ICE to launch options on UK Carbon Emission Allowances

Rick Steves

Since the launch of the UKA futures contract in May 2021, roughly 775 million tonnes of carbon dioxide equivalent gas have traded on ICE through the UKA contract, while open interest has grown to the equivalent of approximately 47 million tonnes.

Intercontinental Exchange (ICE) has announced plans to launch options on UK Carbon Emission Allowances (UKA Options) on October 10, 2022, subject to regulatory approval.

ICE expects to list UKA Options out to March 2024, with the underlying contract being the December UKA futures contract for the relevant year (i.e. the underlying contract for the March 2023 options will be the December 2023 UK Carbon Allowance future).

Tool to manage carbon emissions price risk

Gordon Bennett, Managing Director of Utility Markets at ICE, said: “The launch of UK Carbon Options follows the successful launch of the UK carbon market last year and should provide a meaningful new tool for our customers to manage carbon emissions price risk. Each day, ICE’s global environmental markets provide price signals for negative and positive externalities to help conserve the world’s carbon budget. Environmental considerations are touching a much wider spectrum of companies who will need to manage emissions pricing in their business models as part of their net zero commitments.”

The exchange group launched UK carbon allowance futures in May 2021 and emissions auctions on behalf of the UK Government as part of the UK’s new emissions trading scheme.

Each lot of UK Carbon Allowance futures is equivalent to 1000 UK Allowances where each allowance equals an entitlement to emit one tonne of carbon dioxide equivalent gas.

Since launch, roughly 775 million tonnes of carbon dioxide equivalent gas have traded on ICE through the UKA contract, while open interest has grown to the equivalent of approximately 47 million tonnes.

The UKA Futures Contract is a deliverable contract where each Clearing Member with a position open at cessation of trading for a contract month is obliged to make or take delivery of UK Allowances (UKAs) to or from the UK Emissions Trading Registry in accordance with the ICE Futures Europe Regulations.

The contracts are physically settled and delivered by the transfer of the UKAs from the seller’s account to the buyer’s account at the UK Emissions Trading Registry. All transfers always pass through clearing members’ account and ICE Clear Europe. Delivery takes place 3 days after the last trading day.

 

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