Voluntary Carbon Emissions Offset Trailing futures

Trailing futures contracts enable buyers and sellers to trade voluntary carbon emissions offsets that aren’t within the eligibility window of the main N-GEO and C-GEO contracts, allowing companies with exposure beyond the eligibility window to still manage their risk.

The voluntary offsets market structure lets participants trade credits with specific carbon project derived attributes, such as afforestation or renewable energy projects. The N-GEO and C-GEO futures contract criteria specifies a range of vintage years that are accepted in each project, which is known as the eligibility window.

Each year on July 1, the eligibility window moves forward, meaning a new year is added to the main C-GEO and N-GEO contract and the oldest vintage year is no longer eligible. The Trailing futures contract complements the N-GEO and C-GEO futures by allowing for price discovery for these vintages that are no longer eligible for delivery in the main contracts, which helps market participants to manage different vintage ranges more effectively.

The deliverable vintages in the main contracts depend on when the contract expires – not the trade date. This means that once the eligibility window rolls forward, offsets from previous years are no longer eligible for delivery against the following respective futures contract months. Instead, these vintage years are available for delivery via the Trailing contract.

For example, an N-GEO forestry project restoring tropical forests in South America will issue credits year after year. When the 2018-2023 vintage N-GEO eligibility window rolls forward to 2019-2024 on July 1, 2024, June 2024 would be the last N-GEO futures contract month that the 2018 vintage can be delivered into. To trade and deliver 2018 forestry credits, entities have to use the July 2024 N-GEO Trailing futures contract.

The projects represented by the N-GEO and C-GEO offsets are the same projects in the respective Trailing contracts, with the only difference being the vintage year of the credit offsets. 

Trailing contracts can give participants more flexibility and choice in executing their risk management strategy and can be traded in the same way that the main N-GEO and C-GEO contracts are traded – electronically or as a block transaction through a voice broker. For more information, head to cmegroup.com/offsets.