As frequent readers know, we have oft discussed the need for smart markets to underlie smart grids and smart meter deployments. Now, via The Financial Times, we have the hint of a potential smart market – albeit on a corporate vs. individual level and in the carbon space. But, that said, it is an intriguing enough idea that we wanted to share the report with you:
Rio de Janeiro is establishing what is likely to be Latin America’s first market for trading a wide range of environmental assets, as Brazil’s seaside capital seeks to carve a niche as an alternative financial centre.
The new market, to be known as the Bolsa Verde do Rio de Janeiro and led by a former UK-based entrepreneur and carbon trader, Pedro Moura Costa, will be launched on Tuesday.
Backed by the state and city governments, it will trade environmental assets ranging from straight carbon credits to securities related to Brazil’s controversial forest code, which requires farmers to maintain certain levels of vegetation on their properties.
“The first step is to build a framework to create the underlying assets, the next is to choose the trading platform,” said Eduarda La Rocque, Rio municipal finance secretary.
The launch of the market comes as the city is undergoing an economic resurgence thanks to plans to host the 2014 football World Cup and the 2016 Olympics as well as the discovery of giant oil fields offshore.
Although São Paulo remains Brazil’s industrial and financial centre, Rio has been seeking to establish itself as an alternative financial services centre after attracting Direct Edge, the fourth-largest US exchange operator, to launch an equities platform in the city.
Rio was also awarded a higher credit rating by Moody’s Investors Service this month, pushing it further up into investment grade status in spite of the weakening global economy and in contrast to threats of ratings downgrades in developed markets.
The announcements mark a turnround for the city, which despite its natural beauty and beach lifestyle has over the past decade been losing business to São Paulo, with its better transport links and security.
Rio’s green exchange, known as BVRio, will face a number of serious headwinds, including a deep downturn in global carbon credit markets.
It will also face formid-able competition from the São Paulo-based exchange, BM&F Bovespa – Latin America’s largest bourse and the world’s fourth largest by capitalisation – which has a carbon trading programme and is refusing to share its clearing system with rival exchanges.
But Rio Verde will aim to distinguish itself by trading a diverse choice of environmental assets.
These would include “carbon credits from the planned statewide cap-and-trade scheme as well as credits for liquid effluents in [Rio’s port area of] Guanabara Bay, forest reserve credits and recycling credits”, said Suzana Kahn, a sub-secretary with Rio de Janeiro state environmental secretariat.
The forest code credits are expected to be innovative. Farmers complain that rules curbing how much of their properties they can clear of forest mean they are forced to perform an “environmental service” with no compensation.
A forest credit scheme would let those with more forest than the legal minimum sell this as a credit to those falling short of the minimum requirement.
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