Green Epoch

Frequently Asked Questions

We’re Ready To Help You Navigate The EU ETS Market

We’ve complied some of the most frequently asked questions with regards to the EU ETS and offsetting emissions. 

To see an overview of what we know already about the UK ETS market, click here.

If you have any more questions or are interested in trading, please get in touch.

We are one of the largest market-makers in the carbon market. This means that you will be dealing directly with a team who are trading carbon every day of the year and have a vast understanding of the market. The other half of the team has spent years successfully developing businesses across various different commodities, including power, natural gas, crude oil, refined products and agricultural commodities, so at Green Epoch, we understand your position and the different needs you may have.

We work with ED&F Man, an independent clearing partner that was set up in 2012 to help provide market access and risk management across a range of commodities. In 2018, this group had turnover of $8 billion, based on total assets of $21 billion and shareholder’s equity of $820 million. Through working with ED&F Man as an intermediary, we can provide peace of mind to all parties involved in the transactions, as the intermediary manages the credit risks and counterparty risks.

For more information on ED&F Man click here.

Beyond helping companies offset their emissions, we also provide access to risk management products to help minimize the risk of volume and price uncertainty.

For instance, if you know that your company will have emissions certificates to buy or sell in the future but do not know how many, you might choose to manage this exposure by buying or selling options. Similarly, options can be used to manage price risk of emission certificates.

At Green Epoch, we are one of the largest market makers of EU ETS options, and pride ourselves on offering competitive prices for whatever type of options structure you are looking for.

Options can help you to manage your risks by allowing you to:

  • Profit from upward moves in price without risking significant downside, and while reducing the capital you need to invest.
  • Profit from downward moves in price without the complexity and risk of short selling
  • Protecting an existing portfolio of certificates during periods of price volatility

We pride ourselves on being able to show a price on the widest range of options structures and strategies in the EU ETS market. If there is any particular structure you have in mind, just let us know and we’ll make a market for you. Below is an overview of some of the more straightforward things we are doing day in, day out.

 

Call option

A call option gives the owner the right to buy a specific number of certificates at a specific price by a predetermined date. This gives you the opportunity to lock in the price of certificates without having to pay for them all upfront. You can also use call options to manage risk of prices rising.

 

Put option

Put options give the owner the right to sell a specific number of certificates at a specific price by a specific date. If you think you will need to sell certificates, this gives you the opportunity to lock in a price for those certificates. You can also use call option to manage risk of prices falling.

 

Zero cost collar

An example of an options strategy, a zero cost collar locks in a band of prices for no premium (zero cost). This is achieved with a combination of put options and call options.  For instance, if you want to protect yourself from carbon certificates going above 30 Euros, but would be happy to buy them if given the chance at 20 Euros, you would sell the 20 puts and use the premium collected to pay for the 30 calls for zero net premium.

 

Call spread or put spread

Also examples of options strategies. As the buyer of the options spread, you can define a band of prices at which you would profit, for the payment of a fixed premium. Once the fixed premium is paid, there is the potential to profit from the movement in prices, without further cost. This can be a valuable offset to other risks that may be in your portfolio. The structure would be implemented by buying and selling a call option or by buying and selling a put option at levels equivalent to the extremities of the desired price band.

 

Options spreads limit the amount of upside to the extent of the boundaries defined at time of trade, however, that also means that options spreads are typically significantly cheaper than straightforward puts and calls, which cost more in return for the less constrained upside they can offer if the price moves favourably.

 

We are here to help customers bypass third party fees and commissions while accessing the best prices available by dealing directly with the largest market-maker in the emission market.  We do charge for our services, but our overheads are negligible and so our costs are very low.

 

Green Epoch traders have seen signs that many end users are overpaying to access the EU ETS. Based on observations from the marketplace itself, we can point to specific instances where we believe we could have saved end users 50% or more of the bid/ask market by comparing  our view of mid-market prices to where trades were actually made. Of course, actual savings will vary from customer to customer, and from day to day.

 

We are committed to being transparent with you about where we see the market and how we can help. Our mission is to reduce these costs, and thus make the market more accessible to everyone.

We pride ourselves on an efficient business model that keeps the cost low for our customers by providing them with direct access to the market.

We have seen numerous trades where we believe we could have provided substantial savings for the customer; in many cases, we believe we could have saved the customer 50% or more of the bid/ask market. While we do charge fees, we make them transparent, and we believe our fees are also among the most competitive in the marketplace. This means that our best price would have saved the customer thousands of euros.

While we cannot guarantee that we will always be the most competitive counterparty on every structure, we are committed to being transparent with you about where we see the market and how we can help. Our mission is to reduce the cost of doing business in the emissions offsets business, and thus make the market more accessible to everyone. We are ready to help you explore whether this is something that could apply to your company.

 

We are a tight-knit team who have been involved in the EU ETS market since its inception. We are committed to being transparent about what we see in the market and providing customers with direct access to the trading partner, with no middleman participating in between, making the market more accessible to everyone. The transparent direct access cuts out third-party fees, eliminates any communication gaps and ensures the best execution, reducing your total costs. While we are happy to share our opinions, we do not seek to offer advice, we are not consultants. Consequently, we do not incur the overhead typically associated with an advisory company, which keeps our costs low. We are always looking for ways to help our customers save money by providing a transparent service.

Our team are market-experts in trading emissions. We provide liquidity for exchange cleared futures and options for the EU ETS cap and trade scheme, allowing businesses to transact more directly with the market, cutting out unnecessary intermediation costs.

We offer fast and personable service to our customers. First, we have an initial call to discuss your needs and identify how Green Epoch can help. If this is our first transaction together, we will help you to get set-up with our preferred clearing partner to clear your trades, ED&F Man should you not already have other arrangements in place. This clearing partner will manage your credit through margining, and all counterparty risk is passed on to the exchange. After these two steps are complete, you can start trading your EU ETS certificates and derivatives.

Our corporate structure is a joint venture between Grey Epoch Trading LLC and Provenca Capital Limited, with each side sharing equally in the proceeds of the business. Provenca Capital works with a substantial and reputable partner, to introduce customers to them, for which it receives compensation. This means for customers that do not have a clearing arrangement in place, we will introduce you to our  independent clearing partner, ED&F Man. 


If a potential customer does already have a clearing arrangement in place then there is no need for us to introduce you to them and so Provenca Capital Limited might wish to put in place a consulting agreement directly with the customer, depending on the nature of the business to be done. In either construct, market risk is then passed from the customer to the exchange, and from the exchange onto Grey Epoch. The customer will not have a direct risk-based relationship with Provenca Capital or Grey Epoch, but rather with Provenca Capital clearing partner, ED&F Man, or with their own clearer. Provenca Capital clearing partner or the customers own clearer pass on the market risk to us and manage the counterparty risk and credit risk.

We are strong supporters of the EU’s goal to be carbon neutral by 2050. We see that cap and trade schemes, like the EU’s carbon emissions trading scheme, credits, and offsets are a part of the solution to the risks posed by climate change. While the overall goal must be to reduce absolute emissions, these schemes, if properly administered, offer an important steppingstone to a more sustainable future. As such, we believe that EU ETS represents the highest standard of market-based emissions reductions schemes, combined with the most liquidity.

 

Having an internal team responsible for offsetting your emissions can be very challenging. That is why many companies rely on third parties to support them in offsetting their emissions.  These third parties become an intermediary between the company and the market; and this can become expensive, with these third parties adding significant costs to the process.

 

At Green Epoch, our mission is to provide companies with direct access to high-quality emission offsetting schemes, cutting out unnecessary bureaucracy and providing you better value for your money. By working with us, you will have direct access to market traders with unbeatable know-how of the emissions market.

 

The EU Emission Trading System (EU ETS) is the world’s first major carbon market and accounts for three-quarters of international carbon trading.

 

Under this ‘cap and trade’ system, the ‘cap’ (maximum emissions allowed) is reduced over time so that total emissions fall. The scheme covers more than 11,000 power plants, factories and other fixed installations across the European Union, as well as commercial aviation within the EEA.  The current target for 2030 is 43% reduction from 2005 levels. The European Commission and Parliament have agreed in principle to increase the target to a 55% reduction from 1990 levels. Formal legislative proposals are due in June 2021, which are expected to include an expansion of the EU emissions trading scheme.

 

Most installations covered by the scheme have a proportion of their emissions covered by a free allocation allotted to them. These free allocations reduce every year, requiring companies to either reduce their emissions as their allocation declines, or to purchase additional emissions certificates to cover the shortfall. Avoiding the cost of purchasing these additional certificates provides an incentive for installations to reduce emissions by installing more efficient processes and equipment. Lowering emissions below an installation’s annual cap creates a surplus of allowances which can be sold in the open market for profit.

 

Allowances can be purchased in several ways: participating in one of the periodic auctions, bilaterally with a counterparty, or locking in your price and taking delivery from futures contracts. 

The trading element of the system brings flexibility to efficiently manage compliance requirements. For instance, the market has become more liquid over the years such that it is now possible to better manage risks, by either buying or selling forward when the opportunity presents, or by managing risk through options structures.

For more information on the EU ETS visit the European Commission website.

There are a lot of companies that help you voluntarily offset your emissions; the challenge is that the process is not always transparent. The EU ETS is a regulated and verified process which, through a transparent market based system, creates a financial imperative for emissions reductions to happen where they are most impactful. As the number of certificates available reduces year on year, companies are forced to reduce their emissions, or buy increasingly expensive certificates or otherwise face a hefty fine. This incentivises companies which emit carbon dioxide across the EU to reduce their emissions. The scheme has so far been very successful at large scale, helping reduce EU wide emissions, such that in 2020, CO2 emissions from sectors covered by the EU ETS will be 21% lower than they were in 2005. The target for 2030 is a 43% reduction from 2005 levels, and the EU is on track to meet this goal. By voluntarily buying certificates and retiring them, you would be reducing the supply of certificates, and so would be contributing to creating the incentives needed for installations across Europe to reduce their emissions, and thus to meeting EU emissions goals. For more information about the success of the EU ETS scheme, see here.  Where possible, we always recommend companies to offset their emissions through the EU ETS. Moreover, as of 2021 under the EU ETS, companies will no longer be able to offset a part of their emissions using CERs (Certificate Emission Reductions). Now is the time to prepare for the change in regulations. Get in touch with us to find out how we can support you manage your emissions risks with direct access to the EU ETS market.

If you would like to participate in reducing your emissions, you may be eligible to participate in the EU ETS. To do this, you are required to have access to a registry account where you can physically take delivery of emissions certificates and retire them. By retiring the certificates, you are contributing to emissions reductions initiatives across the European Union. Note that what you do with EU ETS certificates has to be reported to the government agency that oversees and keeps track of all certificates – this helps maintain the high standards of the scheme. For more information about setting up a registry account please visit here. Alternatively, if you do not have a registry account, you can still buy and sell options and futures if you have an account that lets you access the exchange. If you do not have such an account, we can introduce you to one of our partners who can help you set one up. If you find that due to administrative reasons, neither of these options work for you, at Green Epoch we are happy to help you find an alternative but reliable way to voluntarily offset your emissions.

There are alternative schemes and companies that allow you to offset your emissions all over the world. While at Green Epoch we are mainly focused in the EU ETS market due to its robust verification process, our team of market experts are also experienced in trading in the North American carbon markets.

The EU ETS scheme is a financial incentive to help companies reduce their carbon emissions. By reducing the number of certificates available year on year, companies are forced to reduce their emissions, or buy increasingly expensive certificates or otherwise face a hefty fine.  This incentivises companies which emit carbon dioxide across the EU to reduce their emissions.

The scheme has so far been very successful at large scale, helping reduce EU wide emissions, such that in 2020, CO2 emissions from sectors covered by the EU ETS will be 21% lower than they were in 2005.The current target for 2030 is 43% reduction from 2005 levels. The European Commission and Parliament have agreed in principle to increase the target to a 55% reduction from 1990 levels. Formal legislative proposals are due in June 2021, which are expected to include an expansion of the EU emissions trading scheme.

By voluntarily buying certificates and retiring them, you would be reducing the supply of certificates, and so contributing to meeting EU emissions goals. For more information about the success of the EU ETS scheme, see here.  

In the case that your company is not obliged to reduce emissions under the EU ETS scheme, and you do not want to voluntarily participate in it, we are happy to introduce you to companies that help you voluntarily offset your emissions in other ways.

At Green Epoch, we want to help our customers save money and authentically reduce emissions. If you are interested in voluntarily offsetting your emissions by directly contributing

It is probable that the UK will create its own version of the emissions trading system (ETS), which may be linked to the EU scheme in a similar way to the Swiss system. However, as of July 2020, no one is certain of how carbon offsetting will be managed in the UK post Brexit. At Green Epoch, we are ready to help you navigate this transition phase and help you manage your emission risk.

The EU ETS scheme has been growing and changing since its implementation in 2005, when it was set up to help the EU meet its Kyoto targets.

From 2021, companies will no longer be able to use CERs (Certificate Emission Reductions) to help offset their emissions. Moreover, the free allowance that each company will also be reduced with the goal for the EU to be carbon neutral in 2050, and more industries and sectors will be required to participate in the scheme.

The current target for 2030 is 43% reduction from 2005 levels. The European Commission and Parliament have agreed in principle to increase the target to a 55% reduction from 1990 levels. Formal legislative proposals are due in June 2021, which are expected to include an expansion of the EU emissions trading scheme.

At Green Epoch, we have been involved in the EU ETS scheme since its inception and have been accompanying its evolution. We know the market can have volatility and that regulations change, that is why our team is ready to help you stay ahead, manage your emission risks, all the while saving you time and money.  

We’re Ready To Help You Navigate The uK ETS Market

At Green Epoch, we provide companies with direct access to the emission trading market. We are market participants and not advisors but we are often happy to share what we know to aid the process of information discovery.

With all the uncertainties surrounding the creation of the UK ETS, we’re sharing our knowledge about what has been decided so far and what a potential UK ETS might look like and how it could function. This is a developing topic, and what we have set out below simply represents our opinion at a particular moment in time, as an interested market participant.

Yes, the U.K cap will initially be set to 5% below the UK’s notional share of the EU ETS cap for Phase IV of the EU ETS.

This suggests that the prices of the certificates in the U.K. may not trade at the same price as EU certificates, although at this point it’s too early to tell.

Companies currently subject to EU ETS will have to comply with the UK scheme instead, for emissions after January 2021. As the UK is likely to have tighter limits than the EU, this may mean that compliance costs increase for UK companies.

There are also likely to be some companies which are not covered by the EU scheme that will have to comply with the UK scheme – we are yet to see the fine print of the UK scheme’s compliance rules to know for sure.

As it stands, UK ETS will start with Phase 1 Running from 2021 – 2030. Companies have until ~April 2021 to finalise 2020, which falls under EU ETS; they will need to trade EU certificates at least until then.

Although trading in UK certificates and futures may start before April 2021, it is likely that companies will have until April 2022 for the first year of UK compliance.

At Green Epoch, we are set-up to help you manage your EU ETS compliance and to help you understand how trading in the UK ETS may work.

The UK has stated a desire to have its scheme operate with interchangeability with the EU scheme, and potentially other schemes in the future, such that there may eventually be a global carbon market. The specifics are not yet clear, and interchangeability with the EU ETS likely depends on wider discussions with the EU.

There are several alternatives for managing risk in any traded market, including buying forward, trading options and so on. Assuming sufficient liquidity in the UK ETS, these alternatives should apply equally to the UK scheme and the EU scheme.

However, there may be lack of liquidity in the UK scheme, in particular at the beginning while it is getting up and running, and if there are no interchangeability agreements, so some companies will likely choose to manage UK risks within the EU scheme until it comes to time to surrender certificates.

At Green Epoch, we will be able to help you by offering best in class execution and competitive prices in whichever scheme you participate in.

The UK has stated a desire to have its scheme operate with interchangeability with the EU scheme, and potentially other schemes in the future, such that there may eventually be a global carbon market. The specifics are not yet clear, and interchangeability with the EU ETS likely depends on wider discussions with the EU.

The UK government has so far decided not to impose a carbon tax, instead opting for a traded ETS market. They have also set a floor price for UK ETS certificates, initially at £15.

Yes, auctioning will continue to be primary means of introducing certificates into the market. The UK has chosen the Intercontinental Exchange (ICE) to host its auctions (most EU ETS auctions take place on EEX).

The UK will introduce an ARP of £15 (nominal) to ensure a minimum level of ambition and price continuity during the initial years of UK ETS.

Yes, in years one and two of a UK ETS, the Cost Containment Mechanism (CSM) will have lower price and time triggers, proving a mechanism by which, the UK Government can decide whether to intervene sooner should very high prices occur.

In year three, the system will revert to EU ETS CCM design, or sooner if the UK is linked with the EU ETS.

Green Epoch can also help by offering competitive prices on risk management structures which insulate against volatile price moves.

Yes, to reduce the risk of carbon leakage, a proportion of allowances will be allocated for free. However, this will be kept closely under review.

It will follow a similar approach to that of Phase IV of the EU ETS to ensure smooth transition for participants for the 2021 launch.

Some free allowances will also be made available for new stationary entrants to the UK ETS as well as existing operators who increase their activity.

Yes, the Scottish Government has legislated for net zero targets by 2045, and the Welsh Government will bring forward legislation to cut net emissions at least 95% in 2050.

However, one UK wide trading scheme is envisaged, so this difference in approach may be delt with through varying allocation approaches depending on where assets are based.

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