With a growing commitment among energy companies to tackle climate change, open interest across Intercontinental Exchange Inc.’s (ICE) environmental complex reached a record high last week.
The environmental complex, which includes futures and options connected to ICE’s European and California Carbon allowances, Regional Greenhouse Gas Initiative and renewable energy credits, hit record open interest of about 2.65 million contracts last Thursday (Nov. 12).
An operator of global exchanges and clearing houses, ICE said the number of participants trading its carbon markets has grown by more than 40% since 2017. North America-based participants were the strongest contributor to the growth, increasing by more than 70% since 2017. The number of participants trading both European and North American carbon markets at ICE has grown by around 85% since 2017.
“This record activity, coupled with the growth in the number of participants trading these markets, reflects the fundamental role market-based mechanisms like carbon cap and trade schemes play in pricing climate risk,” said ICE Managing Director of Utility Markets Gordon Bennett.
Companies subject to carbon cap and trade programs and renewable standards use ICE’s markets to meet obligations and manage risk, according to the exchange. Meanwhile, policymakers rely on price signals from environmental markets, such as those traded on ICE, to gauge the effectiveness of their programs.
“As a growing number of companies sign up for voluntary commitments around the world, increasingly diverse stakeholders are turning to ICE’s markets to offset their carbon footprint, invest in green attributes or benchmark their internal cost of carbon,” ICE said.
The exchange has a range of additional solutions including Sustainability Indices that serve as fixed-income sustainable benchmarks that account for environmental, social and governance (ESG) factors. These include the ICE Global Carbon Futures Index, ICE California Carbon Allowance futures contracts and ICE Regional Greenhouse Gas Initiative futures contracts. ICE’s MSCI ESG Index Futures offer customers a variety of ESG-related futures for benchmarking and managing risk.
“Liberalized markets are critical to the energy transition as they enable competition between energy sources and in doing so help change behavior by attributing a cost to pollution,” Bennett said.
Natural gas open interest also recorded large increases year/year. U.S. benchmark Henry Hub open interest in October rose 31% year/year, while North American natural gas climbed 17%. European natural gas open interest in October was up 25% on the year, and the Dutch Title Transfer Facility increased 35%.
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