With rising demand to advocate for climate change, the first international carbon emissions trading scheme was established after the signing of the Kyoto Protocol in 1997. Carbon markets or carbon trading schemes were designed to limit the amount of carbon dioxide and greenhouse gases being emitted into the atmosphere. Companies can trade carbon offsets to compensate for their emissions in order to meet global reduction targets set from the Paris Agreement. One carbon offset is equivalent to one tonne of carbon dioxide that is prevented from being emitted to the atmosphere, which can be rewarded via various carbon abatement projects. These markets are essential to reducing greenhouse gases in the atmosphere as they provide an economic incentive to large corporations to have a greater focus on mitigating their carbon footprint.
In Australia, the Renewable Energy Target (RET) is similarly a scheme to reduce greenhouse gases in the electricity sector specifically by incentivising the generation and use of renewable energy. Similarly to carbon offsets, ASX Energy offers a platform to trade Large Generation Certificates (LGCs), which are equal to one megawatt-hour of renewable electricity produced.
The Australian market is segmented into two main subsectors: the voluntary and the compliance market. The compliance market is a government-mandated emission reduction scheme, while the voluntary market involves trading predominantly between companies to manage their own emissions. The Emissions Reduction Fund (ERF) manages greenhouse gas removal and prevention projects to earn Australian Carbon Credit Units (ACCUs), which are traded on the voluntary secondary market and auctioned via the Federal Government.
Introduced in 2008, the New Zealand Emissions Trading Scheme was established to assist in the nation’s emission reduction goals of net zero by 2050 as per the Climate Change Response Act. Similarly to the Australian Carbon Market, the New Zealand ETS is predominantly operated by the government guided by the emissions budget—they issue and reduce the number of offset units available over time in line with 2050 targets. The credits can then be traded in the secondary market, mainly within the spot market. However, ASX introduced the first futures contracts in 2024 for Australia and New Zealand to provide a transparent forward curve for the market to hedge and price the energy transition.
ASX Environmental Futures are designed to support Australia and New Zealand’s decarbonisation efforts and clean energy transition.
The Australian Carbon Credit Unit (ACCU) is an offset unit introduced in 2011 under the Carbon Farming Initiative Act. They are equivalent to one tonne of carbon dioxide that is prevented from being emitted, and the futures on these units are equivalent to one thousand ACCUs. The deliverable contract offers an alternative avenue to access carbon credits. Those holding positions at expiry will be required to deliver or take delivery of underlying certificates, with ASX facilitating end-to-end delivery to maintain anonymity.
Similarly to the ACCU, the New Zealand Emission Unit (NZU) is a carbon offset unit that was introduced alongside the New Zealand Emissions Trading Scheme. ASX offers futures contracts that represent one thousand underlying NZUs to be physically delivered upon expiry.
Large Generation Certificates (LGC) are used specifically to incentivise the clean energy transition and promote renewable energy generation. Companies can be rewarded LGCs if they produce renewable energy and can be traded to assist others in meeting renewable energy targets. Like a carbon offset unit, an LGC represents 1 megawatt-hour (MWh) of renewable electricity generated. The ASX LGC Contract is equivalent to one thousand underlying LGCs and provides the same benefits for hedging price risk as the contracts on carbon credits.
Fact Sheet: ASX Environmental Futures Fact Sheet (PDF)