Emissions Trading

UBS is an active participant in emissions trading markets and is a member of the Intercontinental Exchange (ICE), an electronic marketplace for energy and emissions trading in conjunction with the European Climate Exchange (ECX). In ‘cap and trade’ emissions markets, such as the EU Emissions Trading Scheme, companies are issued with permits that limit, or cap, their emissions. Companies who are able to reduce their emissions at low cost have the ability to sell their unused permits to other companies requiring them, thereby creating an emissions allowances market with a transparent carbon price, and ensuring that emission reductions are achieved in a cost-effective manner. Through the use of carbon financial instruments UBS is able to help clients manage their exposure to the emissions markets.

Case studies

2008 – Greenhouse Gas Index
The UBS Greenhouse Index is the first tradable investment benchmark tracking the greenhouse effect. It allows market participants to obtain an exposure to greenhouse gas emissions and their impact on the weather, recognized as the greenhouse effect. The index is constructed using liquid, actively traded futures contracts. Weather exposure is derived from Heating Degree Day (HDD) and Cooling Degree Day (CDD) futures contracts traded on the Chicago Mercantile Exchange (CME). Emissions exposure is provided by carbon credits associated with the EU Emission Trading Scheme traded on the European Climate Exchange (ECX) and the Kyoto Clean Development Mechanism traded on Nord Pool.

2006 – UBS World Emissions Index
UBS has developed the World Emissions Index (UBS-WEMI), the first of its kind globally. Index-linked products offered by the Investment Bank allow clients to participate in the index’s performance which is linked to tradable derivative instruments referencing emissions allowances.