ClearBlue Markets Launches New EU ETS Behavioural Analytics Model

ClearBlue Launch New EU ETS Behavioural Analytics Model - Carbon Herald
Image: ClearBlue Markets

The European Union Emissions Trading System (EU ETS) is perhaps the most impactful and sophisticated carbon market at the moment, but this has also increased its complexity. Coupled with the expected fundamental shifts in its development, this prompted ClearBlue Markets, one of the most prominent carbon market intelligence companies, to develop a new analytics model called Vantage Behavioural Insights.

According to ClearBlue Markets the EU ETS will undergo significant changes, with a growing role for industries and transport and a reduced focus on utilities and fuels, companies taking part in the EU ETS will have a host of new variables to contend with when it comes to managing their emissions allowance strategies and risk.

ClearBlue Markets’ Approach to the EU ETS

A product co-developed with longstanding partners SparkChange, Vantage Behavioural Insights is designed to tackle these challenges by providing a suite of tools that provide both a granular view of supply and demand dynamics, as well as guidance on the impact of existing and future policies on how market participants behave.

“By combining our carbon data analytics and insight, as well as our technology platform with their deep insight on the behavioural side of the marketplace, we developed a cutting edge product,” says Fiona Oliver-Glasford, Chief Revenue Officer of ClearBlue Markets.

On top of reducing share of deficit, the power sector is also shortening hedge horizons. Source: ClearBlue Markets

Jan Ahrens, CEO of SparkChange, adds: “When we build a mental model framework to assess how this market will unfold, it’s all about sensitivities and scenarios. How will change to the system impact supply and demand and prices? How severe will those changes be? How are the different options on the table impacting the mechanics of this market? This is what the tool is built for.”

One of the key features of the tool are the more than 30 company clusters, whose trading behaviour can be analysed, providing a high degree of relevance to companies from different industries and of different sizes.

“There’s a difference whether you are a large Western European utility compared to a small Scandinavian utility or if you are a large cement company from Northwest Europe compared to a family owned cement company in say Greece. We have different behavioral profiles and different data sets for those and you can look at how your peers are doing. [This helps with questions about timing]. Am I ahead of time? Or am I behind? How are they managing their carbon price exposure?

And you can also get inspiration. How do other companies hedge this? What are the strategies out there? [Are they] doing outright, long term hedges or are they doing everything on options. [With this] we can also help companies shape their hedging strategy,” says Ahrens.

Surplus will not be high enough anymore in the future to allow companies to hedge large scale volumes (as they did in the past) and allow investors to furthermore participate in the carbon market with speculative length. Source: ClearBlue Markets

Policy and risk management

As a largely policy driven market mechanism, the EU ETS is susceptible to laws and regulations that are already enacted but also to those being discussed and developed. The introduction of the Carbon Border Adjustment Mechanism (CBAM) is set to redraw the relationships with external partners, while the inclusion of maritime transport and the phasing out of free aviation allowances will have a significant impact on supply and demand. Keeping abreast with these and other policy shifts is one of the valueble features of Vantage Behavioural Insights.

Jan Ahrens explains this by saying: “If there’s a policy decision looming, or when there is a discussion around certain reforms, this decision can be a really risky one. [We analyse] if it will cause huge or small swings. The models can assess risk and trends, supporting your decision-making.”

And that is indeed what it ultimately comes down to – risk management. The three modules of Vantage – Market Intelligence, Position Manager and Voluntary Insight – allow companies to develop their own flexible scenarios, predicting a range of future market conditions.

You can learn more about the platform here.

Read more: ClearBlue Markets Launches The Sustainability Leader’s Guide To The Voluntary Carbon Market

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