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CME Group set to launch carbon offset futures contract
GEO offers market-based solution to manage global emissions risks
1 Feb 2021 | The Asset

Derivatives exchange operator CME Group will launch a futures contract to provide customers with a market-based solution to manage global emissions risk. The Global Emissions Offset (GEO) contract will start trading on March 1, pending relevant regulatory reviews.

The new contract was jointly developed with Xpansiv market CBL, a leader in spot energy and environmental markets. 

Peter Keavey, global head of energy at CME Group, comments: "Demand for voluntary carbon offsets is growing around the world as more countries and companies take action toward creating a lower carbon economy. GEO futures will provide a regulated, market-based solution that can help address risk management needs for near-term emissions reduction strategies, as well as a standardized pricing benchmark to help facilitate long-term climate goals."

The Taskforce on Scaling Voluntary Carbon Markets, a private sector-led voluntary carbon market initiative, has published recommendations around the need for a physically-delivered futures market, saying that it could help achieve a more robust and transparent voluntary offset market. CME Group is a member of the Taskforce alongside many of its clients and market participants.

Voluntary offsets allow businesses to purchase credits to help reduce their overall carbon footprint as they work to transition to more sustainable business practices. The scale of trading in the voluntary carbon offset market is currently around US$320 million and this is expected to grow as demand for global decarbonization increases and climate hedging strategies become more standardized.

The GEO futures contract is based on the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA), which includes globally accepted carbon offset standards based on a set of rigorous criteria developed by the International Civil Aviation Organization (ICAO), a specialized agency of the United Nations. 

GEO futures will allow for delivery of CORSIA-eligible voluntary offset credits from three ICAO-approved registries and will be listed by and subject to the rules of NYMEX.