LONDON Lehman Brothers shut down its carbon
emissions trading desk after the bank filed for bankruptcy
protection, a source close to the company told Reuters on
"Everything's stopped, blocked ... it's a bit anarchic," he
Lehman declined to comment on the matter.
The U.S. investment bank filed for Chapter 11 protection on
Monday while Merrill Lynch, also plagued by toxic,
mortgage-related debt, agreed to be bought by Bank of America.
Merrill's carbon desk was open as usual on Monday, a source
familiar with the bank said.
Lehman's membership on the IntercontinentalExchange, which
includes access to the European Climate Exchange, the world's
largest emissions trading exchange, was suspended, an ICE
This effectively disallows Lehman from closing any open
positions on its trading books.
LCH.Clearnet, which handles clearing for ICE, also
restricted Lehman's trading, citing the company as a
"defaulter," the clearing house said in a statement.
"Lehman's were relatively small, they were late coming into
the (emissions) market," one London-based broker said, adding
that Lehman is thought to have been more involved in the Clean
Development Mechanism (CDM) market than in day-to-day trading.
In the $13 billion CDM market, a trading scheme under the
Kyoto Protocol, companies from rich nations can invest in clean
energy projects in developing countries and in exchange receive
offset credits, called CERs, which they can use toward
emissions targets or sell for profit.
Lehman has stakes in up to 10 CDM projects, the first
source said. "There are some very good projects in the
pipeline," he said, adding that they would probably be sold by
The projects, mostly in China, are expected to generate 10
million to 12 million CERs by 2012, worth up to 275 million
euros ($385.4 million) at current market rates.
The source said the projects are of high quality and not
involved in the destruction of hydrofluorocarbons (HFCs), a
lucrative trade considered controversial by many in the
One potential implication of Lehman's demise is the effect
felt by those on the other side of these CER deals, often small
companies in developing countries.
"If Lehmans have entered into direct contracts with
counterparties in the developing world, chances are these
contracts are probably not that complex," the broker said.
"Provisions in the case of bankruptcy probably won't have
been included unless Lehmans introduced them unilaterally ...
to protect themselves in case of the small (project owner)
declaring bankruptcy," he said, adding that these provisions
may now have backfired against Lehman.
European emissions markets were lower on weakness across
the global energy markets on Monday.
European Union Allowances for December delivery lost one
euro or 4.2 percent at 22.90 euros a tonne on volume of 2,300
lots traded. Benchmark CERs lost close to three percent at
19.20 euros a tonne.
For additional news and analysis on the global carbon
markets, go to communities.thomsonreuters.com
(Editing by Anthony Barker)