Supporting Aotearoa’s zero-carbon future with emsTradepoint
YouDo built an award-winning exchange platform for emsTradepoint, helping bring transparency to natural gas and carbon trading.
We’re stoked to be supporting Aotearoa’s zero-carbon future with emsTradepoint
YouDo built an award-winning exchange platform for emsTradepoint, helping bring transparency to natural gas and carbon trading.
emsTradepoint plays a significant role in our country’s goal of net-zero carbon emissions by 2050.
Created by Transpower in 2013, the wholly-owned subsidiary facilitates the efficient and secure trading of natural gas – a transition fuel – and now, carbon.
After building emsTradepoint’s initial exchange platform back in 2013, YouDo has helped the company expand its marketplace to trade carbon products.
It all began with trading natural gas
In the past, New Zealand’s gas market has been dominated by a small number of players running bilaterally negotiated contracts – so if you wanted gas, you’d need to know the right guy, give them a ring, and strike a deal privately.
This bilateral arrangement restricted information to the rest of the market, which:
- Created barriers to entry for new market participants
- Inhibited producers from supplying gas at the least cost to meet demand
- Stifled signals for further investment
- Caused information asymmetry (eg. some industry participants were not aware of the 2018 Pohokura outages, finding out through the media, while counterparty companies had full access to that information)
Concerned about the impact of this information scarcity – on participants and consumers – emsTradepoint established a spot market for trading natural gas in New Zealand.
emsTradepoint engaged YouDo to build its new proprietary trading system.
“YouDo was the obvious choice. They had the domain expertise, a renowned ability to deliver on time and within budget. It was a bonus that they’re only a five minute walk down the road from our office!”
Quintin Tahau, General Manager at emsTradepoint
Trading commenced in 2013, providing the first exchange-traded natural gas contracts in the Asia-Pacific. This was a valuable new tool that brought complete visibility, helping participants manage their supply risk.
In 2015, emsTradepoint won the award for Innovation at the New Zealand Energy Excellence Awards – a testament to the transformative impact the platform had on the New Zealand natural gas market.
“YouDo was a big part of why we won the award. They helped us bring much-needed innovation to the market.”
Quintin Tahau, General Manager at emsTradepoint
Then, we looked at carbon trading in New Zealand
Putting a price on carbon is a well-established system for regulating emissions around the world.
Emissions trading schemes effectively reshape incentives for firms. You’re rewarded for being clean and green but if you pollute, you pay.
The government’s New Zealand Emissions Trading Scheme (NZETS) is the primary market for buying New Zealand Emissions Units (NZUs).
Businesses carrying out activities covered by the NZETS must buy one NZU for every one tonne of greenhouse gas emissions they produce.
The government auctions NZUs at a price dictated by supply and demand. This year, there are four auctions – the next one is on 1st December.
But with limited supply available in the primary market, the independent secondary market is where most NZUs are traded. The secondary market includes:
- Bilateral agreements
- Brokers
- Trading platforms
Quintin explains that the same information restrictions present in natural gas trading were prevalent in New Zealand’s secondary market for carbon:
“We thought the natural gas market needed transparency, but it had nothing on carbon. The carbon market started in 2009 and it’s still so opaque. The barrier to entry is so high, you can’t know the market depth unless you’re a member of one of the legacy carbon markets, so there’s limited access to historical data.”
Quintin Tahau, General Manager at emsTradepoint
YouDo helped emsTradepoint apply new ways to trade carbon
In late 2019, emsTradepoint called on YouDo to expand the exchange platform to list carbon products.
Both teams analysed overseas markets to find features that could work in the New Zealand context.
YouDo was tasked with building the exchange and applying emsTradepoint’s unique market rules.
What makes emsTradepoint different is its central counterparty model, one that it had already applied successfully to energy trading.
By buying from the seller and selling to the buyer, emsTradepoint created a completely anonymous marketplace.
This means that practically anyone can trade, and participants don’t know who they’re trading with – eliminating one high barrier to entry and the information asymmetry that often comes with bilateral agreements.
There are two carbon products available:
- The spot market carbon product – CP-NZU
- The forward market product – CP-NZU(F)
By allowing access to live and historic data, emsTradepoint enables complete transparency in the carbon trading market.
We delivered the project to the letter. The carbon products went live on March 17th 2020, concluding a 6-month project just one week before New Zealand went into lockdown.
“This wasn’t YouDo’s first rodeo, nor ours. As far as our ongoing working relationship goes, this was another product development exercise of many more in the future. YouDo has outstanding project management on their side, leading software developers, and their team coordinated with ours perfectly. The project was delivered bang on time, on budget to the dollar, and exactly to our requirements.”
Quintin Tahau, General Manager at emsTradepoint
Breaking down barriers for an exciting low carbon future
Quintin and his team at emsTradepoint are watching the government auctions closely.
“We’re here as a commercial business, but fundamentally we’re here to support New Zealand’s climate change goals through decarbonisation.”
Quintin Tahau, General Manager at emsTradepoint
The value of emsTradepoint’s exchange depends on the outcomes of the New Zealand government’s primary auctions – will one or two organisations sweep the entire auction? Will the government issue more NZUs in the same way they did for the September 2021 auction? And will we see the use of emsTradepoint grow as traders become more reliant on the secondary market?
Oil and gas companies, energy companies, heavy industries, and forestry entities take up the majority of users. But, with its greater transparency, accessibility, and no minimum parcel size, emsTradepoint’s platform is technically open to everyone.
While the household market isn’t on the cards for emsTradepoint just yet, perhaps one day you and I might sell our hard-earned NZUs to help incentivise cleaner business practices.
It’s another reason to consider cycling to work.
Celebrating bespoke software and supporting businesses long-term
Our long-term support contract with emsTradepoint is exactly the kind of relationship we like to forge with our clients.
The energy and finance sectors face the pressure to innovate. Bespoke software is the best way to adapt and be competitive in rapidly changing markets. But, who can build your new systems?
This project showcases the way we can work with clients as if we’re an internal team. We’re innovative, we’re available, and we have a deep knowledge of what your business needs and how your industry behaves.
“YouDo is outstanding. We have so much time for them as developers and as people.”
Quintin Tahau, General Manager at emsTradepoint
