The Client: A large global bank

Users: The carbon trading team

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.

There is increased demand from corporations looking to offset carbon emissions in pursuit of net zero goals. Given this, the trading group at this large bank wanted access to detailed carbon market intelligence to better understand market developments.

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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 Energy. 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 Energy. The expanded set of services now available would help the trading team:

Monitor global carbon credit activity

Environmental Registry enables users to manage all their global carbon credits in a centralized, financial markets-based registry system. Project developers looking to list credits, potential buyers sourcing credits or regulators and standards bodies implementing environmental strategies are all supported.

Link with auction participants

Auction Platform provides comprehensive auction and auction management services across over-the-counter (OTC) asset classes that can be easily configured to meet the needs for each auction program. The platform seamlessly connects all auction participants, including bidders, registries, auction monitors, regulators and other program stakeholders. Functionality is provided for each step in the process: auction setup, participant application/enrollment, bidding, price calculation, results generation, approvals and distribution of results, as well as connectivity interfaces to other platforms as needed.

Gain transparency into voluntary markets

Voluntary Carbon Market Price Assessments cover a full range of different projects using a market-appropriate pricing methodology and assessment criteria. The assessments reflect bids, offers and trades as reported in the Energy Market on Close assessment process, the brokered market or on trading and exchange instruments. The assessments reflect the individual attributes of particular projects and factor in standard certification, volume, vintage, region, co-benefits and geographic location.

The market is segmented into avoidance and removal credits, and price assessments are provided for several project types. Avoidance projects include Household Devices, Industrial Pollutants and Nature-Based. Removal projects include Tech-Based and Natural Carbon Capture. Individual daily spot assessments are published for each type of project, and then the most competitive assessment sets the category for the day.

Additional assessments reflect credit types, including carbon credits eligible for the International Civil Aviation Organization’s CORSIA program, methane collection carbon credits that avoid or reduce GHG emissions and carbon credits from renewable energy projects.

Carbon Credit Settlements & Assessments data leverages Commodity Insight’s partnership with the Xpansiv spot-market and CME futures exchanges. Energy publishes daily assessments and settlement prices for the Xpansiv carbon credit spot market contracts using market data directly from Xpansiv CBL. In addition to providing settlements for spot markets, Energy provides the settlement prices for the physically delivered CME CBL futures contracts for 48 forward months at the 2:30pm New York close. Market reporters assess these settlements using bids, offers and transaction data directly from the NYMEX exchange.

Track developments in the compliance markets

Carbon Allowance Price Assessments for the compliance market involve evaluations of over-the-counter (OTC) forward prices for December European Union Allowances (EUAs) and United Kingdom Allowances (UKAs), which are financial instruments used in these two trading schemes. Companies subject to either trading scheme must hand over 1 EUA or 1 UKA for every mtCO2 or mtCO2e GHG emitted each year. These assessments are complemented with extensive news coverage.

Low Carbon Fuel Standard credit (LCFS) price assessments are published daily. Producers of petroleum and diesel are purchasing these credits from producers of ethanol, bio diesel, hydrogen and electric charging to meet their deficit shortcoming. 

California Offsets price assessments look at physically delivered GHG emissions offset credits that are limited to emissions-reduction projects in the U.S. and specifically to five areas: forestry, urban forestry, destruction of ozone-depleting substances and mine methane capture.

Regional Greenhouse Gas Initiative (RGGI) price assessments look at the cooperative effort among the states of Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Rhode Island, Vermont and Virginia to cap and reduce CO2 emissions from the power sector.

Stay on top of breaking news

Latest news and market commentary across the global carbon markets provides real-time insights on what is moving global carbon markets to support informed decisions in today’s fast-changing environment. A diverse range of topics are covered, including technological breakthroughs, changes in regional pricing patterns, global trading opportunities, the strategies of global and regional companies, the intricacies of policy and regulation in producing and consuming nations, key asset announcements and more.

Guide high-value strategies and positions

Fundamental carbon market analysis includes the parsing of policy decisions and forecasting of short- and long-term market balances and prices. Rigorous analytics and models help provide insights into both long-standing markets − such as the EU ETS, California Western Climate Initiative (WCI), RGGI and the California LCFS − as well as for nascent markets in earlier stages of development – such as the China ETS, UK ETS and CORSIA. 

Detailed analysis of each of the key elements of demand and supply are covered through regular updates of both underlying fundamental data and of the carbon price outlooks. An understanding of how these markets work, interact and create opportunities within the broader energy sectors supports the development of investor strategies to engage directly or indirectly in these markets.    

Understand pricing pressures

Future Energy Outlooks (FEO) delivers an integrated outlook across energy markets, giving reference cases for future prices and demand, while highlighting future outlooks that could provide upward or downward pressure on prices.

Tap into a centralized access point

Dimensions Pro supports advanced charting, personalized dashboards and watch lists, plus access to price assessments and indices for voluntary and compliance carbon markets, market commentaries and news.

Evaluate potential price appreciation

The Global Carbon Index was launched by IHS Markit, now part of S&P Global Market Intelligence, together with Climate Finance Partners (CLIFI) as a first-of-its-kind index that tracks the underlying assets of the most liquid compliance carbon markets: EU ETS, California Cap-and-Trade system and RGGI.

The S&P GSCI Carbon Emission Allowances (EUA) is designed to measure the performance of the European EUA market.

CARBEX carbon credit indices are published in partnership with Viridios AI. The six indices reflect the value of different types of voluntary carbon credits and enhance market transparency in the complex voluntary carbon credit and co-benefit markets. Co-benefits are terms attached to carbon credits that provide evidence of meeting the 17 Sustainable Development Goals (SDGs) defined by the United Nations.

The S&P GSCI Global Voluntary Carbon Liquidity Weighted is the first-to-market benchmark for the current performance of global voluntary carbon futures markets. The index is very flexible and constituents can easily be added or removed at regular intervals to ensure that the index reflects the rapidly changing carbon environment.

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 Energy, www.spglobal.com/commodityinsights/en/products-services/energy-transition/voluntary-carbon-markets.