Carbon dioxide removal and the futures market

Abstract

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 statebacked futures for supporting these assurances.

Contested framings of greenhouse gas removal and its feasibility: Social and political dimensions

“…Social science and humanities research features in this frame when it directly engages technical assessment with global climate policy and governance processes. For instance, research on integrating negative emissions into GHG accounting frameworks plays a central role to techno‐economic framings of the governance challenges around GGR pathways (Coffman & Lockley, 2017; Zakkour et al, 2014). Despite externalizing politics, some ethical questions are included in a range of techno‐economic assessments of large‐scale GGR feasibility, particularly linked to equitable distributions of carbon budgets (Hansen et al, 2017; McKinnon, 2015; Tavoni et al, 2012).…”

A Surface Ocean CO2 Reference Network, SOCONET and Associated Marine Boundary Layer CO2 Measurements

“…The advent of commercial CO 2 analyzers that employ laserbased spectroscopic technology, such as off-axis integrated cavity output spectroscopy (Baer et al, 2002), Fourier transform infrared spectroscopy (Esler et al, 2000), and cavity ringdown spectroscopy (Crosson, 2008) have opened up new opportunities for high-accuracy CO 2 measurement on ships. These spectroscopic analyzers are typically stable for longer periods of time compared to NDIR-based analyzers, thus significantly reducing reference gas (required for differential analyzers) and calibration gas demands.…”

Carbon dioxide removal and tradeable put options at scale

“…Sellers of a given commodity buy put options (theoretically) to transfer risk: by establishing a floor price for their goods, they lower financing costs, increase their ability to perform on other obligations; etc Buyers of call options want to establish a maximum price to be paid, thereby protecting themselves against future price increases. Alfred Marshall discussed the social benefit of derivatives markets (including futures markets, options and swaps) as follows: 'the hedger does not speculate: he insures [19]. ' In contrast with futures or forward contracts, TPOs do not confer any direct benefit to the writer.…”

“…are not delivered, at least on secondary markets. In order to prevent market abuse, many exchanges maintain position limits (mandating maximum size of an open position) for cash-settled options [21]. Such a provision should not be necessary in the TPO markets we are envisioning, but position limits would be advisable if TCOs were permitted by regulators.…”