Environmental markets surge to new highs

2021 saw markets ride a wave of investor enthusiasm for the environmental theme, writes Michael Hurley

A resurgence in environmental markets after a year scarred by the coronavirus pandemic saw prices rocket to new highs, reflecting the growing momentum behind – and investor interest in – efforts to address climate change.

Record prices were observed across the traded environmental markets, covered by Environmental Finance's Market Rankings.

In the carbon markets, which look to put a price on carbon and cap emissions of greenhouse gases, some US markets have seen prices spike about 50% above the level set 12 months earlier.

Winners of this year's Market Rankings told Environmental Finance that the increase has been driven by a variety of factors, including plans to reduce the amount of emissions allowances in some markets and growing interest from international investors – but speculative trading has also been observed.

Gordon Bennett, managing director of utility markets at Intercontinental Exchange, says an illustration is the increasing flow of money into carbon exchange-traded funds (ETFs).

"According to estimates, there is circa $2 billion of AUM in carbon ETFs showing the investor appetite for exposure to this asset class, as well as another indicator of how carbon is moving into the mainstream."

Meanwhile, in the EU's Emissions Trading System (ETS), "the cost of carbon has more than doubled since the start of 2021, which has caught a lot of market participants by surprise", according to Tim Atkinson, director of sales and structuring at CF Partners.

At the time of writing, the price of an EU Allowance had risen further to more than €85 ($96).

Market participants are upbeat about the future growth of these markets and broadly expect prices to continue to rise.

Meanwhile the market for renewable energy certificates (RECs) has been turbo-charged by voluntary purchases by corporates eager to meet emissions reductions pledges.

Prices for certificates in the US' national 'Green-e' market for voluntary buyers of RECs "rocketed to new heights" starting late last year, as the country's economy began its recovery from the initial impact of the coronavirus pandemic, says Jonathan Burnston, managing partner at Karbone.

"Over this past summer, you had Green-e RECs, which prior to Covid in 2019, over the past eight-to-10 years, had been range-bound between – at the very low end – 35-50 cents and $1, or maybe $1.20 on a good day, skyrocket this past summer to $7."

Similarly, in weather markets, the increasing frequency of extreme weather events over the last 12 months has driven the return to the market of hedge funds and investment banks.

It has also driven demand for products including parametric solutions for earthquakes, typhoons, flood, and hail, as well as for cold protection as gas prices rose to eye-watering levels – and even for products to hedge against the risk of hail to solar panels.

The total issuance of catastrophe bonds in 2021 had already exceeded the previous annual record by the end of November.

In a year in which the gathering at the UN climate conference (COP26) in Glasgow demonstrated that policymakers around the world are increasingly realising the urgency of the climate crisis, the environmental markets showed the growing force of the private sector to galvanise action.

Congratulations to all this year's winners.

GHG MARKETS  
EU EMISSIONS TRADING SYSTEM  
CategoryWinnerRunner-up
Best broker, spot & futures CF Partners Vertis
Redshaw Advisors
Best trading company, spot & futures Vertis Redshaw Advisors
CF Partners
Best broker, options CF Partners Vertis 
Best trading company, options CF Partners Redshaw Advisors
Best advisory/consultancy Redshaw Advisors ClearBlue Markets
Best law firm Baker McKenzie  
Best verification company Lucideon SCS Global Services
Best exchange/clearing house Intercontinental Exchange (ICE) European Energy Exchange (EEX)
UK EMISSIONS TRADING SYSTEM
CategoryWinnerRunner-up
Best broker, spot & futures CF Partners  
Best trading company, spot & futures Redshaw CF Partners
Best advisory/consultancy Redshaw CF Partners
Best law firm Baker McKenzie  
Best exchange/clearing house Intercontinental Exchange (ICE)  
NORTH AMERICAN MARKETS (California)  
CategoryWinnerRunner-up
Best broker, spot & futures Karbone Evolution Markets
Best trading company, spot & futures Element Markets STX
Best broker, options Karbone Element Markets
Best trading company, options Element Markets STX
Best offset originator Bluesource Element Markets
Best advisory/consultancy ClearBlue Markets Element Markets
Best law firm Eversheds Sutherland  
NORTH AMERICAN MARKETS (RGGI)  
CategoryWinnerRunner-up
Best broker Karbone Evolution Markets
Best trading company Element Markets Bluesource
NORTH AMERICAN MARKETS (All)  
CategoryWinnerRunner-up
Best advisory/consultancy ClearBlue Markets Element Markets
Best law firm Resilient LLP Eversheds Sutherland
Best verification company SCS Global Services Ruby Canyon
Best project developer Bluesource  
KYOTO PROJECT CREDITS (JI and CDM)  
CategoryWinnerRunner-up
Best broker, secondary market Karbone CF Partners
Best trading company, secondary market Vertis CF Partners
Best advisory/consultancy Kanaka Management Services ClearBlue Markets
Best law firm Baker McKenzie  
Best verification company EPIC Sustainability Services  
Best project developer Kanaka Management Services  
Best exchange CBL Exchange  
CHINESE MARKETS  
CategoryWinnerRunner-up
Best advisory/consultancy ClearBlue Markets  
Best law firm Baker McKenzie  
 
WEATHER MARKETS  
WEATHER RISK MANAGEMENT - NORTH AMERICA  
CategoryWinnerRunner-up
Best broker ICAP Willis Towers Watson
Best dealer/structured product seller Munich Re Swiss Re
WEATHER RISK MANAGEMENT - EUROPE  
CategoryWinnerRunner-up
Best broker ICAP Willis Towers Watson
Best dealer/structured product seller Munich Re/New Re Swiss Re
WEATHER RISK MANAGEMENT - ASIA  
CategoryWinnerRunner-up
Best broker Willis Towers Watson  
Best dealer/structured product seller Swiss Re Munich Re/New Re
WEATHER RISK MANAGEMENT - AUSTRALIA  
CategoryWinnerRunner-up
Best broker CQ Energy ICAP
Best dealer/structured product seller Risk Solutions International Swiss Re
WEATHER RISK MANAGEMENT - GLOBAL  
CategoryWinnerRunner-up
Best advisory/data service Speedwell Risk Solutions International
Best law firm Bird & Bird  
CATASTROPHE RISK MANAGEMENT - GLOBAL  
CategoryWinnerRunner-up
Best dealer (structurer/arranger) Swiss Re Willis Towers Watson
Best broker Marsh McLennan Willis Towers Watson
Best advisory Speedwell  
Best law firm Baker McKenzie  
 RENEWABLES MARKETS 
 RENEWABLE ENERGY CERTIFICATES - NORTH AMERICA 
CategoryWinnerRunner-up
Best broker Karbone Evolution Markets
Best trading company STX Element Markets
Best advisory Karbone Element Markets
Best law firm Eversheds Sutherland K&L Gates
 RENEWABLE ENERGY CERTIFICATES - EUROPE 
CategoryWinnerRunner-up
Best broker STX Redshaw Advisors
Best trading company STX Redshaw Advisors
Best advisory Redshaw STX
Best law firm K&L Gates  
 RENEWABLE ENERGY CERTIFICATES - AUSTRALIA 
CategoryWinnerRunner-up
Best broker TFS GREEN TFS Green
Best trading company South Pole  
Best advisory South Pole  
Best law firm Baker McKenzie  
 RENEWABLE ENERGY CERTIFICATES -CHINA 
CategoryWinnerRunner-up
Best advisory STX  
Best law firm Baker McKenzie  
 RENEWABLE IDENTIFICATION NUMBERS 
CategoryWinnerRunner-up
Best broker Karbone  
Best trading company Element Markets Bluesource
Best advisory Element Markets Karbone
Best verifier EcoEngineers  
Best law firm Eversheds Sutherland  

How the rankings were conducted:

Companies were emailed in October and asked to nominate the leading traders, brokers and service providers in the markets covering carbon emissions, renewable energy certificates, and weather and catastrophe risk, via an online survey.

They were asked to vote only in those categories in which they had direct experience and to make their judgements on the basis of: efficiency and speed of transaction; reliability; innovation; quality of information and services provided; and influence on the market, not just the volume of transactions handled.

More than 1,000 completed responses were received. Only one vote per company site was allowed and those firms that nominated themselves had their votes disregarded.