March 24, 2000
SO2 and OTC NOx Market Price Indices

As always Cantor Fitzgerald does not trade on its own account. All allowances purchased in the auction or traded in the open market are for our clients. It is Cantor’s policy to keep the identity of our clients and their positions in the market in strict confidence.

View NOx OTC MPI History

In March trading in the NOx Allowance market increased possibly because there were one or two events that provided players with an excuse to push the pricies slightly higher.

NOx SIP Call Upheld By U.S. Court of Appeals

On March 3, 2000 the U.S. Court of Appeals for the District of Columbia decided in favor of EPA, upholding EPA’s NOx SIP Call (planned to be implemented in 2003). While the Court held that the NOx SIP Call was appropriate and must be implemented, the Court also noted some weaknesses in EPA’s rulemaking that required the Court to vacate the rule with regard to the states of Wisconsin, Missouri and Georgia. In addition, the Court refused an east coast power generator’s request for the Court to find that EPA’s limitation on the number of early reduction credits linked to the Compliance Supplement Pool was arbitrary and capricious. As the SIP Call has been a subject of much contention, it would not be surprising if a rehearing is requested or a petition for certification for review of the decision by the US Supreme Court is filed. However, such petitions are not automatically granted. Thus, even if filed, the case might not be re-heard, or heard by the Supreme Court. We will keep you advised if such a petition is filed. Regardless, the news of the SIP Call being upheld was well received by the market, as most thought it would take some of the uncertainty out of the future of NOx Trading Programs. Prices in Vintage 2000 allowances consequently moved up from $675/ton to a high of $950/ton. Prices have since settled around the $875/ton level for the latter part of March. Also notable was a trade reported in Vintage 1999 allowances at $675/ton, which may possibly point to renewed interest in this Vintage.

More OTC NOx News … PFC Ratio is Official

The other major news item in the market was the announcement by EPA at their March 21, 2000 conference in Arlington, Virginia of the official Progressive Flow Control (PFC) ratio. While the figure of 0.49 was of little surprise (see Cantor Fitzgerald’s November 1999 Market Bulletin, indicating that the preliminary PFC ratio is 0.49), traders had been anxiously awaiting the official, unequivocal announcement for some weeks. As a quick recap -- for this year, the PFC ratio applies only to Vintage 1999 allowances used for compliance in the year 2000. After a budget source has used all Vintage 2000 allowances for compliance in 2000, EPA will deduct the first 49% of any Vintage 1999 allowances held in that unit’s account on a 1 to 1 basis. The remaining 51% of banked allowances will be deducted on a 2 to 1 basis. If unused (i.e., banked, traded, etc.), the Vintage 1999 allowances would not be discounted. Anyone who has any questions about, or wishes to discuss the implications of, the SIP Call or PFC is most welcome to contact us at 800-228 2955.

Greenhouse Gas Reductions Available

Cantor Fitzgerald clients sold or optioned more than 20 million metric tonnes of CO2 equivalent greenhouse gas reductions. This includes a 2.8 million metric tonne transaction involving reductions from agricultural sources that were transferred to a consortium of Canadian companies. Other greenhouse gas reductions offered for sale include those created by the following types of projects: landfill methane, animal waste methane, soil sequestration/land management, waste CO2 recovery, coal bed methane, biomass generation, and land and management/reforestation. Cantor Fitzgerald can assist risk managers in the creation of a portfolio of greenhouse gas reductions and offsets to address their exposure to potential restrictions in their ability to emit greenhouse gases. The Cantor Fitzgerald greenhouse gas MPI stands at $0.50 to $2.00/tonne of CO2 equivalent. For more information on how you can buy, sell, or option greenhouse gas reductions please call us at 800-228-2955.

Want to learn more about emissions trading?

Why not attend one of the many conferences featuring Cantor Fitzgerald speakers? Here are a few upcoming events that you may wish to check out:

• Enviro 2000, Sydney, Australia - 4/7 - 9/00 – Commercial Opportunities for Greenhouse Gas Trading
• EMA, New Orleans, Louisiana - 5/9/00 – The Role of Electronic Exchanges in Emissions Trading
• AiC, Sydney, Australia - 6/13-15/00 – ET Programs Around the US and Risk Management Tools & Strategies

Market Price Index Highlights from Other Markets Around the USA

Each month we will feature highlights for one of the many other emissions trading markets around the United States. This month’s features are the South Coast Air Quality Management District’s Regional Clean Air Incentives Market (RECLAIM) and Emission Reduction Credit (ERC) markets. The RECLAIM cap and trade program covers sources with 4 tons per year or more of NOx or SOx emissions. Between 1994 and 2003, NOx RTC allocations are reduced by 75% and SOx RTC allocations by 60%. The SCAQMD ERC program covers new sources that increase their reactive organic gas (ROG), NOx, PM10, CO, or SOx emissions above a specified threshold. RTC MPI prices are quoted in $/RTC, or lb. ERC prices are $/lb/day. The arrows show movement from the 12/99 MPI.

RTC MPI 1999 2000 2005 2010 NOx $2.435^ $3.060^ $3.133^ $3.133^ SOx $0.925- $0.787- $0.950- $0.950- Arrows show direction of price change from the 12/27/99 MPI.

ERC MPI ROG NOx PM10 SOx $738^ $7,435^ $3,538^ $1,647^