N-GEO futures follow the industry leading Verified Carbon (VCS) Standard for Agriculture, Forestry, and Other Land Use (AFOLU) projects and require additional certification of Verra Registry’s stringent Climate Community and Biodiversity (CCB) Standard, which identifies projects that simultaneously address climate change, support local communities and smallholders, and conserve biodiversity.
As more companies rely on nature-based offsets as part of their individual climate strategies, N-GEO futures provide a standardized tool for managing the price risk associated with those initiatives. N-GEO futures are the latest market-based solution to help create a more transparent and efficient voluntary emissions offset market.
A variety of solutions have emerged to help meet net-zero targets, including projects that protect or restore natural ecosystems, which remove greenhouse gases from the atmosphere. The purchase of nature-based voluntary offsets allows businesses to finance natural climate solutions while transitioning to more sustainable business practices.
CME Group’s customers have expressed demand for a standardized offset contract that focuses on AFOLU projects. According to the Intergovernmental Panel on Climate Change, the AFOLU sector is responsible for just under a quarter of GHG emissions associated with human activities. One way to mitigate emissions from this sector is through the generation and sale of AFOLU emission offset credits. A barrier to achieving this at scale is the lack of a standardized pricing benchmark. N-GEO futures help improve price discovery and provide a transparent platform for managing nature-based offset risk.
Offsets delivered via the N-GEO futures delivery mechanism must be the following criteria:
The Verra Registry’s CCB Standard is designed to go beyond emission reduction by supporting local communities and conserving biodiversity. In order to be certified under the CCB Standard, projects must adhere to independent auditing requirements, follow approved accounting methodologies, and be tracked in Verra’s registry system.
For more detail information, please see Verra’s CCB landing page: https://verra.org/project/ccb-program/
Please see details on registering with CBL and the Verra Registry in the GEO section below.
N-GEO futures are complementary to GEO futures, providing CME Group customers with another standardized and transparent platform for managing their voluntary emissions offset risk. Together, the two contracts have an estimated 100M offsets in deliverable supply. N-GEO and GEO futures help provide clear insight into near and long-term pricing for global voluntary offsets.
N-GEO is set in the rigorous criteria outlined in Verra’s CCB Standard. There are many similarities between the N-GEO and GEO contracts such as their expiration calendar, contract size (1,000 offsets), tick size, and block minimum. Both contracts also settle against CBL’s spot markets and utilize CBL’s EMA system for deliveries. The key difference is the underlying projects available under each contract. N-GEO also only allows for delivery from one registry, Verra, while GEO allows for delivery from three.
Like the GEO contract, N-GEO can be traded electronically or as a block transaction through a voice broker. Electronic spread markets are also be listed between N-GEO and GEO, allowing firms to execute inter-commodity spread transactions with no leg risk.
The Global Emissions Offset futures (GEO) contract is a physically settled contract that allows for delivery of CORSIA-eligible voluntary carbon offset credits from three registries: Verified Carbon Standard (VCS), American Carbon Registry (ACR), and Climate Action Reserve (CAR). Deliveries will be facilitated through CBL, a global leader in spot energy and environmental markets.
Please see the Global Emissions Offset futures contract specifications for more information.
CME Group’s global customers are in search of a way to manage future price risk associated with carbon markets across regions. The GEO contract enables increased price transparency for voluntary carbon offsets in future months and provides a mechanism for convergence across different carbon registries and project types.
Carbon offset credits are generated from projects that lead to offsets in emissions behind business as usual practices. Offset credits provide a flexible way to meet certain compliance obligations for state or regional carbon reduction schemes or to voluntarily reduce emissions at the state, corporate, or individual level. Offset projects and credits also bridge the gap between emissions reductions across countries and industries. They are especially useful in the early stages of reduction efforts in compliance programs or voluntary efforts, while long-term low carbon business practices are developed.
CBL is a global exchange platform for transacting spot energy and environmental commodity products such as carbon, renewable energy, water, and natural gas. For more information, please visit cblmarkets.com.
The International Civil Aviation Organization (ICAO), a UN specialized agency, adopted the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) as a market-based mechanism to meet an ambitious goal of carbon neutral growth from international aviation beyond 2020. The ICAO has approved seven voluntary carbon offset registries that airlines can use to comply with CORSIA; three of which are included in the futures contract.
Please see the link below for more information on CORSIA:
CME Group and CBL chose the three CORSIA-eligible registries based on a variety of a criteria including access to credits and the ability to resell credits under the programs.
Please see the links below for more information on each eligible registry:
Verified Carbon Standard (VCS) applicant:
Please register for VCS here: https://registry.verra.org/mymodule/reg/AHAgreement.asp
Upon receipt of the email instructions for submitting the required documentation, please provide thsse following to Verra VCS to facilitate the remainder of your registration:
Climate Action Reserve (CAR) applicant:
Please register for CAR here: https://thereserve2.apx.com/mymodule/reg/AHAgreement.asp
Upon receipt of the email instructions for submitting the required documentation, please provide the following to CAR to facilitate the remainder of your registration:
Please note that all documents submitted in a language other than English must be accompanied by a certified English translation. All information provided will be treated as strictly privileged and confidential. The Reserve maintains the right to request further information and documentation from your organization.
American Carbon Registry (ACR) applicant:
Please register for ACR here: https://acr2.apx.com/mymodule/mypage.asp
Once in receipt of the email instructions for submitting the required documentation please provide the following to ACR to facilitate the remainder of your registration:
The ICAO has outlined specific criteria for how it qualifies registries and projects to comply with CORISA and specifics on which registries and project types are approved to date. Note that the ICAO has a rolling application process for new registries and project types. CME Group will continue to monitor additions to the ICAO list of approved offset providers and projects and may enable additional registries and projects to deliver into the GEO contract over time. Advanced notice will be provided to the market ahead of such action.
While CORSIA sets the foundation for the GEO contract, carbon offsets that fall under this program should appeal to a wide range of firms that are looking to reduce carbon emissions in a meaningful way. The criteria for CORSIA was chosen as it was established for over four years and verified through a standardized process under UN guidance.
The GEO contract is a “seller’s option” contract, meaning that a firm that expires short with intent of making delivery against the futures contract selects which eligible registry it will delivery carbon offsets from. All participants that chose to make or take delivery must be registered with CBL and with the three eligible carbon registries ahead of futures expiration. Firms taking delivery will receive an offset credit from a registry and project that meets the CORSIA criteria.
There is no CBL application, but clients may register for EMA through CBL. Applicants must provide Supplemental Evidentiary Documentation:
Each GEO-eligible registry has its own set of requirements and supplemental documents.
Firms are not required to onboard with CBL and the three registries to trade GEO futures. These registrations are only required if a firm plans to make or take delivery via the futures mechanism. Just like any other physically settled futures contracts, firms may choose to avoid delivery by exiting their position, rolling their position, or conducting an Exchange for Physical (EFP) transaction.
GEO futures can be electronically through CME Globex or cleared as block transactions via CME Clearport.
To learn about access to CME Group’s front end trading system, CME Direct, visit https://www.cmegroup.com/trading/cme-direct.html.
Futures contracts cleared with CME Group offer a host of features and capabilities such as mitigated counterparty risk, robust audit trail for compliance purposes, efficient price execution, access to a wider variety of buyers and sellers, and a transparent settlement process.
For 100 years, CME Group has been a leader in centralized clearing ‒ offering global benchmarks in the Interest Rate, Energy, Equities, Agriculture, Metals, and Foreign Exchange space. CME Group is excited to continue to leverage its experience and reputation to help advance global environmental markets.
Learn more about futures here: https://www.cmegroup.com/education/courses.html.
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