Nodal Exchange, IncubEx set to launch Washington environmental futures contracts

Nodal Exchange and IncubEx said July 31 that they are set to launch Washington Carbon Allowance Vintage Specific futures and Washington Clean Fuels Program futures contracts in response to the growth observed in the state's environmental markets.

The two "first-of-their-kind" listed contracts are scheduled for launch Aug. 11, pending regulatory review, according to a statement.

"We've seen significant growth in the WCA market since launch, with increasing participant interest," Dan Scarbrough, president, and chief operating officer at IncubEx, said in the statement.

"Based on customer feedback, we believe these products nicely complement the current carbon and renewable fuel credit markets listed on Nodal Exchange and mark another step in the growth of the Washington state market-based solutions aimed at reducing greenhouse gas emissions and for the North American compliance carbon markets more broadly," Scarbrough said.

IncubEx is an incubator for exchange-traded products, services, and technology solutions, while Nodal Exchange is a derivatives exchange providing price, credit, and liquidity-risk-management solutions to participants in North American commodities markets.

Washington state's second auction for its cap-and-trade program raised proceeds of slightly more than $557 million for clean transportation, climate resilience, and environmental justice projects, Washington's Department of Ecology said June 28. Combined with the amount raised from the first auction in February, proceeds for the state totaled more than $857 million.

Auction #2 included the sale of 2023 current vintage allowances, which totaled more than $480.8 million in proceeds, as well as 2026 future vintage allowances, which raised more than $76.2 million.

The 8.585 million current auction allowances sold in the May 31 auction settled at $56.01/mt, while the 2.45 million advance auction allowances had a settled $31.12/mt.

Since the current auction settlement price was above the $51.90/mt trigger price for 2023, an Allowance Price Containment Reserve auction was triggered, slated for Aug. 9.

The cap-and-invest program is a key component of Washington's efforts to combat the climate crisis, requiring the state's largest emitters to obtain allowances to cover greenhouse gas emissions each year.

The Climate Commitment Act set a statewide emissions cap with a ratcheting mechanism that aims to decarbonize the state by 2050. In conjunction with other laws advancing clean energy and electric vehicles, the cap-and-invest program targets 45% emissions reductions below 1990 levels by 2030, 70% reductions by 2040, and 95% reduction by 2050.

Contract details

The Washington CFP futures contract physically delivers credits that the Washington Department of Ecology issued through the Washington Fuel Reporting System Credit Bank and Transfer System, the companies said.

Washington launched its Clean Fuel Standard Jan. 1, as the third state, after California and Oregon, to implement a market-based GHG emissions reduction program for transportation fuels, setting an emissions reduction target of 20% (based on 2017 levels) by 2034, according to the statement.

The WCA Specific Vintage futures contract is also physically delivered and "enables market participants to make or take delivery of specific vintages that meet their compliance needs under the Washington carbon 'Cap-and-Invest' program," the statement said.

Since the launch of WCA futures and options contracts, more than 8,200, equal to 8.2 million WCAs, have traded on Nodal Exchange, with open interest rising to more than 3,500 lots, it said.

The WCA Vintage Specific futures contracts join the portfolio of North American listed carbon products on Nodal Exchange including the California Carbon Allowance, California Carbon Allowance Vintage Specific, California Carbon Offset futures, and Regional Greenhouse Gas Initiative futures and options, Nodal said.

"The new Washington contracts continue to illustrate the evolution of the North American environmental markets," said Paul Cusenza, Nodal Exchange's CEO.