Cap-and-trade programs require companies to treat their emissions as liabilities, creating demand for carbon allowances to cover the cost of their pollution. Intercontinental Exchange (ICE) reported record volume in its North American environmental markets, with a record 270 companies trading in 2022. Average daily volume increased by 5.5%, and approximately 372 million carbon allowances were delivered through ICE in December 2022. ICE’s renewable energy certificate (REC) futures markets grew by 40% in 2022, with 31 REC futures and options including wind and solar RECs, and a record 981,302 REC contracts processed. RECs are a key hedging tool to reduce the price risks of renewables.
ICE is planning to launch Washington carbon allowance futures, subject to completion of regulatory processes. Washington’s “Cap-and-Invest” program, which began on January 1, 2023, has an initial cap of 63.3 million tons, and will cover 75% of Washington’s carbon dioxide emissions. Since the launch of environmental markets, allowances equivalent to over 100 billion tons of carbon, over 250 million renewable energy certificates, 3 billion carbon credits, and the equivalent of over 3 billion Renewable Identification Numbers have traded on ICE.
In conclusion, the demand for carbon allowances and other environmental risk management tools is increasing as companies are incentivized to seek lower cost abatement opportunities. Intercontinental Exchange is providing the tools to help companies transition to alternative forms of energy and manage the associated price risk. This is evidenced by their record trading volume and number of companies trading in 2022.
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