KEY POINTS:
NZX chief executive Mark Weldon sees a future for New Zealand, and his exchange in particular, as the centre for carbon trading in the Asia-Pacific region.
Although trading at the moment is largely over the counter, with dealers marrying up buyers and sellers, Weldon is convinced exchange-based trading is the way of the future and that a continuous global carbon market will evolve with one dominant marketplace in each time zone.
New Zealand is well placed to be that centre for the Asia-Pacific region, he argues in a paper circulated among corporates late last year.
The country's brand equity - clean and green, and not corrupt - is helpful, he argues, as is its time zone.
NZX has invested in technology capable of trading not only equities, debt and derivatives but electricity and carbon as well.
It has set up a working group with companies like Meridian Energy, Vector and Air New Zealand, corporate advisers like McKinsey and PricewaterhouseCoopers and representatives of the global banks Goldman Sachs and ABN Amro.
"Their remit is to assess the feasibility and design of a market in New Zealand and what it would take for businesses to support it," said Weldon. "Specifically off the agenda is Government policy."
Prime Minister Helen Clark in her agenda-setting statement to Parliament on Tuesday said: "We are following closely exciting work in the private sector on the development of carbon trading regimes and will be willing to consider what legislative and regulatory changes might be needed to put them into effect."
The role of the big banks such as Goldman Sachs and ABN Amro as market makers was crucial, Weldon said. "It's not a market where you are going to have a natural congregation of buyers and sellers of the same order of magnitude. It's about having financial institutions ready to use their balance sheets to take risk.
"We have had affirmation from the global banks who are investing in this market that they think New Zealand is well situated and would support a market with liquidity. That's the main thing."
Trading need not wait until the Government had made all the decisions to create the property rights and obligations emitters would have.
"I think that if New Zealand businesses believed that a quality grey market [in rights to future allowances] could provide value to them, they would support it."
Japan is the only other Kyoto country is this part of the world but Weldon said it tended to run closed markets focused on its own needs.
Australia's state and territory governments have been working for several years on a national emissions trading scheme to cover first power stations and later large industrial emitters. But the fact that Australia has not ratified Kyoto may limit the international acceptability of its allowances.
Rather than looking to hook up with Australia, said Weldon, we should compete with it.
