Derivatives play an essential role in carbon markets. Companies subject to carbon compliance programs use carbon derivatives to meet their obligations and manage risk in the most cost-effective way. Derivatives can also be used by a variety of businesses that have financial positions indirectly tied to carbon prices. Investors can use the price signals from carbon derivatives to assess climate transition risk in their portfolios and can then access liquidity pools to manage risk and allocate capital to benefit from energy transition opportunities.
Derivatives markets also play a major role in enhancing transparency by providing forward information on carbon, which contributes to long-term sustainability objectives and provides helpful signals to policy-makers on the regulation of carbon prices.
This paper describes the role of derivatives in carbon markets and reviews exchange-traded and over-the-counter carbon derivatives. It also provides some insights on compliance and voluntary carbon markets and explains how firms use these markets and carbon derivatives to meet their compliance obligations, achieve corporate social responsibility goals and manage risks. In addition, the paper summarizes global climate change mitigation efforts and international carbon markets.
Click on the attached PDF to read the full paper.
Documents (1) for Role of Derivatives in Carbon Markets
Latest
ISDA AGM Studio: Sid Nadella, Google Cloud
Sid Nadella, director and global head of capital markets solutions at Google Cloud, speaks to Joel Clark, ISDA’s senior director of communications, on the extent artificial intelligence is being used by financial institutions and the biggest risks and challenges of...
Celebrating ISDA’s Successes and the Next Decade
Today, May 23, marks exactly 40 years since ISDA, initially known as the International Swap Dealers Association, was first established by a small group of mostly New-York-based dealers. At ISDA’s Annual General Meeting (AGM) in Amsterdam last week, we had...
ISDA Response to CFTC on 24/7 Trading
On May 21, ISDA, the Securities Industry and Financial Markets Association (SIFMA) and its asset management group (SIFMA AMG) submitted a joint response to the US Commodity Futures Trading Commission’s (CFTC) request for comment on 24/7 trading and clearing. The...
ISDA AGM Studio: Jack Hattem and Jared Noering
Jack Hattem, ISDA board member and managing director, global fixed income at BlackRock, and Jared Noering, ISDA board member and global head of fixed income trading at NatWest Markets, talk to Nick Sawyer, ISDA’s global head of communications, on how...