Offshore traders eye Aussie carbon market as ASX launch lags

Tighter emissions caps are driving more Australian companies to trade, while international players controlling facilities like power stations and mines are also entering the market. As the market matures, brokers are moving from over-the-counter (OTC) trades to more sophisticated derivative products, such as futures, forwards and options.

Derivatives exchange CME is catering to Australian companies as they shift towards exchange trading, partnering with exchange platform Xpansiv to launch an ACCU futures contract this month. The Australian Securities Exchange (ASX) launched its own carbon futures contract in July.

Xpansiv CEO Ben Stuart believes derivatives will give companies greater control over carbon risk management, predicting more sophisticated hedging strategies as participation grows.

“The market has evolved to a point now where a derivatives market makes sense, and the need for forward hedging is really essential to managing risk,” he said.

“Ultimately, that’s what the futures contracts are for, so you start to manage price exposure using more long, dated contracts out the curve.”