Comparing Emissions Offset futures
Voluntary carbon offsets are essentially vouchers, allowing businesses to meet their carbon emission targets, while they take action to meet their carbon reduction goals. As the overall voluntary carbon offset market continues to grow to meet demand, specific offsets are being defined based on a particular category or market.
In partnership with CBL markets, the suite of Global Emission Offset (GEO) futures contracts from CME Group, provide choice and flexibility for firms managing their carbon footprints. The three contracts all serve slightly different market segments. Let’s compare some of the contract features to help you decide which contract is best suited for your needs.
Contract Framework
The CBL Nature-Based Global Emissions Offset (NGO) contract is nature based. It is designed to comply with the Verra Registry’s verified carbon standards, with additional requirements to meet specific climate, community, and biodiversity standards.
The offsets are sourced exclusively from agriculture, forestry, and other land use projects.
The CBL Global Emissions Offset (GEO) and CBL Core Global Emissions Offset (C-GEO) contracts are both technology and non-Agriculture, Forestry and Other Land Use (AFOLU) based. However, the frameworks that set the standards for the eligible emissions is what sets the two products apart.
GEO’s framework was developed in alignment with the International Civil Aviation Organization’s (ICAO) Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA).
The CORSIA framework aims to reduce greenhouse gas emissions from the aviation sector. CORSIA utilizes the carbon market to offset the amount of carbon dioxide (CO2), which cannot otherwise be reduced through technological advancement or sustainable aviation fuel.
C-GEO is based on the Core Carbon Principles (CCP) being developed by the Taskforce on Scaling Voluntary Carbon Markets. The CCPs can be applied to non-AFOLU tech-based projects. These projects range from innovation in renewable energy production to construction, transport, energy distribution, and even livestock and manure management.
Projects, which are granted credits under these standards, are all verified by recognizable registries that maintain the list of carbon credits that serve as the underlying supply for GEO, NGO, and C-GEO.
All three contracts allow for delivery from the Verra Registry. Projects that meet the specifications of each of the frameworks are each given a certain amount of carbon credits. Verra tracks the lifecycle of the credits, from generation to retirement or cancellation. Once certified and added to the Verra Registry, these carbon credits can be traded on designated carbon exchanges markets like CBL.
In addition to Verra, GEO also allows for delivery from two additional registries: The American Carbon Registry (ACR) and the Climate Action Reserve (CAR). It is important for a credit to be verified by a registry because it helps ensure that each ton of carbon is only counted once and can be tracked for its entire lifecycle.
Each carbon credit is also attached to a specific vintage. A carbon credit’s vintage refers to the year that it was issued or the year the greenhouse gas emissions occurred. Vintages help investors determine the value of the projects. Older vintages mean that the emissions associated with a project were generated further in the past whereas newer vintages are applied to more recent projects.
Emission offset futures from CME Group allow for the selling and buying of carbon credits issued in specific vintage years. The vintage years vary based on the specific contract. For GEO, vintage years are linked to the CORSIA framework. Any change in the vintage eligibility is determined by the changes in this standard. NGO and C-GEO both have rolling vintages – meaning their vintage years will roll forward each year to keep the vintages updated and kept to a six-year window.
The unique aspects of each of these contracts allow traders to select the contract that most aligns with their initiatives and goals related to their carbon reduction goals. Further information on all three emission offset futures contracts can be found on cmegroup.com.
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