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A Bank Commodity Trading Team Seeks Deep Intelligence on Carbon Markets

A Bank Commodity Trading Team Seeks Deep Intelligence on Carbon Markets

Growing public awareness about the profound challenges presented by climate change have led to a surge in new participation in carbon finance, with an increasing number of global entities setting ambitious carbon management objectives. This has led to increased interest and participation in global emissions markets, particularly in voluntary carbon credits.

Emissions markets have been around for decades, but they have gained new prominence in the wake of the Paris Climate Agreement. There has been a growing interest in carbon credits in compliance markets, like the EU Emissions Trading System (ETS) that relies on a finite budget of “allowances”, which enable companies to emit one ton of CO2 per carbon credit. In addition, there has been an increased focus on carbon offsets in voluntary markets, which are tradable certificates that enable companies (and individuals) to offset their carbon emissions by funding projects that either reduce emissions (e.g., renewable energy) or remove emissions (e.g., reforestation).

In the EU ETS, private investment firms with allowance holdings jumped from about 100 in early 2018 to 350 by the end of 2021,1 driven in part by growing confidence in EU climate policies and the expectation of higher carbon prices in the future. The voluntary carbon markets look set for double-digit growth by 2030,2 with investment expected to exceed $100 billion by 2050.

This large global bank had recently added analysts to its trading team to focus specifically on carbon, recognizing the opportunities that were emerging as this commodity becomes a viable asset class. Being a nascent team, more information was needed on global carbon project developments, new and retired credits and carbon pricing to help appropriately structure a range of derivative contracts. 

Pain Points

Members of the carbon trading team lacked timely and reliable information to support their ongoing activities. In particular, they wanted access to:

  • Registry accounts for each market in which they participated.
  • Online access to see credits available for sale, with indicative quantities and prices.
  • Daily spot assessments for all project types, including an indication of the most competitive carbon credit in dollars and Euros per metric ton of carbon dioxide equivalent.
  • Differentiation between credits that avoid and reduce emissions from those that remove emissions, as these are fundamentally different instruments.  
  • A comprehensive picture of prices that capture:
    • Individual attributes of particular projects that factor in standard certification, volume and vintage.
    • Geographic considerations, which can play an important role in the final price

Members of the team were aware that S&P Global Sustainable1 brings together capabilities from across S&P Global to serve as the single source of essential sustainability intelligence and contacted the firm to discuss its capabilities in the carbon arena.

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The Solution

Specialists from Sustainable1 described a wide range of capabilities that would help members of the carbon trading team stay on top of the increasing number of projects and credits coming to market and gain transparency into pricing. These capabilities included offerings from S&P Global Commodity Insights. As of March 2022, IHS Markit became part of S&P Global, and S&P Global Platts and IHS Markit Energy & Natural Resources combined to become S&P Global Commodity Insights. The expanded set of services now available would help the trading team:

Key Benefits

Members of the carbon trading team saw value in having:

  • Relevant insight into the trends that shape carbon markets across a large range of project types, geographies and standards.
  • Pricing, rationales, market commentary and news for both the compliance and voluntary markets.
  • A transparent view of the rapidly growing voluntary carbon markets with a suite of benchmark voluntary carbon prices covering the full range of projects.
  • Confidence knowing that the carbon assessments reflect projects certified by established entities: The Gold Standard, Climate Action Reserve (CAR), Verified Carbon Standard (VCS), Architecture for REDD+ Transactions and American Carbon Registry (ACR).
  • Voluntary carbon credit assessments that are published in prices per metric ton of carbon dioxide equivalent (mtCO2e) and are available in multiple currencies.

1 “Private investors flocking to cap-and-trade markets as prices and returns soar”, S&P Global Market Intelligence, May 23, 2022, www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/private-investors-flocking-to-cap-and-trade-markets-as-prices-and-returns-soar-70450498.
2 “Voluntary Carbon Markets Data and Intelligence”, S&P Global Commodity Insights, www.spglobal.com/commodityinsights/en/products-services/energy-transition/voluntary-carbon-markets.