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CME Group's new carbon offset futures contract draws top commodity traders

Credit: REUTERS/Brendan McDermid

Exchange operator CME Group Inc's newly launched nature-based carbon offset futures contract traded hands about 1,760 times in its first week, drawing interest from top commodity trading firms.

By Devika Krishna Kumar

NEW YORK, Aug 9 (Reuters) - Exchange operator CME Group Inc's CME.O newly launched nature-based carbon offset futures contract traded hands about 1,760 times in its first week, drawing interest from top commodity trading firms.

As the world ramps up efforts to transition away from fossil fuels and reduce harmful carbon emissions, companies are hunting for ways to offset their exposure to emissions associated with their businesses using financial strategies.

The CBL N-GEO futures, which launched on Aug. 1, has the participation of 10 firms, including top commodities merchant Vitol, hedge fund Andurand Capital Management and investment bank Macquarie Group.

While there have been spot contracts, the nature-based GEO futures contract allows participants to mitigate emissions associated with operations in the future.

The contract gives traders the option to take delivery of physical carbon offset credits that have undergone stringent screening.

The N-GEO futures are based on eligible voluntary offsets from Agriculture, Forestry and Other Land Use (AFOLU) projects with additional Climate, Community and Biodiversity (CCB) accreditation.

In March, CME launched the CBL Global Emissions Offset (GEO) futures contract based on international aviation quality criteria. The GEO can be more complicated to trade since it includes projects from multiple registries, each of which requires membership.

In the first week since the launch, the N-GEO futures contract had trading volume of 1,759 lots, while open interest stood at 1,242 contracts.

"The volumes for both N-GEO and GEO spot contracts are larger than we anticipated, with more than 10 million tons of carbon traded to date," said Andy Bose, head of ecosystems and partnerships at Xpansiv, which provides settlement services through its CBL exchange.

Currently, the prices for GEO are on average about $3.85 per ton, while N-GEO is trading at about $6.20, Bose said. Each futures lot consists of 1000 environmental offsets.

(Reporting by Devika Krishna Kumar in New York; Editing by Dan Grebler)

((devika.kumar@thomsonreuters.com; +1 646 223 6059; Reuters Messaging: devika.kumar.thomsonreuters.com@reuters.net))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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