Environmental markets weather the storm

Demand in environmental markets proved resilient despite an economically turbulent year, writes Annabelle Palmer

As high inflation, rising interest rates, supply chain issues and the ongoing energy crisis took its toll on many economies, environmental markets proved robust, reflecting the growing momentum behind – and investor interest in – efforts to address climate change and manage risk.

Volatile prices were observed across the traded markets featured in Environmental Finance's Market Rankings with most stabilising towards the end of this year.

In carbon markets, which look to put a price on carbon and cap emissions of greenhouse gases, EU Allowance prices began the year trading at €83 ($87) and reached record high prices of €96 in February.

After sharp drops, Michael Karavias, managing director of derivatives and structured products for Evolution Markets, said that utilities and trading houses attempted to 'move their positions into futures or reduce their holdings'.

Evolution was the joint biggest winner in this year's rankings, winning six awards covering the EU, UK, North American and Kyoto carbon markets and one award for Europe in the renewable energy certificates (RECs) market.

The price of EU allowances later recovered to €88 as of 7 December.

While recessionary signs have emerged, winners predicted this would not have the same effect on the EU's Emissions Trading System (ETS) as previous recessions have had.

During the global financial crisis, EU allowance prices crashed to around €10 as power generators and industrial firms sold off credits because of reduced production and liquidity concerns.

North American carbon markets didn't escape the impact of the energy crisis either. Randy Lack, head of portfolio management for Anew, said: "Sentiment does bleed through from the European markets, especially on the trading side, so you see these shocks to the market that occur even from uncorrelated events".

However, after the initial 20-day shock, the markets recovered pretty quickly, he added.

Anew was the other joint biggest winner this year, winning five awards in the North American carbon markets and two awards in the RECs and Renewable Identification Numbers (RINs) markets.

Winners of this year's Market Rankings told Environmental Finance that, despite the ongoing uncertainty in many of the major carbon markets, they are cautiously optimistic for 2023.

Meanwhile, the demand for RECs mostly withstood the impact of both economic headwinds and supply constraints for renewable projects.

Compliance markets experienced more pricing resilience than voluntary markets as the latter showed sensitivity to macroeconomic factors and the overall risk appetite in the economy.

In the US, the year saw prices for compliance RECs start roughly in the low $20 range rising steadily to roughly $26 in November.

In comparison, the Green-e programme, the most widely accepted voluntary standard in the US, had a markedly different year compared with 2021.

Green-e prices remained volatile in a range of $1 per megawatt hour (MWh) to $4 per MWh at the start of the year, before stabilising to around $3 per MWh as economic headwinds retreated slightly.

In weather markets, economic pressures were also felt globally as interest rate raises directly impacted the cost of capital. However, this also fed through to an increased demand for risk transfer capital.

The increasing frequency of extreme weather events also drove demand for products, particularly parametric solutions for hurricanes, flood, and drought.

The environmental markets once again demonstrated a growing appetite from the private sector to galvanise climate action.

Anew, Evolution, Karbone and STX were star performers in the environmental markets covered by Environmental Finance's 2022 Market Rankings.

Congratulations to all this year's winners.

GHG MARKETS
EU EMISSIONS TRADING SYSTEM
CategoryWinnerRunner up
Best broker, spot & futures Evolution Markets  
Best trading company, spot & futures Vertis Environmental Finance Redshaw Advisors
Best broker, options Evolution Markets  
Best trading company, options STX CF Partners
Best advisory/consultancy Redshaw Advisors ClearBlue Markets
Best law firm Allen & Overy  
Best exchange/clearing house ICE European Energy Exchange (EEX)
UK EMISSIONS TRADING SYSTEM  
CategoryWinnerRunner up
Best broker, spot & futures Evolution Markets Redshaw Advisors/CF Partners
Best trading company, spot & futures Vertis Environmmental Finance Redshaw Advisors
Best advisory/consultancy Redshaw Advisors ClearBlue Markets
Best law firm DLA Piper  
NORTH AMERICAN MARKETS (California)  
CategoryWinnerRunner up
Best broker, spot & futures Evolution Markets Anew
Best trading company, spot & futures Anew STX
Best broker, options Karbone Evolution Markets
Best trading company, options Anew STX
Best offset originator Anew Karbone
Best advisory/consultancy ClearBlue Markets Anew
Best law firm Latham & Watkins Resilient LLP/Eversheds
NORTH AMERICAN MARKETS (RGGI)  
CategoryWinnerRunner up
Best broker Evolution Markets Karbone
Best trading company Anew STX
NORTH AMERICAN MARKETS (All)  
CategoryWinnerRunner up
Best advisory/consultancy ClearBlue Markets Anew
Best law firm Resilient LLP  Latham & Watkins
Best verification company First Environment  
Best project developer Anew ClearBlue Markets
CHINESE MARKETS  
CategoryWinnerRunner up
Best advisory/consultancy ClearBlue Markets STX
Best law firm Baker McKenzie  
KYOTO PROJECT CREDITS (JI and CDM)  
CategoryWinnerRunner up
Best broker, secondary market (ie issued CERs/ERUs) Evolution Markets Karbone
Best trading company, secondary market CF Partners Allcot
Best advisory/consultancy Kanaka Management Services ClearBlue Markets
Best law firm Akin Gump  
Best verification company EPIC Sustainability Services  
Best project developer Kanaka Management Services Allcot
Best exchange ICE  
WEATHER MARKETS  
WEATHER RISK MANAGEMENT - NORTH AMERICA  
CategoryWinnerRunner up
Best broker ICAP WTW
Best dealer/structured product seller AON Securities  
WEATHER RISK MANAGEMENT - EUROPE  
CategoryWinnerRunner up
Best broker ICAP WTW
Best dealer/structured product seller Munich Re  
WEATHER RISK MANAGEMENT - ASIA  
CategoryWinnerRunner up
Best broker WTW ICAP
Best dealer/structured product seller Swiss Re Munich Re/Axa
WEATHER RISK MANAGEMENT - AUSTRALIA  
CategoryWinnerRunner up
Best broker CQ Energy & Risk Solutions ICAP
Best dealer/structured product seller Munich Re AXA Climate/CQ Energy & Risk Solutions
WEATHER RISK MANAGEMENT - GLOBAL  
CategoryWinnerRunner up
Best advisory/data service Speedwell ICAP
Best law firm Eversheds  
RENEWABLES MARKET  
RENEWABLE ENERGY CERTIFICATES - NORTH AMERICA  
CategoryWinnerRunner up
Best broker Karbone Evolution Markets
Best trading company STX Anew
Best advisory Anew Karbone
Best law firm Resilient LLP  Latham & Watkins
RENEWABLE ENERGY CERTIFICATES - EUROPE  
CategoryWinnerRunner up
Best broker Evolution Markets  
Best trading company STX Redshaw Advisors
Best advisory Redshaw Advisors  
Best law firm DLA Piper  
RENEWABLE ENERGY CERTIFICATES - AUSTRALIA  
CategoryWinnerRunner up
Best broker CORE Markets STX
Best trading company STX  
Best advisory Karbone  
Best law firm DLA Piper  
RENEWABLE ENERGY CERTIFICATES - CHINA  
CategoryWinnerRunner up
Best advisory 3Degrees  
Best law firm Baker McKenzie  
RENEWABLE IDENTIFICATION NUMBERS MARKET  
CategoryWinnerRunner up
Best broker Karbone  
Best trading company STX  
Best advisory/consultancy Anew Karbone
Best law firm Eversheds  
Best verification company EcoEngineers Weaver

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.