CME Group is launching a new futures contract Aug. 1 that will be tied to the value of nature-based carbon credits, including those generated from agriculture.
The new N-GEO futures are designed “to help create a more transparent and efficient voluntary emissions offset market,” CME Group said in a news release.
"More companies are relying on nature-based offsets as part of their overall climate strategies as the move to net-zero emissions continues to accelerate," said Peter Keavey, Global Head of Energy at CME Group. "By offering a standardized mechanism for managing the price risk associated with those initiatives, our new N-GEO futures will provide the marketplace with an important tool to help navigate the ongoing energy transition."
The move was welcomed by Debbie Reed, executive director of Ecosystem Services Marketplace Consortium, which is developing a market for credits that are generated from faring practices that reduce greenhouse gas emissions and protect water quality.
“I do think this will bring welcome transparency in pricing/valuation,” Reed said in an email. She said the increasing demand for carbon offsets, combined with a futures market, "will show increased pricing for natural climate solutions over time.”
Reed said she doesn't know whether the new futures contract will lead to an increase in credit prices, but she does think “it will reflect the increased demand, which will lead to increased pricing/valuation.”
The futures were developed with Xpansiv market CBL, which launched an N-GEO spot contract earlier this year based on eligible voluntary offsets from Agriculture, Forestry, and Other Land Use (AFOLU) projects with additional Climate, Community, and Biodiversity (CCB) accreditation.
"Following the rapid market adoption of the GEO, we launched the N-GEO in response to rising demand for nature-based solutions," said Xpansiv President and COO John Melby. "It brings transparency and price certainty to a vital subset of the offset market, and N-GEO futures will further empower participants to meet climate commitments while promoting biodiversity and supporting developing communities."
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According to a September report from Forest Trends’ Ecosystem Marketplace, the volume of offsets generated through forestry or land use fell by 28% from 2018 to 2019, but at the same time prices for those credits increased by 30%.
Transaction volume for renewable energy offsets increased by 78% while prices for those credits fell by 16%.
N-GEO futures are based on eligible voluntary offsets from AFOLU projects with additional Climate, Community, and Biodiversity (CCB) accreditation, CME said. Included in the AFOLU category are activities such as afforestation, reforestation, revegetation, wetland rewetting and conservation and improved forestry management. The futures are based on CBL's Nature-Based Global Emissions Offset Spot contract, which launched in March.
"The contract size is 1,000 offsets and each offset represents 1 metric ton of CO2," CME said.
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