and-trade legislation in the U.S.
“We think the marriage of an infrastructure company, APX, with strong links to voluntary carbon and renewable energy markets, is going to give us a competitive advantage going forward,” said Brian Storms, chief executive of APX, who will take over as CEO of NYSE Blue.
Storms said in an interview Tuesday that he saw no chance of any U.S. cap-and-trade legislation this year, but that NYSE Blue could benefit from “evolving” state-level programs centered on renewable energy and region-specific programs like the Regional Greenhouse Gas Initiative.
China holds opportunity as well, Storms said, citing government plans to introduce cap-and-trade pilot programs in several cities; there, NYSE Blue would vie with ICE’s Climate Exchange, which maintains a joint venture in the country aimed at developing a new emissions trading platform.
Exchange operators have for years sought inroads to emissions trading, seen as potentially growing into one of the largest commodities markets in the world through government mandates.
Under such cap-and-trade programs, carbon-dioxide producers like coal-fired power plants would have their carbon emissions capped at a certain level by government-issued credits for allowances. Those that exceed their limits would have to purchase added carbon credits from producers whose emissions fall below their allowed amount.
Europe has had the programs in place for several years, but U.S. lawmakers have struggled to implement similar measures, creating a fractured landscape of regional cap-and-trade schemes and voluntary programs that have yet to yield much business.
ICE highlighted the potential seen in carbon trading by agreeing in July to pay $603 million for Climate Exchange Plc, adding the world’s largest emissions market operator to its portfolio of energy and commodity markets. CME secured regulatory approval in July to launch its U.S.-based Green Exchange venture as a standalone unit, and is seeking similar status in the U.K.
ICE has since scaled back the Chicago Climate Exchange unit it acquired in July in the continued absence of a U.S. carbon mandate, and BlueNext has delayed past plans to expand into the U.S.
“Given Congress’s inability or unwillingness to create a nationwide cap-and-trade program, at least for the next three to five years, most of the transactions that have the potential to be exchange-based are going to be in Europe,” said William Bumpers, head of climate-change practice for Baker Botts LLP.
Carbon markets backed by CME and ICE are seen benefiting from the products’ ties to other contracts linked to energy and commodities. NYSE Euronext CEO Duncan Niederauer said in a statement that his company would look to build on its constituency of listed companies and traders that carry exposure to environmental factors.
NYSE Euronext is contributing its ownership in BlueNext in return for a majority stake in the enlarged venture. APX shareholders, including Goldman Sachs & Co. (GS), MissionPoint Capital Partners and Onset Ventures, will get a minority interest in return for the APX business.
Francois-Xavier Saint-Macary, who signed on as CEO of BlueNext Sept. 1, will serve as European chief executive, Storms said. A U.S. CEO will be drawn from APX.
Terms of the deal, seen closing by year-end, were not disclosed.