Plenary speakers
Invited plenary talk: Fri, Sept. 6, 2024, 09:50-10:40
Chris Kenyon (MUFG Securities EMEA plc and University College London, UK)
The price of permanence Mitigation-Duration Forwards (MDFs)
For carbon capture to be effective, it must be permanent, i.e. the carbon captured must be sequestered for decades. Long capture timescales pose a challenge both in terms of financial default of the offering entity, and in terms of the physical default of the underlying capture mechanism, e.g. a forest could burn down. As an effective alternative, we propose CO2 Mitigation Duration Forwards (MDFs), which ensure a capture of carbon from a given date and guarantee sequestration for a fixed duration. MDFs have commodity characteristics between those of consumption commodities and investment commodities, adding an additional dimension to pricing: duration of sequestration. We present here both construction costing and pricing for MDFs based on a project finance approach, whereby the MDF seller creates a special purpose vehicle which obtains financing, and then manages forest assets, and their derivatives up to the conclusion of the project, i.e. the maturity of the MDFs sold. To guarantee 100% contract delivery the forest asset management is combined with short-term use of more expensive technological capture methods. We show that a combined physical and financial engineering solution provides cheaper and more certain delivery than more naïve approaches, and most importantly guarantees permanence of sequestration for the MDF duration.
About
Dr. Chris Kenyon is global head of quant innovation at MUFG, and global head of XVA quant modelling for MUFG. Chris is also honorary associate professor of mathematics at University College London, where he teaches on mathematical climate finance. Previously, Chris was head of XVA quant research at Lloyds Banking Group, worked at Credit Suisse, and at Depfa Bank plc he was the post-crisis head of structured credit valuation, after working on inflation-rates hybrids introducing new smile models. Chris formalized KVA and MVA with Andrew Green.
More recently he introduced a climate change valuation adjustment (CCVA), the carbon equivalence principle (CEP), and a CO2-equivalent Scope 3 valuation adjustment (CO2eVA). Chris has degrees from University of Texas - Austin, and Cambridge University. He is an author of the open source software QuantLib, holds 10 US patents, and published 21 papers in the peer-reviewed Cutting Edge section of Risk magazine.
