“Companies operating under cap-and-trade programs must treat their emissions as liabilities, create demand for carbon credits to pay for the pollution they emit, and incentivize companies to look for opportunities looking to lower costs.”
Intercontinental Exchange has reported record volume of 3.64 million contracts (+5% YoY) traded on its North American environmental markets, with a record 270 companies trading in 2022.
ICE’s North American environmental futures and options markets include California Carbon Allowances, California Carbon Credits, RGGI Allowances (RGA), California Low Carbon Fuel Standard (LCFS) Credits and Renewable Energy Certificates (RECs).
The average daily volume increased by 5.5% to 14,500 contracts, according to the exchange operator, adding that in December 2022 about 372 million CO2 allowances were delivered via ICE, of which 28% were on North American CO2 allowances with a nominal value of 2, accounted for $5 billion.
ICE’s renewable energy certificate (REC) futures markets grew 40% in 2022, the company reported, as it offers 31 REC futures and options, including wind and solar RECs, and last year a record number of Processed 981,302 REC contracts, representing an estimated 87.6 million megawatt hours of renewable energy.
RECs are an important hedging tool to reduce the price risks of renewable energies
Gordon Bennett, ICE’s managing director of utility markets, said: “Net zero is first and foremost an energy transition. The price signals and liquidity of the energy and environmental markets are at the heart of helping companies make the transition to alternative forms of energy by providing the tools to allocate capital and manage the associated price risk. The transition to power from renewable energy sources means that RECs are an essential part for any company looking to meet its emissions reduction commitments, as well as an important hedging tool to mitigate the price risks involved in balancing supply and demand for renewable energy.
“Companies operating under cap-and-trade programs must treat their emissions as liabilities, create demand for carbon credits to pay for the pollution they emit, and incentivize companies to look for opportunities to seek cost reduction. As the scope of Europe’s Emissions Trading Scheme is set to increase by about another 1.5 billion tonnes under the EU’s Fit for 55, the number of emissions commitments at risk will nearly double and exceed 4 billion tonnes, driving demand for environmental risk management tools. “
ICE plans to launch carbon credit futures in Washington pending the completion of regulatory processes. Washington’s “cap-and-invest” program, which began January 1, 2023, is closely modeled on California’s carbon market, has an initial cap of 63.3 million tons, and will cover 75% of Washington’s carbon emissions over time.
Since the inception of the environmental markets, over 100 billion tonnes of carbon equivalent allowances, over 250 million renewable energy allowances, 3 billion carbon credits and the equivalent of over 3 billion Renewable Identification Numbers have been traded on ICE.
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