Investors (Still) Seen Buying California Carbon After Price Surge in Europe: ESG Markets Going Global (1)

By Mathew Carr

Sept. 28, 2021 — (LONDON) — Investors are buying California carbon allowances after seeing the price surge in the European Union, which has the world’s biggest carbon market, said Gordon Bennett, head of utilities at Intercontinental Exchange Inc., speaking at the FIA Conference in London.

ICE has most of the volume of trading in EU carbon allowances, UK allowances and offers California allowances, as well.

Traders and investors are opening bets that governments will make these contracts even more valuable — at record levels (see chart below)

UK Carbon Allowances Jump

ICE: pounds per metric ton

EU Carbon’s Year-Long Surge

EU Carbon in euros per metric ton

California Carbon’s Recent Jump

Snip from broker Evolution Markets app. $ per ton; Open interest see below

EEX AG recently began offering its Zero Carbon Freight Index (ZCFI). For the first time, this index enables players in the Dry Freight market to see how the cost of carbon emissions could affect freight prices. 

The EEX Zero Carbon Freight Index calculates the synthetic price of daily FFA time-charter rates for both Capesize and Panamax vessels, which are adjusted for the cost of carbon. Price information is taken from the highly liquid EEX Dry Freight FFA market which is then combined with EEX EUA Futures to create a daily “Zero Carbon FFA” rate which reflects a 100% carbon reduction.

Traders just dipping their toe in the water today on green trading will be the big traders of the future, Richard Heath, head of business development, global commodities at EEX, told the conference.

LME has a lithium product in its pipeline (among a few in the sustainability complex), according to Hugo Brodie, vice president, sustainability, London Metal Exchange.

It’s not always clear exactly how “clean” some of these products are, Owain Johnson, MD, global head of research and product development at CME Group, told the conference. Any suspicion of greenwashing is the enemy of what the exchanges are seeking to do, he said.

Global open interest for ICE environmental products has hit a record this month.

(Updates with LME, more to come)

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