Environmental Markets: The Next Trillion-Dollar Opportunity

Welcome to SCTV.

Environmental markets have evolved from a niche policy conversation into a significant global commodity class, and as institutional capital continues to flow into carbon, biofuels, and water, understanding the actual mechanics as well as economic strategies shaping these markets has never been more essential for the modern.

Portfolio here to provide a detailed look at how these assets operate in practice and also balances sustainability with performance is Owayne Johnson, global head of research and product development at CME Group and also author of the new book 40 Classic Trades in the Environmental Markets.

So Wayne, great to have you here.

Thank you so much for joining us.

Well.

Most people think environmental markets are just combined paperwork for big corporations, but I understand that your book, you profile 40 real life transactions here.

So what is the number one way that traders are actually looking at profits out of carbon as well as green assets in today's environment?

I think it's a it's a great question because.

Profit shouldn't be a dirty word.

If we want people to get involved and to trade in these markets and develop new environmental markets, somebody's gonna need to get paid at some point.

So I think it's, it's important that you can make money, that you can profit from improving the environment because it will motivate more and more people to do that.

So I think it's really exciting to see the development of markets in this area, because we know that markets work, they deliver good outcomes.

So the more markets there are, the better for the environment.

And I do want to dive into the water market.

We all know water is an essential element for life on planet Earth.

So how does a water trade actually work in real life, and is water becoming a genuine investment asset or just an ethical landmine for Wall Street?

It's a, it's a difficult one because you, what you need is a very well designed market for that to work, for the benefit of everybody.

But the A customer of ours, he likes to say that water at the moment is allocated by litigation rather than by benefits, and that's not really a good way for any resource to be allocated.

Ideally, the resources should flow efficiently to the people who want them most and can make best use of them.

So some form of market mechanism can be really helpful.

It's not gonna work in every case, it's not gonna work in every market or every country, but there are times where bringing a price to something makes people think a little bit more about how they use it.

We all know that in our own homes, that when there's a cost to something, suddenly you're a little bit more careful about how you use that scarce resource.

So I think that's where markets can come in.

Let's move on to carbon markets, O Wayne.

So there is a split between government mandated compliance carbon markets as well as the voluntary markets.

So when it comes to liquidity as well as price discovery, tell us what's happening when it comes to the carbon markets.

So the biggest markets out there are the government mandated schemes, whether it's in the EU or the US, Canada, or in China, those are enormous markets already, uh, but the potential for the voluntary carbon market is really quite impressive as well because it touches on all of us, it's the kind of thing where you can offset your journey when you're flying or when you're driving or your household consumption.

So, it's a potentially gigantic market.

We just need to get the public awareness and the confidence, right, and that market could become one of the biggest markets on the planet in years to come.

And I do want to get your perspective on biofuels as well, especially ethanol as well as bio diesel, and how they're affected by agriculture as well as regulation.

So, when it comes to commodity traders here, walk us through the price disconnect between traditional crude oil as well as green biofuels.

So what we see is that when crude oil rises, as it has done with recent geopolitical events, it will pull up those agricultural inputs, so that could be ethanol from corn, it could be uh biodiesel, so it will pull those prices up.

And that does deliver additional value to farmers.

Now, there are clearly concerns about whether or not those uh energy uses are competing with food uses.

So I think what we're excited to see is the development of new generations of biofuels that rely on waste or on products that are not directly going into the food chain.

I think the potential there is enormous to give.

An alternative to traditional hydrocarbons, but also to enhance revenue for farmers, opportunities for farmers, and to make use of products that would otherwise go to waste.

That's a really exciting part of the economy right now.

And finally, O Wayne, before I let you go, your new book 40 Classic Trades in the Environmental Markets, who's this book for?

It's what I would say anyone with an interest in the environment, but also anyone that's interested in how markets work and how they're created, some markets are created by governments, some are created by companies, some are just an accident of fate.

How does a market get going?

And then what can a market deliver?

We know that markets are a really efficient way of allocating resources, so that's a really good way of helping the environment.

We know that exchanges are a great way of hosting markets.

And so that's something we've been working on with the UN Sustainable Stock Exchanges initiative is to try to get markets spread as far and wide as possible through traditional stock exchanges so that investors and anyone with an interest can access these markets and can help to generate change and potentially make some money as well.

Well, Wayne, thank you so much for joining us.

Congratulations on your uh publication.

We appreciate you joining us today for SSCTB.

Thank you so much.