EUA Derivatives- the solution to the unknown cost

Oct 2023

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Limitations
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ICE
Environmental
Markets

3 | CONFIDENTIALICE host to the world’s largest environmental markets
Connect to a global environmental portfolio to price climate risk>$1T notional value of environmental
futures and options traded per annum

ICE Environmental Markets>95% market share of all globallytraded environmental futures andoptions trade on ICE>6 billion tonnes of carbon credits,equating to the Co2 absorption of 6billion trees>250 million RECs, equal to theannual per capita energy consumptionof 140 million people

Negative
externalities

Positive
externalities

CarbonAllowances

Guaranteesof Origin>5 billion RINs – equal to 119 million barrels ofrenewable fuel4 | CONFIDENTIAL

Renewablefuels

SustainableIndices

ICE environmental markets

Valuing positive and negative externalities and renewable fuels
ICE Environmental Markets

Negative externalities

Positive externalities

Carboncredits

Carbon allowances

Renewable fuels

Energy Attribute Certificates

EthanolGlobalCarbon
Index (CO2)

EUAllowance(EUA)

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UK
Allowance(UKA)

Regional
Greenhouse
Gas Initiative(RGGI)

California
CarbonAllowance(CCA)

Washington
Cap andInvest (WCA)

California
CarbonCredit(CCO)

NatureBased
CarbonCredit(NBS)

Renewable
EnergyCertificate
(REC)

Low
CarbonFuelStandard(LCFS)

Renewable
Identification
Number(RIN)

FAME

RME

UCOME

Renewable
VolumeObligation
(RVO)

5HVO

EU ETS is coming to the rest of the WorldETS for shipping starts in 2024

CBAM starts in 2026

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The Problem•

New annual cost: current price ~81euros per allowance•Revenues earned in 2024•

What will the cost of allowance when you need to deliver in Sep 2025?

Answer:•Hedge or lock in the cost using the EUA futures and/or options contract

For those who want to understand how futures and options markets work:https://www.ice.com/support/education/trading-derivatives
Courses: https://www.ice.com/EducationCourses.shtml?courseList
7 | CONFIDENTIALEUA Market Dynamics•

The EU ETS was established in 2005. It covers ~40% of the greenhouse gas emissions from theEU, and applies to heavy industry, the power sector, and airlines operators. Covered companies
have to surrender allowances equal to their annual emissions, the following year•

EUA futures are contracts for allowances issued by the EU Emissions Trading System. The EU
ETS is a Cap and Trade programme, which puts a cost on pollution and allows companies totrade amongst themselves to reduce emissions in the most cost-effective manner.

•EUA Futures are physically delivered products whereby contracts held to expiry result indeliveries within the EU Registry•

ICE lists EUA Daily Futures (spot), EUA Futures (2 monthly, 3 August, 7 quarterly, and 7
December contracts) and EUA options (2 August, 6 quarterly and 7 December contracts)

8 | CONFIDENTIALICE – EUA Futures Contracts• Daily Futures :• Contracts that expire on a daily basis;• Delivery of physical EUA two days after transaction;• Equivalent to spot market.
• Monthly Futures：• Last trading day is the last Monday of the expiry month;• Delivery of physical EUA is between the first and third day of the last trading day;• Monthly Futures Options：• Futures options The last trading day is 3 days before the last trading day of theunderlying futures contract.
• In-the-money options are automatically transferred to futures.

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Example: If you buy futures for December 2023, the last trading day is Monday, December 18th, so you will
receive the EUA in your registry account on December 20th.

EUA Contract Details

EUA Specifications

https://www.ice.com/products/?filter=EUAEUA Futures Margin Rates

https://www.theice.com/products/197/EUA-Futures/margin-rates

10 | CONFIDENTIALEUA Futures & Options – Market Structure

11 | CONFIDENTIALEUA Price Movement & Volatility

12 | CONFIDENTIALICE – EUA Contracts• Cost of carry (margin) is currently only 12% of notional value.
• ICE EUA Futures has 95% of market share.
• ICE EUA Options has 100% of market share.
• EUA Futures have high liquidity, 62% traded on the screen, the rest through brokers orbilateral.
• Market is in contango.

•Example: If you buy futures for December 2023, the last trading day is Monday, December 18th, so you will
receive the EUA in your registry account on December 20th.

13 | CONFIDENTIALEUA Codes

ICE Endex Market Data - US$125 per user per month (US$130 in Jan 2024)
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Useful Links
ICE EnvironmentalWebsite

https://www.theice.com/energy/environmental

ICE Monthly Reporthttps://www.theice.com/microsite/usenvironmentalmonthlymarketreport

EU ETS Website

https://ec.europa.eu/clima/eu-action/eu-emissions-trading-system-eu-ets_en

EU Registry

https://climate.ec.europa.eu/eu-action/eu-emissions-trading-system-euets/union-registry_en

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For inquires:
john.ho@ice.com

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