Carbon dioxide removal and the futures market
Futures contracts are exchange-traded financial instruments that enable parties to fix a price in advance, for later performance on a contract. Forward contracts also entail future settlement, but they are traded directly between two parties. Futures and forwards are used in commodities trading, as...
| Main Authors: | , |
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| Format: | Article |
| Language: | English |
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IOP Publishing
2017-01-01
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| Series: | Environmental Research Letters |
| Subjects: | |
| Online Access: | https://doi.org/10.1088/1748-9326/aa54e8 |
| _version_ | 1797748389723504640 |
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| author | D’Maris Coffman Andrew Lockley |
| author_facet | D’Maris Coffman Andrew Lockley |
| author_sort | D’Maris Coffman |
| collection | DOAJ |
| description | Futures contracts are exchange-traded financial instruments that enable parties to fix a price in advance, for later performance on a contract. Forward contracts also entail future settlement, but they are traded directly between two parties. Futures and forwards are used in commodities trading, as producers seek financial security when planning production. We discuss the potential use of futures contracts in Carbon Dioxide Removal (CDR) markets; concluding that they have one principal advantage (near-term price security to current polluters), and one principal disadvantage (a combination of high price volatility and high trade volume means contracts issued by the private sector may cause systemic economic risk). Accordingly, we note the potential for the development of futures markets in CDR, but urge caution about the prospects for market failure. In particular, we consider the use of regulated markets: to ensure contracts are more reliable, and that moral hazard is minimised. While regulation offers increased assurances, we identify major insufficiencies with this approach—finding it generally inadequate. In conclusion, we suggest that only governments can realistically support long-term CDR futures markets. We note existing long-term CDR plans by governments, and suggest the use of state-backed futures for supporting these assurances. |
| first_indexed | 2024-03-12T16:04:04Z |
| format | Article |
| id | doaj.art-db38c691228c4ad8a0741c5ea309950f |
| institution | Directory Open Access Journal |
| issn | 1748-9326 |
| language | English |
| last_indexed | 2024-03-12T16:04:04Z |
| publishDate | 2017-01-01 |
| publisher | IOP Publishing |
| record_format | Article |
| series | Environmental Research Letters |
| spelling | doaj.art-db38c691228c4ad8a0741c5ea309950f2023-08-09T14:30:20ZengIOP PublishingEnvironmental Research Letters1748-93262017-01-0112101500310.1088/1748-9326/aa54e8Carbon dioxide removal and the futures marketD’Maris Coffman0Andrew Lockley1School of Construction and Project Management , The Bartlett School, University College London, 1-19 Torrington Place, WC1E 7HB, London, United KingdomSchool of Construction and Project Management , The Bartlett School, University College London, 1-19 Torrington Place, WC1E 7HB, London, United KingdomFutures contracts are exchange-traded financial instruments that enable parties to fix a price in advance, for later performance on a contract. Forward contracts also entail future settlement, but they are traded directly between two parties. Futures and forwards are used in commodities trading, as producers seek financial security when planning production. We discuss the potential use of futures contracts in Carbon Dioxide Removal (CDR) markets; concluding that they have one principal advantage (near-term price security to current polluters), and one principal disadvantage (a combination of high price volatility and high trade volume means contracts issued by the private sector may cause systemic economic risk). Accordingly, we note the potential for the development of futures markets in CDR, but urge caution about the prospects for market failure. In particular, we consider the use of regulated markets: to ensure contracts are more reliable, and that moral hazard is minimised. While regulation offers increased assurances, we identify major insufficiencies with this approach—finding it generally inadequate. In conclusion, we suggest that only governments can realistically support long-term CDR futures markets. We note existing long-term CDR plans by governments, and suggest the use of state-backed futures for supporting these assurances.https://doi.org/10.1088/1748-9326/aa54e8forward contractsfutures marketscarbon dioxide removalnegative emissions technologiesvoluntary carbon offsets |
| spellingShingle | D’Maris Coffman Andrew Lockley Carbon dioxide removal and the futures market Environmental Research Letters forward contracts futures markets carbon dioxide removal negative emissions technologies voluntary carbon offsets |
| title | Carbon dioxide removal and the futures market |
| title_full | Carbon dioxide removal and the futures market |
| title_fullStr | Carbon dioxide removal and the futures market |
| title_full_unstemmed | Carbon dioxide removal and the futures market |
| title_short | Carbon dioxide removal and the futures market |
| title_sort | carbon dioxide removal and the futures market |
| topic | forward contracts futures markets carbon dioxide removal negative emissions technologies voluntary carbon offsets |
| url | https://doi.org/10.1088/1748-9326/aa54e8 |
| work_keys_str_mv | AT dmariscoffman carbondioxideremovalandthefuturesmarket AT andrewlockley carbondioxideremovalandthefuturesmarket |