Carbon Trade Already Covering Equivalent of ~Half World Energy Emissions, $1 Trillion Value: ICE (3)

By Mathew Carr

Jan. 12, 2022 — London: Data report:

Intercontinental Exchange Inc. said trading in carbon allowances reached a record volume last year on its various markets — and the volume of buying and selling reached the equivalent of about half global energy emissions.

A total of 18 billion tons of carbon allowances traded in 2021, equivalent to an estimated $1 trillion in notional value, ICE said by email. It has the biggest market share by far in the global market, though other exchanges including the EEX group and brokers handle sizable volumes, too.

Reflecting how companies use these markets to manage and price climate risk, as well as meet
compliance obligations, the traded contracts included a record 15.2 billion tons of EU carbon allowances, a record 2.4 billion tons of California carbon allowances, 346 million tons of Regional Greenhouse Gas Initiative allowances and, following its launch in May 2021, 255 million tons of U.K. carbon allowances, ICE said.

“This year we’ll be expanding our carbon credit markets to value and support the preservation of natural assets, as well as launching our first carbon index futures contract to provide access to the global cost of emissions in one instrument.” Gordon Bennett, Managing
Director of Utility Markets at ICE, said in the statement.

CarrZee comment: Higher trading volumes reflect rising need to deal with price risk in these markets and / or additional speculative activity by commodity related funds. The carbon markets are generally a derivative of coal and natural gas markets (and increasingly transport fuels). As fossil-fuel use shrinks, so should the volume of carbon traded — though rising prices mean the value of the markets is on the up. Increasing open interest, a measure of the volume of market bets that have not closed, indicates some confidence by traders that governments are going to make these contracts more valuable as the climate crisis worsens. The contracts are essentially incentives to shift away from fossil fuels. And global heating will probably get worse before it gets better, according to scientists.

Here’s why these markets are just getting started:

On the Up:
2-Year Price Chart for EU Carbon Allowances

ICE: Euros a ton

The exact total for the carbon allowance contracts traded is 18,312,406 and the total amount of renewable energy certificates (RECs) traded in 2021 was 705,083 contracts, ICE said.

ICE plans to expand its renewable energy futures markets with the launch of six new U.S. REC futures on January 18, based on solar and wind energy. It plans to offer its first financially settled global carbon futures contract based on the ICE Global Carbon Futures Index on January 31.

Another interesting statistic is that a record 2.25 million environmental futures and options contracts traded during the month of December 2021, beating the previous single month volume record set in March 2020.

December was also a record month for the amount of EU carbon allowance futures and options contracts traded, with a record 1.8 million contracts traded (or 1.8 billion tons equivalent of EU allowances traded in December — there’s 1,000 tons in each contract). That included record futures volume for EUAs of 1.4 million contracts.

For the fourth quarter of 2021, a record 4.7 million EU Emissions Allowance (EUA) Nfutures and options traded. This included a record 3.4 million EUA futures and a record 1.3 million EUA Options.

Regarding the split of futures and options volume, the most recent environmental report is available here, shows that for EUAs and CCAs.

(Adds comments and charts, additional data)

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