Price assessment methodologies

EUA bid-offer-close methodology

Basis
Point Carbon’s bid-offer close methodology is based on over-the-counter (OTC), brokered prices. Every day, active brokers and traders in the EU emissions trading scheme supply market information at close of market to Point Carbon.

Each broker acts with the permission of their management. The brokerages act independently from each other and the information they provide is confidential.

The information they provide is confidential and held by Point Carbon. The data is not circulated outside Point Carbon and is used solely for compiling the market assessment.

Time of assessment and verification
Point Carbon’s closing price reflect the best bid and the best offer at 17.30 Central European Time (CET) exactly. Point Carbon’s editors then contact as many of the most active traders in the market as possible each day, usually around twelve but a minimum of five, to verify that the bid and offer is firm and executable. The traders are required to act in complete independence when confirming the numbers submitted by brokers.

The editors may discard any information at their discretion which they consider unconfirmed or unrealistic. They may also discard bids and offers they consider to lie beyond the market bounds.

Bids and offers and lot size
All bids and offers must be firm at 17.30 CET and be of a minimum lot size of 5,000 allowances. All bids and offers must be open and available to any reputable and creditworthy counterparty, although Point Carbon does recognise that national legislation may prohibit companies from trading with certain counterparties. Such counterparty issues will be dealt with on a case-by-case basis.

Illiquid contracts
In the case of illiquid contracts, where no firm bids and offers can be ascertained at 17.30 CET, Point Carbon, when assessing the closing price, will take into account the previous relationship these contracts have had with a more liquid counterpart. Consequently, the market structure will be taken into account when formulating the best bid and offer in the absence of any firm indications at the end of the day. In the unlikely event that there is no bid or offer indications throughout the day, the closing price will remain unchanged.

Timing
Currently Point Carbon assesses the price of EU allowance contracts for spot delivery and contracts delivery on 1 December 2008-2012.

Price
The price refers to one EU allowance, equivalent to one metric tonne of carbon dioxide emissions.

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Secondary CER assessment methodology

Basis
Point Carbon’s secondary CER assessment is based on over-the-counter (OTC), brokered prices as well as exchange information, where available. Every day, active brokers and traders in the carbon market supply information at close of market to Point Carbon. As the market has yet to be standardised, the price assessment is designed to encompass the majority of bids, offers and trades in the market.

Time of assessment
Point Carbon’s closing price reflects the market range at 17.30 Central European Time (CET) exactly. The editors may discard any information at their discretion, which they consider unconfirmed or unrealistic. They may also discard any information they consider to lie beyond the market bounds.

Parameters of the assessment

• Bids and offers must be open and transparent.
  
• Bids and offers must be for a minimum clip size of 25,000 tonnes.
  
• Delivery will take place on the said day, or 15 days after a delivery path is functional.
  
• The bid or offer must be made on the assumption that the agreed price will be adjusted by interest rates in the absence of a delivery path. Adjustment should be calculated from the date of intended delivery to the date of actual delivery.
  
• Bids and offers for delivery into EU and non-EU registries will be treated alike.
  
• If the market is illiquid at the time of close, then the Point Carbon reserves the right to use historical correlations with other carbon-related contracts.

Price
The price refers to one certified emission reduction, equivalent to one metric tonne of carbon dioxide emissions.