This week, CME Group, the world’s third-largest derivatives exchange, announced the market trading debut of its Nature-Based Global Emissions Offset (N-GEO) futures contract. The notional equivalent of more than 1.3 million environmental offsets had traded in the first two days of trading, with participation from 10 firms, including Andurand Capital Management, Hartree Partners, Macquarie Group and commodities giant Vitol.
“N-GEO futures are the latest product we have launched to provide our global clients with a standardized tool for managing the price risks associated with reducing emissions,” said Peter Keavey, Global Head of Energy at CME Group. “We are pleased to see early adoption of these new contracts, which will join our GEO futures in helping bring more transparency and efficiency to the voluntary carbon offset market and make it easier for companies and countries to meet their carbon reduction targets.”
“We see the N-GEO contract as a milestone in the continued growth of carbon assets and are excited for the opportunity to play a part in supporting the ecosystem of financial solutions that support the development of nature-based emission reduction projects,” said Casey Dwyer, Co-Portfolio Manager of the Andurand Climate and Energy Transition Fund.
“We are pleased to participate in CME Group’s new N-GEO markets, which have joined the GEO contract in providing a transparent marketplace for environmental risk management strategies,” said Ariel Perez, Head of Environmental Products at Hartree Partners. “The path to net-zero carbon will require a variety of innovative solutions, including market-based mechanisms like N-GEO and GEO which help global clients discover price and manage emissions risk more effectively.”
“This is another important milestone in the evolution of the voluntary carbon markets,” said Erik Petersson, Head of Global Carbon at Macquarie Group’s Commodities and Global Markets division. “At Macquarie, we are focused on high-quality carbon offset supply and the provision of market-leading offset solutions to our clients. This new futures product enhances our and our clients’ ability to manage price risk around the nature-based solutions portion of the market. We expect this to drive broader participation in the voluntary carbon markets as transparency and liquidity increase.”
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, while GEO futures are based on the CORSIA framework. N-GEO and GEO futures are available for delivery of eligible offset credits and are listed by and subject to the rules of the New York Mercantile Exchange (NYMEX).
According to research figures provided by the CME Group, the AFOLU sector is responsible for just under a quarter of human-generated greenhouse gas emissions. One way of mitigating emissions from this sector is by creating and selling AFOLU emission offset credits, made possible at scale by the creation of a standardized pricing benchmark.