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A Background of Emissions Futures Contracts


Emissions Futures Contracts (Europe)
One of the most important exchanges for trading emissions permits is the Intercontinental Exchange in Europe. ICE Europe offers futures for four types of carbon units: EU Allowances (EUAs), EU Aviation Allowances (EUAAs), Certified Emission Reductions (CERs), and Emissions Reductions Units (ERUs). Futures prices are usually quoted in euros per tonne of carbon dioxide or its equivalent. Other greenhouse gases are quoted as multiples of carbon, depending on their potential to affect the environment.

Exchange-traded emissions products were first offered by the European Climate Exchange (ECX). ECX was acquired by ICE in 2010.  CO2 emissions have increased in trading volumes rapidly since 2005 on the ICE and constitute the world's most liquid markets for carbon emissions.

The ICE CER futures trade Certified Emission Reduction units (CERs), issued according to Article 12 of the Kyoto Protocol. CER emissions futures trade under the symbol “CER,” with each contract for 1000 Certified Emission Reduction Units (CERs). The futures are quoted in Euros and Euro Cents per metric ton, with a minimum price fluctuation of 0.01 Euro per ton. The contracts are listed for March (H), April (J), May (K), June (M), September (U) and December (Z), and are traded electronically via the ICE Platform.  The contracts are physically deliverable with transfer of CERs from the Trading Account of the Selling member to the account of ICE Clear Europe at a Registry and then from that ICE account to the trading account of the buying member. 

Emissions Futures Contracts (United States)
The New York Mercantile Exchange (NYMEX), started trading in emissions derivatives since 2008, initially through its partner exchange GreenX. On acquisition by the CME group (which also runs NYMEX), all products of GreenX were transferred to NYMEX in 2012.

NYMEX offers a diverse number of emissions products, from both the European and the U.S. emissions markets. Some of the most popular emissions futures being offered include European Union Emissions Trading Scheme Futures, Clean Development Mechanism Futures, Joint Implementation Mechanism (JI) futures, California Emissions Trading Scheme (CA ETS) futures, Regional Greenhouse Gas Initiative (RGGI) futures and Climate Action Reserve (CAR) futures.

Each of these futures trades different emissions units and contract sizes. For instance, the In Delivery Month European Union Allowance (EUA) futures trade under the symbol “EAF,” with a contract size of 1,000 European Union Allowances (EUAs). Each EUA allows the holder to emit one ton of carbon dioxide-equivalent gas. The contracts are quoted in Euros and cents per allowance and the minimum fluctuation is 0.01 Euros per EUA. The contracts are listed for three consecutive months plus eight quarterly contracts on a rolling basis, starting with the nearest quarter. The contracts are settled by physical delivery at the UK Emissions Trading Registry (UK Registry)

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