Climate change is the greatest long-term threat that we face as a global community. In response, many countries are submitting enhanced Nationally Determined Contributions (NDCs) to the United Nations, committing to cut greenhouse gas (GHG) emissions by 2030. In some cases, an NDC submission outlines a series of investments, regulations and measures that a country is taking in pursuit of its ambitious target.
The energy and environmental department at this national-level government wanted to create a price incentive for industries to reduce their GHG emissions and stimulate investments in green innovation. They also wanted to do this while reducing the risk of facilities moving to other regions to avoid paying a price for polluting. Today, industries in the country that are covered by the federal carbon pricing system have an emissions limit. If they are above this limit, they will need to pay the carbon price or use certain credits.
In order to support this effort, the department needed a way to enable market participants to track, manage and trade GHG credits, while helping the government verify actual emissions reductions.
Pain Points
Team members at the energy and environmental department needed a secure, web-accessible platform that would support registration, credit creation, auctions and other activities. They had very specific criteria and, in particular, wanted:
- A well-tested registry for administering the country’s compliance carbon program, plus voluntary programs as they emerge.
- Unique serial numbers to ensure that all reductions are properly accounted for and to avoid double counting.
- A regulator user role with administrative oversight of accounts, activities/projects and credits.
- Credit tracking from issuance to transfer to cancellation or retirement.
- Easy online access for market participants to see credits available for sale, with indicative quantities and prices.
- A link to exchanges, other trading/clearing platforms and a meta-registry to promote liquidity in the market.
- An auction capability with functionality for enrollment, bidding, price calculation and results generation, as well as connectivity interfaces to other platforms as needed.
- Easy account on-boarding and know-your-customer (KYC) checks.
- Algorithm/calculation of settlement prices, with publication of auction results and configurable floor price, unit type, vintage and entity bidding limits.
- Integration capabilities with the registry for electronic position settlement and/or with an exchange for the clearing/financial settlement process.
- A comprehensive picture of prices as background intelligence for department staff to capture:
- Individual attributes of particular projects that factor in standard certification, volume and vintage.
- Geographic considerations, which can play an important role in the final price.
- Additional intelligence for staff on carbon market developments around the world.
Team members knew that IHS Markit was now part of S&P Global and contacted S&P Global Sustainable1 (“Sustainable1”) to discuss the firm’s capabilities for carbon markets. Sustainable1 brings together capabilities from across the enterprise to serve as a single source of essential sustainability intelligence.
As the government’s carbon policies took shape, it was clear that a sophisticated registry and auction system was needed to provide a mechanism for companies to measure, report and verify emission reductions, plus trade carbon credits.
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The Solution
Specialists from Sustainable1 described a wide range of capabilities that would help members of the energy and environmental team white label a sophisticated registry and auction platform and keep their pulse on carbon markets around the world. This included solutions from:
- S&P Global Commodity Insights. As of March 2022, IHS Markit became part of S&P Global, and S&P Global Platts and IHS Markit Energy & Natural Resources combined to become S&P Global Commodity Insights.
- S&P Dow Jones Indices.
- S&P Global Trucost, the data and analytics engine of Sustainable1.
Together, these capabilities would enable the team to:
Measure, report and verify emissions
Environmental Registry enables users to manage all their global carbon credits in a centralized, financial markets-based registry system. The registry provides unique serial numbers, a regulator user role, credit tracking, reporting and linking to other registries, exchanges and financial settlement systems.
In addition, credits are searchable and viewable by registered buyers who can send expressions of interest. Buyers may also enter specific criteria for credits that they wish to purchase. Introduction through the platform enables the parties to discuss potential bilateral transaction terms.
Users can also track forward sales of anticipated credits with the “pending issue unit” (PIU) tool. Each PIU represents an anticipated credit to be delivered based on a specified standard compliant project validation report. These anticipated units can be listed, serialized, held and tracked on the registry.
A project management dashboard lets users easily monitor and forecast the status of projects and issuances. In addition, an optional multilingual capability lets them view the registry’s navigation, forms, messages and all relevant meta-data in the language of their choice.
Carbon Meta-Registry is a secure online platform that seamlessly connects disparate environmental markets and registry systems around the world, enabling the exchange of carbon market data and mitigating the risk of double counting of credits. IHS Markit, now part of S&P Global, formed a Carbon Meta-Registry Advisory Board with leading experts from the public and private sectors and NGOs that are tasked to guide and inform the development of the platform to meet wider industry needs.
Support the buying and selling of credits on an auction platform
Auction Platform provides comprehensive auction and auction management services across over-the-counter (OTC) asset classes that can be easily configured to meet the needs of each auction program. The platform seamlessly connects all auction participants, including bidders, registries, auction monitors, regulators and other program stakeholders. Functionality is provided for each step in the process: auction setup, participant application/enrollment, bidding, price calculation, results generation, approvals and distribution of results, as well as connectivity interfaces to other platforms as needed.
With transparent rules for each auction, the market determines a clearing price via an equitable buying/selling mechanism.
A centralized, online platform enables regulators and other auction participants to share and disseminate documentation. Participants can upload, review and track key documents and receive automated notifications of any changes to the materials.
Track price developments in other compliance markets
Carbon Allowance Price Assessments for the compliance market involve evaluations of OTC forward prices for December European Union Allowances (EUAs) and United Kingdom Allowances (UKAs), which are financial instruments used in these two trading schemes. The assessments are complemented with extensive news coverage.
Low Carbon Fuel Standard credit (LCFS) price assessments are published daily. Producers of petroleum and diesel are purchasing these credits from producers of ethanol, bio diesel, hydrogen and electric charging to meet their deficit shortcomings.
California Offsets price assessments look at physically delivered GHG emissions offset credits that are limited to emissions-reduction projects in the U.S. and specifically to five areas: forestry, urban forestry, destruction of ozone-depleting substances and mine methane capture.
Regional Greenhouse Gas Initiative (RGGI) price assessments look at the cooperative effort among the states of Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Rhode Island, Vermont and Virginia to cap and reduce CO2 emissions from the power sector.
Benefit from price transparency for voluntary markets
Voluntary Carbon Market Price Assessments cover a full range of different projects using a market-appropriate pricing methodology and assessment criteria. The assessments reflect bids, offers and trades as reported in the Commodity Insights Market on Close assessment process, the brokered market or on trading and exchange instruments. The assessments reflect the individual attributes of particular projects and factor in standard certification, volume, vintage, region, co-benefits and geographic location.
The market is segmented into avoidance and removal credits, and price assessments are provided for several project types. Avoidance projects include Household Devices, Industrial Pollutants and Nature-Based. Removal projects include Tech-Based and Natural Carbon Capture. Individual daily spot assessments are published for each type of project, and then the most competitive assessment sets the category for the day.
Additional assessments reflect credit types, including carbon credits eligible for the International Civil Aviation Organization’s CORSIA program, methane collection carbon credits that avoid or reduce GHG emissions and carbon credits from renewable energy projects.
Carbon Credit Settlements and Assessments data leverages Commodity Insight’s partnership with the Xpansiv spot-market and CME futures exchanges. Commodity Insights publishes daily assessments and settlement prices for the Xpansiv carbon credit spot market contracts using market data directly from Xpansiv CBL. In addition to providing settlements for spot markets, Commodity Insights provides the settlement prices for the physically delivered CME CBL futures contracts for 48 forward months at the 2:30pm New York close. Market reporters assess these settlements using bids, offers and transaction data directly from the NYMEX exchange.
Stay on top of breaking carbon news
Latest news and market commentary across the global carbon markets provides real-time insights on what is moving global carbon markets to support informed decisions in today’s fast-changing environment. A diverse range of topics are covered, including technological breakthroughs, changes in regional pricing patterns, global trading opportunities, the strategies of global and regional companies, the intricacies of policy and regulation in producing and consuming nations, key asset announcements and more.
Gain additional market context
Global Integrated Energy Model (GIEM) provides users with a tool to study the evolution of the global energy system. Containing all components of integrated balances, GIEM is used to compute long-term energy demand under various scenarios, providing a broad view in which to assess fossil fuels.
Tap into a centralized access point
Dimensions Pro supports advanced charting, personalized dashboards and watch lists, plus access to price assessments and indices for compliance and voluntary carbon markets, market commentaries and news.
Evaluate potential price appreciation
The Global Carbon Index was launched by IHS Markit together with Climate Finance Partners (CLIFI) as a first-of-its-kind index that tracks the underlying assets of the most liquid compliance carbon markets: EU Emissions Trading System (ETS), the California Cap-and-Trade system and RGGI.
The S&P GSCI Carbon Emission Allowances (EUA) is designed to measure the performance of the European EUA market.
CARBEX carbon credit indices are published in partnership with Viridios AI. The six indices reflect the value of different types of voluntary carbon credits and enhance market transparency in the complex voluntary carbon credit and co-benefit markets. Co-benefits are terms attached to carbon credits that provide evidence of meeting the 17 Sustainable Development Goals (SDGs) defined by the United Nations.
The S&P GSCI Global Voluntary Carbon Liquidity Weighted is the first-to-market benchmark for the current performance of global voluntary carbon futures markets. The index is very flexible and constituents can easily be added or removed at regular intervals to ensure that the index reflects the rapidly changing carbon environment.
Key Benefits
Members of the energy and environmental team were impressed with the functionality of the registry and auction offering, and engaged with Sustainable1 to white label capabilities to support the country’s carbon pricing mechanism. They were also interested in tracking carbon markets around the world to stay on top of developments, market growth and industry best practices. Today, they are benefiting from having:
- A well-tested and secure registry platform with extensive functionality to efficiently manage carbon credits.
- The ability to participate in the Carbon Meta-Registry to connect with other registries around the world to help reduce the risk of double counting and double claiming.
- An auction capability from a leading provider that builds on existing expertise in collecting, processing and distributing content, as well as experience with auctions in the water marketplace.
- Relevant insight into the trends that shape carbon markets across a large range of project types, geographies and standards.
- Pricing, rationales, market commentary and news for both the compliance and voluntary markets.
- A transparent view of the rapidly growing voluntary carbon markets, with a suite of benchmark voluntary carbon prices covering a full range of projects.
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