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On May 9, the Intercontinental Exchange (ICE) launched its own nature-based carbon offset future, the Nature-Based Solutions (NBS) voluntary carbon credit contract.
This new ICE contract will compete most directly with the CME’s nature-based emission offset future contract, the N-GEO (see AEGIS research on the CME’s emission offset future contracts here).
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Each NBS futures contract is equal to 1,000 carbon credits, where each credit is equal to the removal or reduction of one metric ton of greenhouse gas emissions achieved by their specified projects that preserve and maintain natural ecosystems. ICE has listed NBS future expiries for December 2022, December 2023, and December 2024. This is in comparison with the CME’s N-GEO emission offset future which has monthly contracts listed for the current year and the next three calendar years.
Similar to the CME’s N-GEO contract, the NBS future physically delivers Verified Carbon Unit (VCU) credits verified under the Verra Registry’s Verified Carbon Standard (VCS) for Agriculture, Forestry, and Other Land Use (AFOLU) Projects with vintages from January 2016 through December 2020.
Liquidity in this new NBS contract is very limited given it's new launch. But, once liquidity grows, this contract will be a viable alternative to the CME's offset carbon contracts to offset greenhouse gas emissions.
Alongside this, ICE is forming a Carbon Oversight Committee to provide independent governance and oversight of ICE’s activities in the voluntary carbon markets. The Committee will advise on the criteria that carbon credits must meet to be deliverable in ICE-hosted futures contracts. The Committee’s work will be structured from market principles that are elaborated by the Taskforce on Scaling Voluntary Carbon Markets and the Voluntary Carbon Markets Integrity Initiative. So, stay tuned and expect to see more voluntary carbon offset futures contracts to come from ICE.
Historically, ICE has been the market leading exchange for greenhouse gas and emissions trading. This could be one of the factors that leads one to use this new contract versus the CME's N-GEO contract. If you are already active in these markets and have accounts, cash, and margin set up with ICE, it will likely be easier, and potentially cheaper, to use ICE for these nature-based voluntary carbon offset futures (and any other similar greenhouse gas and emissions contracts yet to be launched) than going across exchanges and trading additionally on the CME.
Questions? Contact our team for more information: environmental@aegis-hedging.com
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