"Granville Martin, vice-president for environmental affairs at JP Morgan, said access to OTC contracts was critical for bank financing. “You can’t scale up carbon finance without OTC markets,” he said.
For example, a utility wanting to build a power plant would only get a loan if it could hedge its long-term carbon and fuel risks. In many cases, he said, an appropriate contract is not available and, moreover, the utility would have to tie up a huge chunk of capital with the exchange as collateral.
For such contracts, investment banks would often be the only counterparty, and they could manage the risk by, for instance, taking a second lien in the power plant rather than upfront cash.
Forcing such trades through exchanges would add a significant hurdle to low-carbon development, and would be pointless if the reason was just to ensure transparency, Martin said.
“If the concern is ‘dark corners’ you can come up with solutions. You can have disclosure and preserve OTC,” he said."