Sustainable 

finance

Gordon Bennett

Managing Director, Utility Markets

CFTC’s Energy and Environmental Markets 

Advisory Committee 

June 3, 2021
Macro

themes
2 | CONFIDENTIAL

Macro theme - what is finance?

Purpose of financial markets

Allocate 

capital

Manage 

risk

Real 

economy

Financial markets

Quoted 

prices

Observable 

prices

Unobservable 

prices

ICE 

Markets

ICE Data

Services

Fair value hierarchy
3 | CONFIDENTIAL

Macro theme - what is the energy transition?

Changing the merit order to meet the goals of the Paris Agreement

Heating & 

cooling

Natural gas

Electricity

Coal 

Oil

Electricity 

Natural gas

Coal

Renewables

Nuclear

Oil

Mobility

Oil

Natural gas

Electricity

Biofuels

Hydrogen

Products

Oil

Natural gas

Hydrogen

Heating & 

Cooling

?

Electricity 

?

Mobility

?

Products

?

Carbonomics

Current fuel merit order Future fuel merit order 
4 | CONFIDENTIAL

Carbonomics: UK Case Study

When the price of carbon is taken into account, it is less profitable to produce 

electricity from both coal and natural gas

• Applying a cost of carbon can lead

to a shift in the fuel merit order

• In the first half of 2020,

electricity generated from

renewables exceeded fossil

fuels, for the first time in the

EU

• Renewables generated 40% of

the EU’s electricity, fossil fuels

generated 34%

• The use of coal dropped 32%

• This will help to achieve the goals of

the Paris Agreement
5 | CONFIDENTIAL

Carbonomics: UK Case Study Outcome

Coal is removed from merit order of electricity generation

0

2

4

6

8

10

12

14

16

18

20

0

20

40

60

80

100

120

GBP/tCO2

TWh/Quarter

GB Electricity generation mix by fuel source

Coal Oil Natural Gas Nuclear Renewables Other CPS (GBP/tO2)
6 | CONFIDENTIAL

Macro theme - what is the energy transition?

Changing the electricity merit order to meet the goals of the Paris Agreement

Carbonomics

Prior fuel merit 

order in UK

Coal

Natural gas

Nuclear

Oil

Renewables

Current fuel merit 

order in UK

Renewables

Natural gas

Nuclear

Carbonomics

Future fuel merit 

order in UK?

Renewables

Natural gas

Nuclear

Hydrogen

Carbon footprint is zero (or net zero by removal/avoidance) through Offset (Nature or Industrial)
UK ETS
8 | CONFIDENTIAL

■ Cap is 5% less than the 

applicable cap would’ve 

been under the EU ETS

■ Cap is higher than the 

2020 provisional 

emissions estimate under 

the ETS

■ Cap is before the recent 

announcement to reduce 

emissions to 78% of 

1990 levels by 2035 

■ Cap consultation due 

3rd/4th quarter 2021

UK ETS

The Greenhouse Gas Emissions Trading Scheme Order 2020

0

20,000,000

40,000,000

60,000,000

80,000,000

100,000,000

120,000,000

140,000,000

160,000,000

180,000,000

2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2020

UK cap and 2020 verified emissions (tonnes)

Source:

The Greenhouse Gas Emissions Trading Scheme Order 2020 

EU Emissions Trading System (ETS) data viewer, European Environment Agency
9 | CONFIDENTIAL

Source:

International Carbon Action Partnership

Benchmarking the UK ETS

 - 2,000 4,000 6,000 8,000 10,000 12,000

RGGI

UK

CCA

EU

Installations

 - 200 400 600 800 1,000 1,200 1,400 1,600 1,800

RGGI

UK

CCA

EU

Cap (MtCO2e)

0% 10% 20% 30% 40% 50% 60% 70% 80%

RGGI

UK

CCA

EU

Coverage

0 10 20 30 40 50 60 70 80

RGGI

UK

CCA

EU

Price (US$)
10 | CONFIDENTIAL

~1,600 lots ADV

Benchmarking the UK ETS

Auction and first day of trading 19th May 2021

Auction 1 – 19th May

■ 6 Million allowances sold at Auction at 

£43.99 per tonne raising over £266 Million

– Trading at a premium to EUAs

■ Over 29 Million allowances bid for giving a 

cover ratio of nearly 5 times

■ 14 successful bidders

Auction 2 – 2 June

■ 6 Million allowances sold at Auction at 

£44.75 per tonne raising over £271 Million

– Trading at a premium to EUAs

■ Over 22 Million allowances bid for giving a 

cover ratio of over 3.5 times

■ 14 successful bidders

~600 lots
11 | CONFIDENTIAL

Trading activity and open interest since launch

0

200

400

600

800

1,000

1,200

1,400

1,600

May 19, 2021 May 20, 2021 May 21, 2021 May 24, 2021 May 25, 2021 May 26, 2021 May 27, 2021

Volume Open Interest
12 | CONFIDENTIAL

Carbonomics

Test of policy post coal to natural gas switching in electricity generation

0

50000000

100000000

150000000

200000000

250000000

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

UK Emissions by Sector (tCO2e)

10 Aviation

20 Combustion of fuels

20-99 All stationary installations

21-99 All industrial installations (excl. combustion)

Source:

EU Emissions Trading System (ETS) data viewer, European Environment Agency
24 | CONFIDENTIAL

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