ICE to shift EU carbon trading from London to Amsterdam

EU carbon trading is set to move from London to Amsterdam in the latest knock-on effect of Brexit on the UK’s financial services industry.

US-based Intercontinental Exchange will move the carbon contracts, a central part of the EU’s flagship policy on climate change, to its ICE Endex exchange in coming months, according to a notice to its customers on Monday. It is the world’s biggest carbon trading market, handling more than €1bn of contracts a day.

ICE has been pushed into the move by the EU’s refusal to recognise most of the UK’s financial services rules as “equivalent” to its own from a regulatory and supervisory standpoint.

Politicians in the EU are worried the UK will diverge from its standards and are also keen to assert independence from London, build up their own capital markets and promote the euro as an alternative to the US dollar for trading and payments.

The policy has already pushed a swath of share trading business from the UK to the EU, while a chunk of euro and sterling swaps deals have departed for New York and Amsterdam.

Lobby groups representing European energy providers have pushed EU regulators to accept UK derivatives exchanges as equivalent to those in the bloc, warning that consumers face higher energy costs and its companies “substantial limits” without a deal.

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Trades on London futures venues from inside the bloc are treated as off-exchange deals, which attract higher capital requirements. European energy producers have warned they may have to curb trading activity in the UK, putting them at a disadvantage in a global market.

However, clearing of the European carbon contracts will remain in London and sit alongside ICE’s Brent futures contracts, one of the world’s most actively traded oil benchmarks, and fast-growing TTF gas futures.

Financial firms often trade the assets together and consolidate their positions at the UK clearing house, saving themselves millions in additional margin payments. ICE’s TTF gas contracts are also traded in Amsterdam but cleared in London. EU authorities will let domestic investors use UK clearing houses until mid-2022.

The move comes after the price of carbon in Europe soared to record highs as traders rush to secure supplies of EU emissions allowances. Prices have risen above €38 a tonne as the bloc strengthened its commitments to cut emissions. ICE was last year handling volumes equivalent to 47m tonnes of carbon dioxide equivalent gas a day.

Stuart Williams, president of ICE Futures Europe, said the decision followed close dialogue with customers during the past few months. It “will help those who rely on these markets to meet obligations and manage climate price risk in the most cost-effective and seamless manner”, he said.

The UK plans to establish its own carbon trading scheme in the first half of the year and has chosen ICE to run the auctions and trading.

ICE moved almost 250 energy futures contracts from London to the US in 2018 in response to customers seeking to escape the Mifid II rules governing European financial markets.