ASX launches first carbon futures contracts for Australia and New Zealand

The new environmental futures’ contracts are designed to support liquidity amid the energy transition to net zero.

July 30, 2024

The Australian Securities Exchange (ASX) listed three new environmental futures contracts in Australia and New Zealand, the first carbon future contracts in both countries, on July 29.

The launch signals the next stage of Australia and New Zealand’s transitions into lower carbon economies, allowing parties to price and hedge the risk of the energy transition.

The three contracts listed on ASX24, ASX’s futures exchange, include physically delivered large generation certificate (LGC) futures, Australian carbon credit unit (ACCU) futures and New Zealand unit (NZU) futures.

The environmental futures are standardised contracts, equalling 1,000 underlying certificates or units, designed to provide a “liquid, transparent, forward pricing curve on an annual basis out to five years”, according to ASX’s media release.  

Carbon credit units represent one tonne of carbon dioxide that would have otherwise been released into the atmosphere; LGCs are used to demonstrate that a certain amount of electricity was created from a renewable energy source. Both have financial value and operate as incentives to fund green projects and decarbonisation endeavours.

The range of environmental futures were created to satisfy an increasing demand for access to liquid and transparent carbon and renewables’ trading markets, according to the release. ASX said there is “substantial interest in the products” from a wide and diverse customer base, ranging from the energy sector to carbon project developers, compliance bodies, financial institutions, trade houses and companies.

Registered participants may use the futures to deliver or receive the underlying certificates or units at settlement, following which they may be exchanged with the government to fulfill compliance commitments or offset emissions.

Australia’s carbon market is steadily reaching its next stage of growth, and is expected to be one of the largest producers of carbon credits globally. ACCU demands are predicted to reach a height of 31 million units in 2031, according to the Carbon Market Institute (CMI)’s Carbon Market Report 2024.

“The transition to clean energy, by definition, is uncertain, and ASX-hosted environmental futures will be a key instrument in managing risk and supporting the net zero targets of organisations and policymakers”, said Daniel Sinclair, ASX head of commodities, in a release. 

ASX intends “to develop a diversified and integrated transitional product ecosystem that helps our customers to price and manage the risk and uncertainty of the energy transition”, added Sinclair.

To encourage growth in the carbon and renewable energy market, ASX is offering a temporary fee waiver on transactions involving the environmental futures, lasting until October 31.

“A liquid and transparent environmental futures market will give organisations greater visibility and confidence to support ongoing investment in renewable energy and carbon abatement projects. This will ultimately help mobilise capital towards meeting longer-term emissions targets,” Sinclair said.

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